Technical Analysis
Although we use fundamental research to decide what to buy, technical analysis can help with timing a proper entry point into investment. It is no secret that timing can play an important role in performance.Technical analysis can help spot demand (support) and supply (resistance) levels as well as breakouts. Simply waiting for a breakout above resistance or buying near support levels can improve returns.
Merit Stocks is well-versed with key technical analysis techniques that can assist in generating investment ideas with better Risk/Reward ratios. One of the advantages of technical analysis is the development of methods of effective risk control that allow greater consistency of profitable results.
In our research we make use of sentiment and monetary indicators. For example, sentiment indicators based on the theory of contrary opinion are used to highlight junctures of potential bullish or bearish excesses which are useful leading indicators of trend exhaustion. Also, monetary and interest rate indicators have proven valuable as leading or coincident indicators of stock prices. All of these important concepts form part of our analytical tool box and are continuously evaluated and tested for profitable investment opportunities.
Key Areas of Focus
- Trend-following techniques
- Momentum
- Rule based systems
- Complex analysis tools
- Relative analysis
Another purpose of technical analysis is to determine the direction of the significant trend and to gain a sense of the probability of any change in trend. The market’s response typically unfolds over time as people perceive the implications of new developments at different rates. Thus, directional trends unfold and persist. Our research reveals that in order to achieve consistently good performance, an effective discipline is needed that goes with major long-term trends, avoids significant losses, and allows for prudent diversification.
What is significant may depend on the individual’s own goals, whether they be short-term trading, long term investing, or something in between. In our experience, the longer-term trends offer a more reliable and profitable focus for investors. Pattern recognition, interpretation and trend lines are supplemented by a variety of statistical calculations purpose of which is to quantify momentum.
