Tuesday, June 4, 2013

How to Use Relational Analysis - Part 2

MetaStock SPRS Series - Week 121 - TechniTrader® Stock Discussion for MetaStock Users - How to Use Relational Analysis - Part 2 - June 4, 2013
By: Martha Stokes C.M.T.

Relational Analysis™ takes your basic technical skills to a professional level. The pros analyze more than just a stock chart. That is only the beginning for a trader working independently or for a Sell Side or Buy Side institution. There are other factors that determine whether the stock is the ideal candidate for trading or not.

Risk Analysis is a big part of Relational Analysis™ because risk is always at the forefront of pro trading and helps to quickly eliminate stocks. Rather than taking the approach that most retail traders take, which is trying to FIND a stock to trade using, news, recommendations, or other commonly overused strategies, pros keep a watchlist of stocks and then study the risk factors.

Studying the risk versus the potential realistic gains using Run Gain Point Potential and/or Target Gain Potential eliminates the emotions or personal bias in selecting stocks to trade. 3/1 to 5/1 potential points gained to points at risk is a solid risk ratio. Most retail traders use 2/1 or 1/1 or even ½ to 1 which automatically increases their chances of a losing trade.

Here is a chart example:
Relational Analysis™ that includes Risk factors would quickly assess these aspects of the chart:
  1. Are the runs lengthening or shortening in terms of number of days and points gained?
  2. Are the candles shrinking in size or lengthening?
  3. What is the total run gain average per run?
  4. What is the potential run gain for this next run and how many days?
  5. What resistance will halt the run and at what price?
With these risk factors quickly determined, a potential gain is estimated and the risk based on technical support can be used to calculate your risk ratio.

It is not about what candlestick pattern, what indicator crossover you find, it is about using professional level skills and tools to quickly eliminate those stocks that do not have sufficient risk to profit potential for consistent profitable trading.

Trade wisely, 

Martha Stokes, C.M.T.
For more information email: info@technitrader.com
Member of Market Technicians Association
Master Rated Technical Analyst: Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
MetaStock Partner
©2013 Decisions Unlimited, Inc.

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