NG posits a couple of interesting comments regarding technical analysis, and I wanted to uplift a few and provide my lay person's understanding and use of TA. I wanted to preface this post with something that I read that stuck in my head. I wished that I could remember the attribution: When an indicator becomes widely known; it loses its potency. It is for that reason that I'm very judicious about stop losses. I believe (and perhaps I need a tinfoil hat) that there are predatory programs and market makers that actively seek to trip stop losses. I believe that there are some aspects of the stock market is that are VERY predatory--out of weak hands into strong hands: bought at a bargain price and sold for a handsome profit. My general use of TA is as follows:
For me, TA is a tool in the kit--not the kit. Tom Bulkowski of The Pattern Site has a number of patterns that he has studied, and he provides some exhaustive statistics on the reliability, or conversely, the failure rate of such patterns. Many patterns are little better than a coin toss, and some are remarkably prescient. I believe that there are so many "patterns" that in hind sight, one can always find a technical reason to fit the outcome.
NG notes that many of the big money movers do not use TA. I'm not disputing the fact, but I don't quite reconcile that with the weight that many on the floor (traders interviewed) place on certain technical levels of the indices. I always understood Technical Analysis to be "how one tracks the footprints of the elephants." Accordingly,while the overall indices technical levels may hold merit for most traders who are looking for the overall tone and direction of the market, I totally understand that TA matters not a whit for a large money manager intent on building or reducing a distribution. They, in fact, are the market. One only has to look at the big institutional holders in some of stocks. I've not been very frequent in providing you with some of those snapshots, but I see the weight of some of those holdings.
Personally, I accept that TA is nothing more than a Garmin-like device to help the regular folks (like me) determine what the elephants are doing--and I don't try to make it out to be any more than that. Building a position in company that is under distribution by big money can be disasterous. Similarly, building a position along with the big money is lucrative. And I'm quite certain that this big money doesn't even begin to talk about what they are doing to the investing sheeple (NG, I like that term), until their position is firmly rooted (if accumulating) or uprooted (if distributing). I think that is where the "Sold to you!" statement is appropriate.
(As an aside--a very cynical aside: if T. Boone Pickens comes on and says he's short oil, you go long. If he says that he is long oil, you go short. When he shakes his oil shaman gourds, it's best to trade in the opposite direction--I think that you'd be with him rather than "agin' him").
2nd_Ave notes that he uses sentiment indicators. 2nd, while I would see that these indicators would be useful for overall market tone, I'm not sure I understand how one uses it as a finer gauge for picking individual stocks--though I suppose one could apply it to sectors. I'm a bit of a natural contrarian. Frankly, I find it to be a detriment....well, it would be less of a detriment if I remembered that moves can go further and longer than you might expect. Perhaps I should say that my early and contrarian tendencies tend work against me! The "be fearful when others are greedy and greedy when others are fearful" is something that I try to invoke. I'd love to hear you speak a bit more about how you use sentiment.
The very best success that I've had--my post profitably investments--have come from my doing my own homework and finding sectors and stocks that are attractive and overlooked--but appear to have some promise with some steady basing. For example, in oil services (2nd, you'll remember this from BC's blog, because I posted there). I researched most of the companies in oil services, and I figured that if you wanted to capitalize on oil services, rather than buy one over the other (and we know how volatile individual names are), buy someone who sells 'stuff' to them. Well, MVK, HYDL, LSS, NSS were all companies that sold to them. And I was in them. NOBODY talked about them. Not one of these names were ever mentioned by one soul on TV or anywhere else. But they exploded, and I had options and I systematically took profits. They went up, up, up. (and I still had options) and then they imploded. My gains exceeded my losses, but I lost money at the final implosion. I should have been fearful when others were greedy. I was not very skilled then--it was two years ago. And when these names were wallowing back down to earthly prices, EVERY SINGLE ONE OF THEM were bought out for a premium that was close to their highs (though they fell far indeed). SEED was an example of my entering into a stock that I did my own research on (I spent an entire weekend studying all of the stocks in the Halter Index). I never heard another soul speak about it (that I'm conscious about). Then it went up, up up...and I got out.
I think that scaling in and out of positions is a very disciplined approach--too often I used to go in with a large position. Then, when it would "go against me" though it was a harmless pull back, I would get "sceered!". Tranching in keeps your wits about you and average in at advantageous prices--or get out early if you've screwed up! Tranching out helps you average out at advantageous prices. I have a long way to go before "practice makes perfect." I just need to practice.
