Why Do We Still Need To Read Charts? - Part 3

Why Do We Still Need To Read Charts? - Part 2

Let us take a look at MTQ for a real life example of "under-valued stock" and does chart reading help in making buying decision for TA cum FA investor?

Mr Bolton is mainly a fundamentalist, but uses technical analysis which helps in timing and size decisions. 'If I'm looking at a stock that has done well for seven years, I look at it differently from one that hasn't done well,' he says. 'A stock that has done well has most of the good news in the price. If things change, there are lots of profits that people can take so investors are likely to suffer on the downside.'

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Stock Market - A Greater Fool Theory?

Look at the shaded portion in the chart for price and volume action. It is telling us that many buyers had already bought them very cheap and awaiting to sell to the greater fools. If you look even closely at the price and volume actions after the shaden portion, it has been trading in low volume. It is telling us the earlier buyers have not been able to find greater number of greater fools to sell.

I still like what Anthony said: 'A stock that has done well has most of the good news in the price. If things change, there are lots of profits that people can take so investors are likely to suffer on the downside.'


Look at the chart, does it have evidence of good news in the price?

Are You CEO or CFO?

When you look at your stock, do you just strongly focus on hard numbers and balance sheet, and ignoring other aspects of it; then you are behaving like a CFO.

A good CFO who have broad understanding of other aspects of businesses may have a chance to be promoted to CEO. In real life, we have seen many CFOs been promoted to CEOs.

A CEO goes beyond looking at just hard numbers, he/she looks at other aspects of the businesses such power of branding, product growth, market demand and supply, pricing, etc. He/she is always thinking of how the company can be taken to greater height; unlike the CFO who is always crunching hard numbers to maintain margins.

If you are too focus on FA, then you are a CFO, and doesn't concern on other aspects of a stock such as market liquidity, demand and supply, industry, sector, and stock trend etc.

If you practice the Five Elements Of Investing:

1. FA,
2. TA,
3. Money Management,
4. Risks Management,
5. Emotions Control

then you become a CEO.

TA - Always Two Sides To Every Technical Decision - Part 2

Are you those hardcore retail Value Investors who has always have disdain for TA charting and think that charting are useless?

You have to simply open up your mind a little, things that are useless will soon be discarded through natural evolutionary forces and common senses; and become extinct.

Look back at the natural world, how many creatures have become extinct. Those creatures that are useful to mankind will be around for a long, long time.

If things are still around after many, many years of evolution, then it is somewhat useful.

http://createwealth8888.blogspot.com/2009/11/ta-always-two-sides-to-every-technical.html

http://createwealth8888.blogspot.com/2009/04/wise-words-series-part-3_25.html


We are in the market with one objective - to get better returns for risk taking.

Practise the Five Elements Of Investing:

1. FA,
2. TA,
3. Money Management,
4. Risks Management,
5. Emotions Control

You are on the way to your investing Goals. Cheers!

Technical Indicators?

Technical indicators come in three time zones.


A leading indicator tells what's going to happen -- like the smell of pizza in a box suggests that a meal's near.

A coincident indicator tells what's happening now -- the pizza's being eaten.

A lagging indicator tells what happened -- like an empty pizza box.

But some things don't act as indicators at all -- a pizza coupon in the newspaper doesn't necessarily mean a meal is about to happen, is happening or has happened.

When considering indicators, it's also important to remember that the closer a predictive value comes to 50-50, the less useful it is. You might as well flip a coin.

TA - Always Two Sides To Every Technical Decision

You may look at a chart with your own favourite indicators and system and see one thing, while another person who likes to look for e.g. reversals may look at the chart and see something else or totally different. Every buyer and seller have their own reasons to buy or sell and every transaction is matched between buyer and seller.

So who is right? Well, only the future will tell. You have to keep good record of every transaction you have made, and honestly you asked yourself, are you getting nearer to your trading goals or you are just making some wins and losses here and there and not really accelerating towards your trading/investing goals. Or you are just enjoying trading?

