Technical analysis can help you add objectivity to your trading strategy, thereby allowing you to make more disciplined decisions over the long-haul and ultimately improve your profitability and chances of beating the broad stock market.
Below we highlight a number of popular trading strategies, signals, and setups that warrant a closer look from any active investors looking to outperform the traditional buy-and-hold strategy over the long-term. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques:
This occurs when the short-term moving average (5-day blue line) crosses above a longer-term one (20-day red line).
1. Buy After a Bullish Crossover
This occurs when the short-term moving average (5-day blue line) crosses below a longer-term one (20-day red line)
2. Sell After a Bearish Crossover
This is a sign of “oversold” conditions beginning to reverse, generally followed by a rebound.
3. Buy When RSI Crosses Back Above 30 from Below
This is a sign of “overbought” conditions beginning to reverse, generally followed by a correction.
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4. Sell When RSI Crosses Back Below 70 from Above
Watch for the security to establish a higher-low to confirm the rebound and that the bottom is in.
5. Buy After a Security Holds Above a Major Support Level
Watch for the security to establish a lower-high to confirm that it has in fact topped out.
If your long position is trading near the upper-resistance boundary of its longer-term channel, it’s time to lock-in some profits as pullbacks generally follow.
6. Sell After a Security Breaks Below a Major Resistance Level
If your short position is trading near the lower-support boundary of its longer-term channel, it’s time to lock-in some profits as rebounds generally follow.
7. Take Profits Near Resistance
You should generally see a sign of accumulation and an uptrend typically follows.
8. Cover Your Short Near Support
The sort of divergence you see in the chart below is generally bearish and a correction typically follows.
9. Buy When a Security is Trading Sideways with Rising Volume
When a security falls below the lowest point in a “head and shoulders” topping pattern, place a stop loss above the breakout point to avoid severe losses in case of a fakeout.
When a security rises above the highest point in an “inverse head and shoulders” bottoming pattern, place a stop loss below the breakout point to avoid fakeouts. Notice how in this example you would’ve likely been stopped out at the first two breakout attempts, but you still catch the bigger trend on the third try.
10. Sell When a Security is Trading Higher with Falling Volume
This chart pattern is complete when the price peaks, pulls back and then rallies back to very near the first high. The double top is complete, and a short entry is taken when the price falls below the low of the pullback.
This chart pattern is complete when the price bottoms, rallies to a fresh high then pulls back to very near the first bottom. The double bottom is complete, and a long position is taken when the price rises above the high of the first rally.
11. Short-sell the "Head and Shoulders"
Buy when a security breaks above the highest point of a longer-term range that it has been confined in and place a tight stop loss in case the breakout fails.
12. Buy the "Inverse Head and Shoulders"
Sell when a security breaks below the lowest point of a longer-term range that it has been confined in and if you are short-selling, place a tight stop loss in case the breakdown fails.
This signal occurs when the 50-day moving average crosses above the 200-day moving average, confirming an uptrend.
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13. Short-sell the "Double Top"
This signal occurs when the 50-day moving average crosses below the 200-day moving average, confirming a downtrend.
14. Buy the "Double Bottom"
This is a sign that new buyers are stepping in again at a key support level, and rallies typically follow.
15. Buy the Breakout
This is a sign that sellers are still in control, and pullbacks typically follow.
This occurs when a security endures a steep decline, then rebounds to a lower-high point, only to resume its downtrend in the days following. Fundamental analysis can help you identify which securities are “dead cats,” which should be avoided following a steep sell-off, and which ones are undervalued and potential buys.
16. Sell the Breakdown
17. Buy the "Golden Cross"
18. Sell the "Death Cross"
19. Buy After a Security Holds Above a Fibonacci Retracement
20. Sell After a Security Fails to Break a Reverse Fibonacci Retracement
21. Sell the "Dead Cat Bounce"
Disclosure: No positions at time of writing.