Tuesday, June 30, 2009

How Useful Are The Weekly And Monthly Stock Market Charts?

Many investors like to use the daily charts to help them them investment decisions on a particular stock. However there is no question that weekly and monthly charts can provide you with even better trading signals because you eliminate a lot of the day to day market fluctuations.

There are several ways you can use these longer term charts. A common strategy is to use them purely to identify the long-term trend before using the daily chart to gain a good entry point. For instance if the weekly and monthly charts are both in a strong upwards trend, then a good time to buy would be whenever the price is temporarily oversold on the daily chart.

Another strategy is to simply use the weekly or monthly charts themselves to time your entry points. For example a strategy I like to use from time to time is to buy into shares where the EMA (5) has crossed upwards through the EMA (20) on either the weekly or monthly chart.

This tactic can result in some huge gains because whenever these crossovers occur on the longer term charts, you will often get sustained trends in the overall direction of this crossover. These resulting trends can last several months and even several years in some cases. This is particularly true of the smaller growth companies.

You always have a good exit point as well because you can safely leave the trade open until the EMAs cross over again in the opposite direction. It's also easy to cut your losses because if the crossover fails to create any momentum in the price and they cross back down again, then you can simply exit your position with a small loss.

So as you can hopefully see, the weekly and monthly charts can produce some excellent investment opportunities when you use them in conjunction with your favourite technical indicators. It's certainly easier than just using the daily charts because these can fluctuate wildly from day to day and it can be hard to get your entry and exit points right.

The basic rule is that the longer time frame you use, the more you can rely on technical analysis. Of course a lot of investors nowadays simply do not have the patience to hold onto shares for several months or years, but if you are looking for some fairly safe long-term profits, then I can strongly recommend you make full use of the weekly, monthly or even quarterly charts for those big long-term gains.

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