Dow Theory - The Three Phases Of Primary Trends

Investopedia.com – Your Source For Investing Education.

Since the most vital trend to understand is the primary trend, this leads into the third tenet of Dow theory, which states that there are three phases to every primary trend – the accumulation phase (distribution phase), the public participation phase and a panic phase (excess phase).

Let us now take a look at each of the three phases as they apply to both bull and bear markets. Primary Upward Trend (Bull Market) The Accumulation Phase The first stage of a bull market is referred to as the accumulation phase, which is the start of the upward trend. This is also considered the point at which informed investors start to enter the market.
 
The accumulation phase typically comes at the end of a downtrend, when everything is seemingly at its worst. But this is also the time when the price of the market is at its most attractive level because by this point most of the bad news is priced into the market, thereby limiting downside risk and offering attractive valuations.
 
However, the accumulation phase can be the most difficult one to spot because it comes at the end of a downward move, which could be nothing more than a secondary move in a primary downward trend - instead of being the start of a new uptrend. This phase will also be characterized by persistent market pessimism, with many investors thinking things will only get worse.
 
From a more technical standpoint, the start of the accumulation phase will be marked by a period of price consolidation in the market. This occurs when the downtrend starts to flatten out, as selling pressure starts to dissipate. The mid-to-latter stages of the accumulation phase will see the price of the market start to move higher.

Figure 1: the accumulation phase

A new upward trend will be confirmed when the market doesn't move to a consecutively lower low and high.

Public Participation Phase

When informed investors entered the market during the accumulation phase, they did so with the assumption that the worst was over and a recovery lay ahead. As this starts to materialize, the new primary trend moves into what is known as the public participation phase. During this phase, negative sentiment starts to dissipate as business conditions - marked by earnings growth and strong economic data - improve. As the good news starts to permeate the market, more and more investors move back in, sending prices higher. This phase tends not only to be the longest lasting, but also the one with the largest price movement. It's also the phase in which most technical and trend traders start to take long positions, as the new upward primary trend has confirmed itself - a sign these participants have waited for.

Figure 2: the public participation phase

The Excess Phase

As the market has made a strong move higher on the improved business conditions and buying by market participants to move starts to age, we begin to move into the excess phase. At this point, the market is hot again for all investors. The last stage in the upward trend, the excess phase, is the one in which the smart money starts to scale back its positions, selling them off to those now entering the market. At this point, the market is marked by, as Alan Greenspan might say, "irrational exuberance".

The perception is that everything is running great and that only good things lie ahead. This is also usually the time when the last of the buyers start to enter the market - after large gains have been achieved. Like lambs to the slaughter, the late entrants hope that recent returns will continue.

Unfortunately for them, they are buying near the top. During this phase, a lot of attention should be placed on signs of weakness in the trend, such as strengthening downward moves. Also, if the upward moves start to show weakness, it could be another sign that the trend may be near the start of a primary downtrend.

Figure 3: the excess phase

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CreateWealth8888:
 

I believe Accumulation phase is over. So are we still in public Participation Phase or already in The Excess Phase? Recognizing it can make a huge difference to your portfoli management.

Why Do We Still Need To Read Charts? - Part 2

Why Do We Still Need To Read Charts? - Part 1

I am hearing it again. Charts are irrelevant!

Who's Anthony Bolton?

From Wikipedia, the free encyclopedia

Anthony Bolton (born 7 March 1950) is one of the UK's best known investment fund managers and most successful investors, having managed the Fidelity Special Situations fund from December 1979 to December 2007. Over this 28-year period the fund achieved annualised growth of 19.5%, far in excess of the 13.5% growth of the wider stock exchange, turning a £1,000 investment into £147,000

In his book - Investing Against the tide.

Read chapter 12 - Technical analysis and the importance of charts.

"The truth is more important than facts" -  Frank Lloyd Wright

This is what the chart is telling at the moment - the truth.

If you think you are wiser than the two gentlemen, forget about the book.

