ReflectionsStock Market 101Fundamental AnalysisStocksTechnical Analysis

Struggles of Shifting to Technical Analysis: Work in Progress(4-min read)

Among the investment plans this year is to sharpen my technical analysis skills. Been a lurker in the stock market since 2007 but never aggressively tried swing trading or short-term trading. I’ve always been comfortable in fundamental analysis and my choice of stocks have yielded good returns within my chosen investment horizons. But then I wanted to expand my skills because I see myself still actively participating in stocks trading and investing beyond my retirement years. To gravitate more on active trading and much less on buy and hold strategies.
For newbies, don’t get me wrong. Stocks investments and trading need not be complicated, but if you are already comfortable with the easy stuff, you will feel that somehow you can take on the more complicated styles.
That was supposed to be going up, wasn’t by rednuht, on Flickr

You might have noticed I temporarily stopped posting my analyses in this site. Well, aside from being busy the past few months with the day job, I haven’t really had much luck with my tsupit choices. Some had gains but the ones where I had to cut losses (-8%) erased the little gains I had.

In short, my tsupit fund is net loss at the moment (I don’t have any short term holdings at this point). Good thing, with Duterte’s victory and improved market sentiment, the market rebounded in general which gave me handsome paper gains for the core holdings, more than enough to offset my paper losses.

There comes my dilemma. It’s like I’m having a sort of identity crisis. I feel the struggles of having to wear two different hats, two different styles. It’s not that fundamentals and TA cannot co-exist, they actually can, but for my tsupit fund, I normally gravitate to 3rd liners and speculative stocks, stocks which Juan won’t normally have for his core holdings, stocks which normally will defy rules of fundamental analysis.

So I surround myself with subject matter experts on technical analysis. Joined FB groups and followed blogs of active stock traders. Some key points I’d like to share:

Trading Plan

These gurus and experts have actual trading plans, and some even devised their own parameters, ways of computing average volumes, entry and exit prices, risk reward ratios, number of months to rebalance or purge the portfolio etc. I used to have this for fundamental analysis where you plug in figures from the AFS but I don’t have one yet for TA. I’m comfortable looking at candlestick patterns, support, resistance, indicators such as stochastics, MACD and RSI etc. I use these in timing my entries but maybe I need to level up my game by being a bit more sophisticated. As one of the gurus I follow always say, “the math will tell you everything you need to know.” I need to study more. Compute more.

Emotions

With long-term investing, it’s much easier to veer away from one’s emotions especially if the stock prices go south, precisely because one is long term, not much urge to take profits or cut losses, because deep inside, one knows that good companies will always appreciate in stock value in the long run. That’s not easily the case for shorter-term trading. In fact, that’s why my tsupit fund is at net loss is because I have a hard time taking profits (greed) but I have no problems cutting losses when I hit -8%. Maybe I’m having a hard time taking in profits because of the long-term investor in me.

Charging Bull - New York City by Arch_Sam, on Flickr
FOMO
Borrowed the term from another guru, ZeeFreaks. I think I’m suffering from FOMO or “fear of missing out” that’s why it’s not so easy for me to take profits even if I’m already up 50% or more in my core holding, because of a deep-seated fear to miss out. What if the stock I’m holding moves 100% more in the next 5 years? There’s this battle within me answering such questions and another one telling me that my goal is to maximize returns, and not to fall in love with a single stock, not to have the bragging rights of staying with a stock from piso to 100.
Such struggles. I also try to get back to my investment objectives and time horizons, and maybe I have to rethink such objectives and horizons. I mean I have regular investment plans in UITF and mutual funds which should take care of my much longer horizons such as college tuition for kids and retirement.
Maybe, just maybe, for my stocks holdings, I can shorten such objectives and horizons, so that I’m more open to short-term trading as well.
Have a trading plan. Remove your emotions and don’t get affected by market emotions. Execute the plan. Being in cash is a risk position. Not having stocks holdings in a given time is not such a bad idea especially if you don’t like what you’re seeing. Opportunities will always be there, whether market is bullish or bearish. Don’t fall in love with a stock. You might miss out on a shooting stock but there will be other stocks to ride to the moon.
Lastly, maybe I need more time to learn the ropes. Time to get more technical.

 

Photos:
That was supposed to be going up, wasn’t” (CC BY 2.0) by  rednuht 
Charging Bull – New York City” (CC BY 2.0) by  Arch_Sam

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