And if you detect the pattern fast enough, you can figure out where the stock is going to reap profits.
Some screening variables are designed to find technical stock patterns, including
- Average daily volume: Some investors think if there’s heavy trading in a stock when it rises or falls, that means more than if there’s light trading volume. If a stock goes up, these investors look at trading volume to find out how many investors are buying. If the stock is rising and trading activity is strong, that tells these investors there’s great demand for the stock and the uptrend might continue.
- Moving averages: This indicator tells you whether the current stock price is higher or lower than where it has been in the past. The 200-day moving average, for instance, tells you what the stock’s average price has been over the course of the past trading year. If the stock falls below the 200-day moving average, some see that as a bad sign because it means everyone who bought the stock in the past year, on average, is losing money and might be eager to sell.
- Stock’s price highs and lows: You can use screens to find out whether a stock’s price is close to its high price over the past year, called the 52-week high, or its low price, the 52-week low.
- Stock performance: This is a simple measure that shows you how much the stock has risen or fallen in a set period of time.
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