Anthony said:

Although at heart I'm a fundamentalist I have definitely found that the combination of two approaches seems to work better than just one on its own. A few years ago I spoke at a technical analysis conference and said that if I was on a desert island and was only allowed one input for my investment decisions, it would be an updated  chart book. I think today  I would still be of the same opinion. The trouble with fundamental data is that I can't single out only one source that on its own would be sufficient. I could, if pushed, run a portfolio with just a chart book - although on a desert island, it wouldn't be high up on my list of survival items.

I look at technical situation as a summation of all the fundamental views available on a stock at that particular moment and it can sometimes be a warning signal of problems ahead. In the world where every professional fund managers knows that at least two out of five share picks will not work out as they hoped this is very useful.

The largest companies are often the most complex and also the most difficult to analyze and, with these, the charts can be most useful in indicating something that is being missed.
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CreateWealth8888:


I believe only the likes of Warren Buffet may have the means to say that charts are irrelevant. Why?

http://createwealth8888.blogspot.com/2009/08/are-you-buying-into-business-or-just.html

Another thing that really puzzle me most - why do hard core value investors think that by reading charts turn them into traders? LOL

So are you ready to read charts?

Why Do We Still Need To Read Charts?

Some real hardcore retail Value investors will argue charts are not helpful and they don’t care about charts as holding the stock for long term makes charts irrelevant.

But to the rest of us charts are the best way to judge the emotions and psychology in the market as stock prices are primarily driven by investors' sentiment. Stock prices move because of what the Big Boys (Market Sharks) are currently feeling and thinking, and not just because of the fundamental numbers that have been released to the market.

The stock market is never a level playing field and will never be. The Sharks will always be more connected, better informed, and mostly likely jump in ahead on the rest of us. When they act, stock prices move, and the movement can be so drastic that leave you with your mouth open wide. But these Sharks will leave behind their footprints on a stock chart when they move and for you to study how other sharks will move.

Price and Volume Action

Basically by watching the chart for price and volume action, we may have ideas of what the Sharks are doing. When a stock price moves on a big surge in the volume and it is telling us that a lot of investors have suddenly become interested or disinterested and desperately want to get in or get out.  And if you happen to be holding the same stock that is experiencing drastic price movement; it is sooner or later you will be either smiling or weeping.

Who Moves My Market? - Part 2

http://createwealth8888.blogspot.com/2009/10/who-moves-my-market.html

See the comment from Gohsip:


Gohsip: Uncle8888: 'If you look at my charts posted with those technical indicators, they are just there to confuse people. LOL.' You damn funny la!

I am Funny meh? What is right about these technical indicators?

If the Sharks like a particular stock and probably the buy decision has to be strongly supported by their analysts or backend research professionals, these Sharks will close their eyes, plug their nose, and just buy whatever being offer at market. When enough Sharks smell the blood in the Market, the stock price is going to drive in one way UP. Similarly, the reverse is true, when the Sharks dislike a particular stock and soon more Sharks will come to join in the frenzy, and everyone will be watching at the falling stock price with their mouth open wide.

After the frenzy actions are over, only then these technical indicators will come and show what the Sharks have been thinking?

Is there a better way to watch the movement of Sharks? How about Price and Volume Action in the Time & Sales transaction history? Can we see the Sharks coming?

Any bias or edge in your Market?

Do you have any bias or edge in your Market. What do you do?



You are good at counting the number of marbles (intrinsic value) in the glass jar.


You are a Chartists.

You are married to your Mechanical Trading System and remain faithful or else keep divorcing them.

You can't die so easily and likely to survive



You think you can survive in the market by doing these

If you keeping doing this and don't still not knowing why?


Never mind if this one is your buddy


or else go back and read Do you have any bias or edge in your Market. What do you do?

Fundamental Analysis - working very hardwork on it?

Guess-the-balls test

Hal Spacejock delivers a shipment of antiques, breaking several pieces in the process. His robot, Clunk, skillfully reassembles the broken furniture, and the grateful customer gives them a jar of ancient marbles.