Ultimately, we all have to look at our comfort level and our skills. Further, we have to be crystal clear about our time frames and the amount of risk we are willing to undertake. I guess finding one's "edge" is critical. My edge is that I have a high tolerance for sifting through lots of information and finding the nuggets before most do. The corollary to finding your 'edge' is to also find your Archilles heel. I have two feet, and I have two heels. Heel 1: impatience. Heel 2: lack of confidence. Heel 1 is a DNA quirk that I work daily in my personal life to tame. It's no wonder it spills over into investing life. Heel 2 is more of a lack of experience, and the feeling of "how can lil' ole' me have a better idea than Wall Street?". I'm beginning to realize that because I'm just a lil' ole' me that does put me at an advantage. Nevertheless, I'm clear that if my "thesis" does not catch on, then the money is dead money. I'm going to try and model Gemmastar's wonderful stick-with-it-ness on stocks that she likes.
Personally, I don't like being in names that are extended even though the mo-mo money is there. I don't read IBD anymore--if everyone is looking at the same thing, what can possibly be your edge? I don't think that you can have one.. I think that traders are in those names because they are mo-mo. These are not investor stocks, IMV. I don't like being in the stocks that everyone is talking about on TV. I like finding the quiet names that have great fundamentals but not much star power but have stable charts (meaning they are not extended and it looks like there is a solid floor). I was in TNH before anyone ever heard of it. At $19. Now look at it. I didn't go along for the ride because I was in TNH when I lacked confidence in my own discerning abilities. But I was in it at a time when there was no reason for my having any confidence in those abilities. Today, I'm much more confident in my discerning abilities. What I lack is patience at times, and that is my number 1 priority this year to develop. Oh, and not to become overconfident!
My opinion of "gut instinct" is this: If you really want to trust your gut, you'd better have experience in that which you are applying your instincts. Our "gut" instincts are a confluence of many things--emotional, intellectual, experience. IMV, experience is the great validator of our emotional/intellectual decisions. You cannot have a well calibrated gut if you have no experience. And that experience means that you have an a$$ kicking or two--and absolute disaster--and you have successes. When you've a bevy of experiences,both good and bad, then your gut can give you some good feedback. Otherwise, it is an uninformed hunch--though one that could bring great rewards!
Don't get me wrong, I'm a big believer in gut instinct and in the business world, my gut was wonderful. I had a colleague that would call me "The Oracle". (Malcolm Gladwell of Tipping Point wrote Blink that spoke of this phenomena. But that moniker was hard won, and I've the gray hairs to prove it.
Writing this post in response to these good comments has been very helpful to me in clarifying some "to do" list items--one is to bring my Logical Trader book back to my desk, and find my Excel Worksheet--Oh, and write a post on it.
- Identify support/resistance. This single use has saved/made me more money.
- Look for over extended pricing: I never buy over extended stocks. I know people make money doing, so, but it goes against my nature, and I cannot managed those positions well.
- Accumulation/distribution: I like to find stocks that are not on the radar screens of others and are showing (to my eye) accumulation AND whose fundamentals I understand and I think are good. I like to look for distribution to see if I've any risk--OR if there is an over-reaction to some news driven event that might provide an opportunity.
- Overbought/oversold conditions: I do like to look at these for the broader market first, and then for individual stocks.
- Regardless of good price volume indicators, I NEVER buy a stock whose fundamentals I do not like.
For me, TA is a tool in the kit--not the kit. Tom Bulkowski of The Pattern Site has a number of patterns that he has studied, and he provides some exhaustive statistics on the reliability, or conversely, the failure rate of such patterns. Many patterns are little better than a coin toss, and some are remarkably prescient. I believe that there are so many "patterns" that in hind sight, one can always find a technical reason to fit the outcome.
NG notes that many of the big money movers do not use TA. I'm not disputing the fact, but I don't quite reconcile that with the weight that many on the floor (traders interviewed) place on certain technical levels of the indices. I always understood Technical Analysis to be "how one tracks the footprints of the elephants." Accordingly,while the overall indices technical levels may hold merit for most traders who are looking for the overall tone and direction of the market, I totally understand that TA matters not a whit for a large money manager intent on building or reducing a distribution. They, in fact, are the market. One only has to look at the big institutional holders in some of stocks. I've not been very frequent in providing you with some of those snapshots, but I see the weight of some of those holdings.
