How to Time the Market With Technical Analysis

They say that in order to make money in the stock market, you have to buy low and sell high. It seems like a simple enough edict and yet, how come so many people fail at investing and end up losing money? Perhaps the reason for this is because no one actually tells you when to buy and when to sell. We are talking about, of course, market timing.

There is great debate on whether or not you can time the market. Some say yes, and some say no. For some people who study the charts, they can see patterns and predict future stock prices. This is called technical analysis. Can technical analysis really be the crystal ball to making money? Or perhaps it is the charts themselves that influence how the market is going to go? If people think that a company's shares are selling at historical highs, the tendency is to pull money off the table until a surge in demand breaks through that resistance and establishes a new high in share price.

Some would argue that anyone can see patterns in the charts if one looks hard enough. It's sort of like looking for animals in cloud formations and anyone with imagination can make it up. Also, past history is not indicative of how the future is going to unfold although it can be a self fulfilling prophecy if investors think that way.

On the other hand, we see trends and patterns in everyday life to give us reason that the same will hold true for the stock market. Have you ever noticed that the price of gas always rises near the weekends and the holidays? And the trend in oil and gas companies is that the price traditionally goes up during the winter and again during the summer driving season. Companies such as these tend to be very cyclical.

The technical analysis of charts can be a good tool used to invest in the market. If you can pick a sector that is cyclical then you should have an advantage over others in making money from stocks.

Nicholas Began is a freelance finance writer. There are lots of systems to make money on the stock market. One way is to follow Warren Buffet's stocks and shares. For more information, visit Warren Buffett's Stock Picks.

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