Just wondering... been investing on fundamentals/value for a while, but ventured into TA as of late. Hits and misses as is to be expected with TA, but I cut the losses very quickly (1-2%) and try to hang onto the more fortunate picks. It certainly shows potential so far. Only read 1.5 out of 4 books on my list, but have already amassed a fair amount of knowledge regarding charting. Latest pick (which I still am holding onto, picked up in the mid 70s a couple weeks ago) is MIDD. It did a whole pretty triangle thing on the chart and then took off busting past resistance like nobody's business. Hopped on that train and it's been fun.
Here's a brief booklist of investment books I have read or will be reading: Extraordinary popular delusions and the madness of crowds by Mackay. Not a stock market book per se, but rather a good read on crowd psychology. Security Analysis by Ben Graham. Warren Buffet learned his skills from this guy. Value investing focused, but an excellent read. TA books: Technical Analysis for Dummies -- don't let the title fool you, it's a pretty in-depth introduction, with lots of useful information. Technical Analysis of the Financial Markets by Murphy. 542 pages of text book on TA. Must-read. The Master Swing Trader by Farley. Have only browsed it so far, but several very skilled traders have recommended it. Technical Analysis Explained by Pring. As above, highly recommended by people in the trade.
I've been trading for a while, but I consider myself a value trader rather than technical. The Security Analysis book by Graham that you mention is quite a challenge, but it really is the Bible of the value philosophy. I could read that thing several times and still stumble around the topic. Between the lines, it also shows how easy it is for accountants to lie. There's another one by Graham called "The Intelligent Investor." It's much more accessible. 25 years ago (that's a disclaimer) I took a college course on investing. There were several studies that examined technical analysis that showed no advantage. Generally, the explanation was that technical techniques were sufficiently accessible to enough people that the economy would reduce their value to near zero. If everyone knows the secret, there's no secret, eh? Personally, I believe that the psychology books do provide value, though. Markets are efficient, but people are emotional. That's why diet fads can build companies that get big in 18 months and die in 5 years. TA is good for finding stuff like this, but there's still a lot of feel in it. I'm reluctant to consider TA for anything beyond the attention span of an 18-year-old. Use TA for teen clothing, and value measurements for 80-year-old industrials (which are the kinds of companies that Graham and Buffet made their reputations on - you won't find Buffet investing in The Limited Too.) I use them both. If you focus on TA, you focus on emotion. If you focus on value, you ignore emotion. Graham and Buffet were living in a time when industry was everything - production was more important than marketing. Today, consumer decisions have a lot of emotion in them. There is no value investing justification for buying stock in Google. There's no technical justification for investing in Altria (formerly Phillip Morris). I've used technical reasons to get out of Phillip Morris several times, and regretted it each time. Another example of emotion: why didn't everyone buy a WRX in 2002 or 2003 when they hit the US? We all know that they're awesome cars . But that bugeye was ugly. It's looking more stylish today (although I've come to love my bugeye). It's selling better today, I think. Sorry. I went and monologued. I had to get the WRX into the thread, though, out of principle. Dean
Interesting post. I am by no means discounting value investing; in fact for buy and hold or longer term investment I would advocate it. Some random thoughts: TA isn't really easily accessible, because it is very subjective. Pick a stock chart and tell me where the trend lines should be drawn, and tell me what rules were used for it, and how I can apply the same rules everywhere. Sometimes it IS fairly obvious, but other times it comes down to what you consider a good timeframe for trends, what constitutes a current up- or down-trend, etc.. not to mention double bottoms, head and shoulders etc; there are no pure definitions of anything, and it all boils down to how you interpret the chart. That said, there's enough commonality that you will get a fair amount of TA people to react to a certain pattern. If, say, an upper support line is fairly 'clear' to chartists and a stock breaks through it on good volume, oodles of TA people will jump on that 'buy' signal which will push it up for a bit; it's a self-fulfilling prophecy in that manner. Now, for the real value: once the chartists get on board and the stock starts to rise (or sink if you're selling short) significantly in a short amount of time, lots of people will start jumping on the bandwagon. This will push it further, until it reaches the point where people in general consider it overvalued. So, my take on TA boils down to: patterns form, chartists spot and act on it, the rest act on seeing the stock move strongly. The key is to spot the trend early on, and get the hell out before you're left holding the bag. Just my $.02... it's all opinions, so take that for what it's worth. edit: For the record, I like to stick to holding a position anywhere between a few days to a few weeks.