This jar is 60cm (2 feet) high, with a diameter of 36cm (approx 14 inches). It is completely filled with marbles, each of which is 2.5cm (1 inch) in diameter.

Using that information... how many balls does Clunk have

If you use fundamental analysis, can you really work the number of balls (i.e. intrinsic value)? You work very hard, calculating this and that and try to work out the reasonable number and you think that this is the intrinsic value as you trust that it is completely filled with marbles.

But, you will never know what the Management has hidden inside the marbles? could be anything hidden to give you the impression it is completely filled.

Working very hard work on fundamental analysis may not actually pay off; unlike working very hard work on your job, your boss may recognise your effort and reward you.

Fundamental analysis is more towards Hygiene Factor, doing more of it may not really improve much but you can't ignore it either. E.g you need to brush your teeth 1-3 times a day for good oral hygiene, but brushing your teeth 4-10 times a day doesn't really help to improve much on your oral hygiene but it may be actually harmful to your gum. You definitely need to do some fundamental analysis but may not be wise to spend hours of hard work in digging out details. You will never know what was hidden inside the marbles.

Back to Guess-the-balls test, you do rough calculation and guess the number of balls, and you look at other players giving their numbers, and based on statistics and you may make some adjustment and you then bet your number. How? Lots of easier now?

Larry Williams - Trading Rules

1. It's all about survival.

No platitudes here, speculating is very dangerous business. It is not about winning or losing, it is about surviving the lows and the highs. If you don't survive, you can't win.

The first requirement of survival is that you must have a premise to speculate upon. Rumors, tips, full moons and feelings are not a premise. A premise suggests there is an underlying truth to what you are taking action upon. A short-term trader's premise may be different from a long-term player's but they both need to have proven logic and tools. Most investors and traders spend more time figuring out which laptop to buy than they do before plunking down tens of thousands of dollars on a snap decision, or one based upon totally fallacious reasoning.

There is some rhyme and reason to how, why and when markets move - not enough - but it is there. The problem is that there are more techniques that don't work, than there are techniques that do. I suggest you spend an immense and inordinate amount of time and effort learning these critical elements before entering the foray of financial frolics.

So, you have money management under control, have a valid system, approach or premise to act upon - you still need control of yourself.

2. Ultimately this is an emotional game - always has been, always will be.

Anytime money is involved - your money - blood boils, sweaty hands prevail, and mental processes are shortcircuited by illogical emotions. Just when most traders buy, they should have sold! Or, fear, a major emotion, scares them away from a great trade/investment. Or, their bet is way too big. The money management decision becomes an emotional one, not one of logic

3. Greed prevails - proving you are more motivated by greed than fear and understanding the difference.

The mere fact you are a speculator means you have less fear than a 'normal' person does. You are more motivated by making money. Other people are more motivated by not losing.

Greed is the trader's Achilles' heel. Greed will keep hopes alive, encourage you to hold on to losing trades and nail down winners too soon. Hope is your worst enemy because it causes you to dream of great profits, to enter an unreal world. Trust me, the world of speculating is very real, people lose all they have, marriages are broken up, families tossed asunder by either enormous gains or losses.

My approach to this is to not take any of it very seriously; the winnings may be fleeting, always pursued by the taxman, lawyers and nefarious investment schemes.

How you handle greed is different than I do, so I cannot give an absolute maxim here, but I can tell you this, you must get it in control or you will not survive.

4. Fear inhibits risk taking - just when you should take risk.

Fear causes you to not do what you should do. You frighten yourself out of trades that are winners in deference to trades that lose or go nowhere. Succinctly stated, greed causes you to do what we should not do, fear causes us to not do what we should do.

Fear, psychologists say, causes you to freeze up. Speculators act like a deer caught in the headlights of a car. They can see the car - a losing trade, coming at them - at 120 miles per hour - but they fail to take the action they should.

Worse yet, they take a pass on the winning trades. Why, I do not know. But I do know this: the more frightened I am of taking a trade the greater the probabilities are it will be a winning trade. Most investors scare themselves out of greatness.

