I've been investing in stocks for the last 5 years and couldn't be happier with the results, my portfolio has outperformed the S&P in each one of them. My strategy consists in finding undervalued stocks with high cash flows and high earnings yields and hold them until the market recognizes their value, I focus my research in fundamentals due to my accounting background. On the long term the creme always comes on top, but when it comes to short periods of time I have no idea of what is going to happen. Is like in baseball, in a 162 game season the Yankees will find ways to get to the post season but anything could happen in a best to 5 series, there are too many random factors (bugs) that can make the Indians win. How can I build knowledge on short term trading strategies? is technical analysis a useful tool? I personally don't believe in the idea that those Japanese candlesticks have any predictive value, but there might some tools out there that can be useful. Any books that are worth reading? any recommended authors? Your help will be highly appreciated!
Divergence, Divergence, Divergence! **Between price and certain t/a indicators **Between price and the difference of bid/ask traded volume **Between price of one instrument and another of similar correlation
It takes a long time and much study to go from successful investing to successful short term trading. They are very different. And Yes technical analysis is very important for short term trading, and candle sticks are just easier to interpret than bar charts for most people. Both types of charts contain exactly the same information. It is important to learn to interpret one or the other. Candlesticks and bars both have predictive value when considered with other information which you will learn about. An excellent place to start would be Toni Turners book, "A Beginner's Guide to Short-Term Trading." There are many other good books on trading and even more poor ones. But it would be very difficult, if not impossible, to learn everything you need to know from books alone. Beware of anyone selling "Trading Systems." Probably the best way to learn short term trading is to be taught by someone who knows how to do it. Your short term trading education can be very expensive, but doesn't necessarily have to be.
You say that you've been investing for the past 5 years... coincidently it was almost 5 years to the day that the broader market hit rock bottom. While your approach might work in both up and down markets, you might want to do some research to confirm. By incorporating some technical screens (which it sounds like you may do) you should be better prepared for the next major leg down (whenever that happens).
If a bull market: buy support sell at resistance If a bear market: short resistance cover at support ADK
If you track the cumulative affect of the difference between "at market" buyers and sellers to what price is doing, you can spot some great divergence trades.