OK. There's a bit of contrarianism in what you're describing. Now you're talking. If I can figure out how to take money from the herd, I'm a happy camper. I'm not disciplined enough to work on the horizon of days or weeks. I forget to watch the numbers. I've found that I need to admit a lot about myself. DD
Awakening thread with a recommendation to investigate Parabolic SAR (stop and reverse). It's a pretty kick-ass indicator if you're in a trending market. Use ADX to determine trendiness, then ignore Parabolic SAR sell signals as long as DI+ is above DI-. Wilder knows his shit
Thanks for the book list. I'm interested in actively trading but at this point I don't know jack about investing intelligently. Is there any other primer book you would recommend moose? I'll go ahead and start with "Technical Analysis for Dummies" unless there's more appropriate material out there worth mentioning.
If you don't mind an old skool interface (developed on Windows 95 and Lotus Screencam) Martin Pring has a "Introduction to technical analysis" CD-ROM and workbook available, like $33+ship at amazon. It's quite good as well. Also, Kahn's "Technical Analysis Plain and Simple" is really good. I like his philosophy, that technical analysis is an art supported by practicing a skill... like singing, some people are just better suited for it, but to get really good you need to work hard and study. It's also a very sensible book for getting an idea of what TA _should_ be about: smartly entering and exiting. Most of the books you have to order online, but Kahn's I've seen in a few brick and mortar stores--picked it up at Books-a-million at Discover Mills.
I have an account that I day trade in to pay for my mods. I only follow 3 stocks at a time that way I can get to know the companies real well and trade the swings. I need to thank APCC recently for my rotated setup
so far my avg ROI is 30%/yr. not bad, right?? I need to look into more technical method instead of randomly (but with some thoughts) picking. haha I'll look into your recommendation, moose.
30% a year is more than excellent if you can reliably keep doing it when the market's not as favorable as it currently is. What are your plans for the next bear market?
By the way, software recommendation if you're looking to get serious: Metastock by Equis. It's $499 + $25/mo for data feed, or $59/mo for software+data feed. That's for the EOD (End of Day) version which is all you need unless you daytrade or trade very short term. It comes with a boatload of indicators and systems out of the box, lets you write your own as well (I did a narrowing trading range one over the weekend that shows some promise), backtest systems, figure out which stocks would fit a certain system or which systems would fit a certain stock, etc... lots of nice charting tools like Gann fans and Fibonacci support levels and whatnot, and you can annotate charts in all sorts of way that the program keeps track of.
So far I should say, I got lucky. I usually look for under-performing company. Since I'm not into day-to-day trade, I'm willing to take little more risk over longer time. Seems like it's working out for me. But as you know as far as NEXT bear market... hopefully it will never come, but like I said bear market can be another opportunity for the other bull market. BTW, I'm using sharebuilder, which means I use scheduled transaction instead of instant transaction. So far worked out pretty decent. I might change to e-trade or another one after I build enough equity.
Oh, I guarantee you the next bear market will come. The market moves in cycles and that's not going to change. Key is to identify it when it arrives and either step aside or--if you have the skills and guts--short sell during it...
Bump for today's TA pick: LYV. Showed up on a screen I ran yesterday so placed an order for the open and placed the stops to get me out if it jumped up or dropped. Exited around $23.60 with a tidy profit. If anybody's interested I can do a brief review of support/resistance lines and interpreting them, as well as an introduction to basic pattern analysis and post here later.
Dead forum, but wanted to recommend Goslin's "Tradiing day by day" for anybody who's got a decent understanding of the market and TA. It's a wonderful read.
GREAT SUCCESS! It's a really nice start for TA; move on to Murphy and Pring's more advanced books when you're done. TA is't magic at all, it's just a study of crowd psychology.
Last night's picks were SPLS, UNP and X. I should've followed my gut instinct on X (which said place a stop buy 10 cents above last close) but didn't. SPLS and UNP treated me well though.