5. Money management is the creation of wealth.

Sure, you can make money as a trader or investor, have a good time, and get some great stories to tell. But, the extrapolation of profits will not come as much from your trading and investing skills as how you manage your money.

I'm probably best known for winning the Robbins World Cup Trading Championship, turning $10,000 into $1,100,000.00 in 12 months. That was real money, real trades, and real time performance. For years people have asked for my trades to figure out how I did it. I gladly oblige them, they will learn little there - what created the gargantuan gain was not great trading ability nearly as much as the very aggressive form of money management I used. The approach was to buy more contracts when I had more equity in my account, cut back when I had less. That's what made the cool million smackers - not some great trading skill. Ten years later my 16-year-old daughter won the same trading contest taking $10,000 to $110,000.00 (The second best performance in the 20-year history of the championship). Did she have any trading secret, any magical chart, line, and formula? No. She simply followed a decent system of trading, backed with a superior form of money management.

6. Big money does not make big bets.

You have probably read the stories of what I call the swashbuckler traders, like Jesse Livermore, John 'bet a millions' Gates, Niederhoffer, Frankie Joe and the like. They all ultimately made big bets and lost big time.

Smart money never bets big. Why should it? You can win big on small bets, see #5 above, but eventually if you bet big you will lose - and you will lose big.

It's like Russian Roulette. You may well spin the chamber holding the bullet many times and never lose. But spin it often enough and there can be only one result: death. If you make big bets you are destined to be a big loser. Plunging is a loser's game; it can only set you up for failure. I never bet big (I used to - been there and done that and trust me, it is no way to live). I bet a small per cent of my account, bankroll if you will. that way I have controlled loss. There can be no survival without damage control.

7. God may delay but God does not deny.

I never know when during a year I will make my money. It may be on the first trade of the year, or the last (though I hope not). Victory is out there to be grasped, but you must be prepared to do battle for a long period of time.

Additionally, while far from a religious person, I think the belief in a much higher power, God, is critical to success as a trader. It helps puts wins and losses into perspective, enables you to persevere through lots of pain and punishment when you know that ultimately all will be right or rewarded in some fashion. God and the markets is not a fashionable concept - I would never abuse what little connection I have with God to pray for profits. Yet that connection is what keeps people going in times of strife, in fox holes and commodity pits.

8. I believe the trade I'm in right now will be a loser.

This is my most powerful belief and asset as a trader. Most would be wannabes are certain they will make a killing on their next trade. These folks have been to some 'Pump 'em up, plastic coat their lives' motivational meeting where they were told to think positive thoughts. They took lessons in affirming their future would be great. They believe their next trade will be a winner.

Not me! I believe at the bottom of my core it will be a loser. I ask you this question - who will have their stops in and take right action, me or the fellow pumped up on an irrational belief he's figured out the market? Who will plunge, the positive affirmer or me?

If you have not figured that one out - I'll tell you; I will succeed simply because I am under no delusion that I will win. Accordingly, my action will be that of an impeccable warrior. I will protect myself in all fashion, at all times - I will not become run away with hope and unreality.

9. Your fortune will come from your focus - focus on one market or one technique.

A jack of all trades will never become a winning tradee. Why? Because a trader must zero in on the markets, paying attention to the details of trading without allowing his emotions to intervene.

A moment of distraction is costly in this business. Lack of attention may mean you don't take the trade you should, or neglect a trade that leads to great cost.

Focus, to me, means not only focusing on the task at hand but also narrowing your scope of trading to either one or two markets or to the specific approach of a trading technique.

Have you ever tried juggling? It's pretty hard to learn to keep three balls in the area at one time. Most people can learn to watch those 'details' after about 3 hours or practice. Add one ball, one more detail to the mess, and few, very few, people can make it as a juggler. It's precisely that difficult to keep your eyes on just one more 'chunk' of data.

