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How To Use Technical Analysis To Beat Computer Trading

The robots have taken over Wall Street...

The robots have taken over Wall Street.

Computer trading – the robotic, pre-programmed buying and selling of stocks by machines – now accounts for nearly 80% of the volume on the U.S. stock exchanges.

For many folks, that’s a frightful statistic. It makes traditional, fundamental analysis useless.

Stocks aren’t moving on the basis of earnings, dividends, or growth rates…

They’re moving based on an algorithm that tells the computers when to buy stocks and when to sell. And, most folks think they don’t stand a chance to profit against the computers.

Most folks are wrong.

You see, most computer trading programs are based on past-price action. They look at the past behavior of stocks and use it to predict where buying and selling pressure is most likely to come into a stock. And, they’re pre-programmed to buy and sell stocks at those points.

But, you can do the same thing using technical analysis (TA). Technical analysis is simply using the past action in a stock to project its future movement. (Click here to check out our new free resources tab, including our glossary and training videos.)

In fact, you can use TA to jump in front of the computers, to anticipate the pre-programmed levels at which the computers will buy and sell, and to profit as the computer then pushes the stock in your direction.

All you need is a basic understanding of the concepts, so that you can identify the most likely spots at which the computers are going to buy and sell, and the right strategy to use in each situation.

The first thing to remember is that stocks only do two things: they’re either trending, or they’re consolidating.

That’s it. They only do those two things.

When stocks are trending higher, they’re making a series of higher highs and higher lows. When they’re trending lower, stocks are making a series of lower highs and lower lows.

And when stocks are consolidating, they’re merely chopping back and forth inside a stable trading range.

By using technical analysis, you can play “connect the dots”… Which means anticipating where the computers are most likely to buy and sell stocks in each of these situations.

Let me explain…

Take a look at this two-year chart of Invesco (IVZ)…

We’ve traded IVZ a few times in my premier options trading service, the Delta Report.

For example, we booked a 100% gain on March 1, 2019, as IVZ was approaching its resistance line. Then, we sold the other half on March 19 for a 150% gain, all while risking less money trading options than buying the stock itself. (To learn more about the Delta Report and the potential to use technical analysis to quickly make large gains, click here.)

The blue lines show when IVZ was trending higher, making a series of higher highs and higher lows. The red lines show a downtrend – when IVZ was making a series of lower highs and lower lows. And, the green lines display consolidating moves – where IVZ is trading within a relatively tight range.

These are the periods when computers were most likely to be actively trading IVZ. They’ll buy when IVZ approaches the support line (the lower line) of the patterns. And, they’ll sell when IVZ approaches resistance (the upper lines).

During larger-scale moves – like the decline in early March of 2020, and the sharp rally in early June – the computers aren’t likely to be active in the stock. There aren’t any easily discernible support and resistance points on large one-directional moves. So, the computers don’t attempt to take a position.

But during those times, where the computers are buying and selling at clear support and resistance levels… that’s the time to strike.

Because once you know how to identify those levels, you’ll actually have the chance to trade ahead of the algorithms… and secure bigger profits along the way.

Best regards and good trading,

Jeff Clark

P.S. I’ve recently discovered this new strategy that helps me beat the computers at their own game. And, I’ll be using this strategy for my next recommendation in my flagship options service, the Delta Report.

This strategy can be applied to thousands of stocks, giving us plenty of opportunities to profit.

Click here to learn how my strategy could help you make large short-term gains – no matter what the computers are doing.