Appendix

A

Basic investment decision

Making Based on Chart

Analysis

A.1 USinG TeCHniCAL dATA TO SUppORT

CLienT’S OBJeCTiVe

[Note: Before reading this chapter, the reader should first be familiar with the

concepts and content of Chapter 26.]

Once we have organized all our technical data according to duration, senti-

ment, and instrument, we may proceed to integrate all the available information,

organizing it into a coherent presentation of facts and reasons for various trading

decisions and recommendations.

One important point to keep in mind is that it does not really matter which

outlook, be it bullish or bearish, that market participants are acting upon, as long

as they have clearly defined the potential risks and rewards involved in maintain-

ing a certain outlook on the market or on a stock. This is the most logical approach

that any trader or investor can adopt in the markets, since no one possesses the

ability to actually forecast future market or price action with any certainty.

The next section contains a sample analysis and basic participatory recom-

mendations. It is by no means meant to be exhaustive or comprehensive. It will at

least provide a basic idea of how technical data is used to support various market

outlooks and trading objectives.

The format is as follows:

■ (^) Describe the climate or environment in which the stock is trading in bullish
and bearish terms (i.e., an analysis of the index or broad market)
■ (^) Describe the outlook for the stock in bullish and bearish terms
■ (^) Describe the various participatory options available in the stock with respect
to the risk capacity and expectation
■ (^) Clearly identify actionable price levels in the stock (i.e., entry points, take
profits, and stoploss levels)