How To Pick Stocks, Part 2. Technical Analysis

Technical analysis involves analyzing charts. Please find a chart of any company from your portfolio and let’s analyze it together step by step.

Step 1. Find the chart

To find the chart click the name of the company. In my case I will use Activision Blizzard, my favorite game production company. You will see the line chart here.

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There are several types of charts such as candle chart, bar, heikin ashi, kagi charts and others. In essence, the chart shows the price at different moments in time and the line is the simplest one.

Step 2. Look at the broader picture

Look at the chart at different periods. The more you know about how a company grew, the better decisions you will make. 

Click the 1-week chart, 1 year and ALL. 

‘ALL’ shows you the whole chart from the beginning of the company. Don’t be surprised to see a very short timeframe in some companies that you’ve been hearing about for quite a while. Some of them have just started trading their shares, like Airbnb or Coursera.

Notice what kind of long-term trend they have. 

Is it growing like in this graph?

Is it neutral?

Or is it declining?

‍It is better to choose companies with a growing long-term trend.

Step 3. Analyze patterns

🌚 Does it mean I should never consider companies with no long-term growth trend?

‍Long-term investment should be based on both fundamental analysis and technical, because a company might have been undergoing changes, the chart would reflect this and it’s now ready to grow with strong fundamentals. In Gainy we consider these factors when suggesting stocks. 

Consider companies with the neutral or declining trend as a short-term investment opportunity. Let me explain with examples. 

If you see a chart like this, where do you expect the price to go?

Logically here. So if you see such a pattern you can buy low and sell high. 

But don’t wait until the last peak. It’s better to sell a little bit before.

Real-life example:

And then it went down.

Another example.
You see the company fell dramatically. Would you buy it?

Yes, because there is often a jump up from the bottom. 

Not only did it jump up from the bottom (1), but it also restored to values before the crisis (2).

Step 4. Compare with competitors and industry

In the stock market everything is relative. Especially to the industry average. 
So in order to understand whether a company has potential, you can click ‘Industry median’ and you will see how the industry grew. 

As you can see in the picture, in one day the industry was growing but Activision had a rather neutral trend and lagging behind the average increase. Thus, we can conclude that it has the potential to reach at least the median. 

Another important feature is to compare with competitors to choose which company has been growing better and more stable. You can do this if you click ‘Compare stock’ and choose the closest competitor (Gainy will help with this too).

In this case, Electronic Arts’ chart looks better because it has a rising trend. 

All in all, chart analysis is a prerogative of traders, who choose it as their profession and devote a lot of time to finding patterns and market timing. If you want to spend less time but still make good choices, then following these steps will help you.

Don’t forget!

If you bought a stock as a long-term investment because you believe in the gaming industry, the company is a leader and has a strong cash flow, then you shouldn’t care about short-term price fluctuations—leave it to traders. You will gain more if you hold it for several years. 

That’s why I’ve already mentioned before that it’s important to set a price goal or time period for the company and not to sell despite dips.

Fortunately, Gainy recommends companies taking into account your time period and yield preferences. We mark ideas like ‘short term’ or ‘long term’ for you so that you better understand predictions on a company and know how to act to have higher returns.

See you,
P.