Boot Camp Day 2
In September, we did a week-long bootcamp program highlighting a few key topics (like position sizing, timing, and handling corrections). That program can be found here. We’re revisiting that concept, except this time with some different topics. Yesterday we talked about fundamental analysis.
Today, we’re talking about Technical Analysis.
Using technical analysis relies less on cash flow and earnings and more on elements related to momentum, trends, and support and resistance. Like fundamental analysis, there is an impossibly long list of ways to analyze a security.
Where to start
When investors think of technical analysis, they think of charts, and I love that eToro offers a Pro Charts feature powered by TradingView — TradingView is my preferred charting platform and you can routinely see me posting their charts on X.
To get these charts on eToro, go to any asset page and click on “Charts.” That chart tab will get users to a basic chart, but for an even richer experience, users can click on “Pro Charts.” Then they can begin to customize!
Investors have to find their style, which is easier said than done. In reality, your style will likely evolve over time. Unfortunately, I can’t go over all of the different approaches, but there are a ton of examples laid out in the eToro Academy.
Here are a few.
Uptrend: Characterized by a stock that’s making a series of “higher highs” and “higher lows.” In other words, the rallies go higher and the dips become more shallow. Here’s a great illustration of this bullish observation using Walmart.
Downtrend: This is the opposite; a trend marked by a series of “lower highs” and “lower lows.” This is generally considered bearish.
Support and Resistance: Support and resistance levels come in many different shapes and sizes. Support zones show where buyers continue to step in on the dips, whereas resistance zones show where the sellers continue to take advantage.
A breakout refers to a move above resistance, while a breakdown refers to a move below support – and both can be useful.
When support breaks, those who are long the stock may consider stopping out of their position to protect their capital. On the flip side, a breakout may give them the signal they need to get long.
Look out the XLC ETF for example, a breakout that we highlighted in mid-September. I’ve added some commentary on the charts to help.
Moving averages: Some of the more popular moving averages include the 21-day, the 50-day and the 200-day. Think of these as “short, medium, and long.”
The 21-day measures the short-term trend, the 50-day measures the medium-term trend, and the 200-day measures the long-term trend. Many traders like to have moving averages on their charts and some will tinker with the time measure until it fits their strategy (for example, using a 10-day or 100-day moving average instead).
The Bottom Line
Technical analysis can be incredibly simple — like what we’ve shown above — or it can be insanely complex. Personally, I like the simple stuff. A few trend lines, clear support and resistance, and a couple of moving averages is usually enough for me.
With enough practice, you’ll be able to identify “your setups” in the blink of an eye. That doesn’t mean it will be profitable, but you’ll get better at recognizing them over time.
Disclaimer:
Please note that due to market volatility, some of the prices may have already been reached and scenarios played out.