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In previous, ‘Charting Stocks for Dummies‘ we looked at stock charts that made a quick pop and a one time only event. In this edition we are going to look at a longer term trend and when to figure out if its been busted or not.
Remember that these case-studies are to see if stock trading can really be this easy.
While you might not always see such immediate results, the answer is yes! Technical analysis allows us to execute trades only when a stock has made some sort of confirmation. This drastically reduces the risk of trading.
You can see the below and after charts below…
Before
In the initial analysis of JA Solar (JASO) we were looking for a bounce off the 200-day moving average SMA (red line). Both the MACD and RSI were in neutral positions (marked by blue arrows).
If the stock dipped below the 200 SMA, then that would trigger a sell symbol. A bounce higher would obviously be taken as a bullish signal to buy or continue holding if you already have shares.
After
You can see following the initial analysis (October), JASO jumped higher. While you could have sold and taken profits, many people prefer to hold longer or until a trend is broken. In this case, the trend we are looking at is to remain above the 200 SMA.
Over the next 2 months, JASO consistently found support at the 200 SMA, which lets us know that the current trend is still intact. By remaining to hold until the trend tells us otherwise, we were able to catch JASO on the move from $3.70 to $5.00. A nice 35% gainand you didn’t have to do anything.
So there you have it. By holding on until the trend tells us otherwise we were able execute minimal trades, yet still come out with double digit gains. To learn what to do with this stock at this point and other technical patterns and indicators check out Chart Pattern Manifest.