(http://createwealth8888.blogspot.com/2009/04/indebtedness-more-to-add-on.html)

Looks at the great athletes - they focus on one sport. Artists work on one primary business, musicians don't sing country western and Opera and become stars. The better your focus, in whatever you do, the greater your success will become.

10. When in doubt, or all else fails - go back to Rule One.

http://www.ireallytrade.com/freetradingtools.htm <--- visit the Larry Williams here

When Market moves, were you be ready?

Remember this in your heart:

"The market is not your mother. It consists of tough men and women who look for ways to take money away from you instead of pouring milk into your mouth." - Dr. Alexander Elder

How do successful Investor/Trader differ from Amateur?

Some important factors to note:

1) Hard work - They spent their time studying the market, companies, industries, and sectors. They understand their businesses. And, the traders will pay more attention to financial news, and market movement. The traders had a keen eye for how their market might be moving, and how the pricing might be changed and try to take advantage of the occasions when it moved from their benchmark.


2) Strategy - They have their own strategy, money management, and risk control skills. They could enunciate his or her specific edge in their marketplace and, in some way could quantify that too.

4) Adaptation - They knew the details of his or her P/L, but also detailed investing/trading statistics. When the stats veered off course, they were quick to make adjustments or re-capitalize their account.

5) Complexity - They understand the nature of adaptive complexity of the Market but the idea of buying/selling is a simple thing, and many expect to come to the Market to make easy money, but they don't.

6) Passion - They view their investing/trading not only as way of making money but they have great passion. They are in this for the long haul, and through years of experience, they always want to advance their education (could be just self learning) in finance or related fields and to understand the ever-changing adaptive complexity of the market. They also know that they must be able to sustain and measure their success across multiple years and market conditions - bulls and bears.

7) Risk and reward - They know how to quantify risk and reward that match their emotions, their current and future financial obligation and not putting their family livelihood at risks.


Yap. For some cyber friends/super friends here starting off or in their mid of their journey in the world of investing/trading, are you ready for the next new bull and the bear?

Why I go fishing?

Fishing and the Stock Market

1. Be on the lake when the fish are feeding. (Know what sectors the market likes.)

Opportunity

2. Don't go fishing when the lake is packed with tourists. You probably won't be able to get near your favorite fishing hole, and even if you do, all those churning propellers will scare the fish away. (If everyone is playing the same stock idea, the easy money has already been made.)

Risk is higher when buyers already push up the share.

3. Come prepared with well-maintained fishing equipment, an adequate supply of bait, lures and sharp hooks, and an extra supply of patience. (Give your best ideas time to work, but don't use margin to see them out.)

Do your homework, i.e. have some profit target and action plan.

4. Don't make noise; you will scare the fish away. (Fidelity never speaks; why should you?)


Buy before others rushing in.

5. Don't fish where there are no fish. Know the structure of the lake and the habits of the fish you are trying to catch. Electronic fish finders can help you locate fish, but it won't make them bite. (If no one else is buying, why should you? Catching falling daggers can kill a dip-buyer.)


Don't waste time on those share that Big Boys are not interested.

6. Despite your best preparations, sometimes the fish just won't bite. (Don't be discouraged; go back to shore and enjoy the day, then come back another time.)

Be patient

Even the best traders are only 60% right. (Just make the winners big ones.)

7. Sometimes you find yourself in the middle of a school of feeding fish. Keep your hook baited and in the water. Correct equipment problems quickly, and get the bait back in the water. (When your stocks are running up, stay with the trend.)

8. When a big one takes your bait or hits the lure, set the hook firmly, keep tension on the line at all times and play the fish until it tires. Keep the landing net out of sight. (Don't sell winners too soon.)

Sell 50% first and let the stock run than sell others later.

9. When a really big one breaks your line, take it in stride. He may still be in the area, so always have a backup fishing outfit aboard. (If a market decline washes out a group, get ready when the group takes off again.)


10. Know when to come back to shore, particularly when whitecaps start to appear or there are storm clouds in the distance. (If the market gets crazy, go to cash while you figure things out.)