Personally, I accept that TA is nothing more than a Garmin-like device to help the regular folks (like me) determine what the elephants are doing--and I don't try to make it out to be any more than that. Building a position in company that is under distribution by big money can be disasterous. Similarly, building a position along with the big money is lucrative. And I'm quite certain that this big money doesn't even begin to talk about what they are doing to the investing sheeple (NG, I like that term), until their position is firmly rooted (if accumulating) or uprooted (if distributing). I think that is where the "Sold to you!" statement is appropriate.
(As an aside--a very cynical aside: if T. Boone Pickens comes on and says he's short oil, you go long. If he says that he is long oil, you go short. When he shakes his oil shaman gourds, it's best to trade in the opposite direction--I think that you'd be with him rather than "agin' him").
2nd_Ave notes that he uses sentiment indicators. 2nd, while I would see that these indicators would be useful for overall market tone, I'm not sure I understand how one uses it as a finer gauge for picking individual stocks--though I suppose one could apply it to sectors. I'm a bit of a natural contrarian. Frankly, I find it to be a detriment....well, it would be less of a detriment if I remembered that moves can go further and longer than you might expect. Perhaps I should say that my early and contrarian tendencies tend work against me! The "be fearful when others are greedy and greedy when others are fearful" is something that I try to invoke. I'd love to hear you speak a bit more about how you use sentiment.
The very best success that I've had--my post profitably investments--have come from my doing my own homework and finding sectors and stocks that are attractive and overlooked--but appear to have some promise with some steady basing. For example, in oil services (2nd, you'll remember this from BC's blog, because I posted there). I researched most of the companies in oil services, and I figured that if you wanted to capitalize on oil services, rather than buy one over the other (and we know how volatile individual names are), buy someone who sells 'stuff' to them. Well, MVK, HYDL, LSS, NSS were all companies that sold to them. And I was in them. NOBODY talked about them. Not one of these names were ever mentioned by one soul on TV or anywhere else. But they exploded, and I had options and I systematically took profits. They went up, up, up. (and I still had options) and then they imploded. My gains exceeded my losses, but I lost money at the final implosion. I should have been fearful when others were greedy. I was not very skilled then--it was two years ago. And when these names were wallowing back down to earthly prices, EVERY SINGLE ONE OF THEM were bought out for a premium that was close to their highs (though they fell far indeed). SEED was an example of my entering into a stock that I did my own research on (I spent an entire weekend studying all of the stocks in the Halter Index). I never heard another soul speak about it (that I'm conscious about). Then it went up, up up...and I got out.
I think that scaling in and out of positions is a very disciplined approach--too often I used to go in with a large position. Then, when it would "go against me" though it was a harmless pull back, I would get "sceered!". Tranching in keeps your wits about you and average in at advantageous prices--or get out early if you've screwed up! Tranching out helps you average out at advantageous prices. I have a long way to go before "practice makes perfect." I just need to practice.
Ultimately, we all have to look at our comfort level and our skills. Further, we have to be crystal clear about our time frames and the amount of risk we are willing to undertake. I guess finding one's "edge" is critical. My edge is that I have a high tolerance for sifting through lots of information and finding the nuggets before most do. The corollary to finding your 'edge' is to also find your Archilles heel. I have two feet, and I have two heels. Heel 1: impatience. Heel 2: lack of confidence. Heel 1 is a DNA quirk that I work daily in my personal life to tame. It's no wonder it spills over into investing life. Heel 2 is more of a lack of experience, and the feeling of "how can lil' ole' me have a better idea than Wall Street?". I'm beginning to realize that because I'm just a lil' ole' me that does put me at an advantage. Nevertheless, I'm clear that if my "thesis" does not catch on, then the money is dead money. I'm going to try and model Gemmastar's wonderful stick-with-it-ness on stocks that she likes.
Personally, I don't like being in names that are extended even though the mo-mo money is there. I don't read IBD anymore--if everyone is looking at the same thing, what can possibly be your edge? I don't think that you can have one.. I think that traders are in those names because they are mo-mo. These are not investor stocks, IMV. I don't like being in the stocks that everyone is talking about on TV. I like finding the quiet names that have great fundamentals but not much star power but have stable charts (meaning they are not extended and it looks like there is a solid floor). I was in TNH before anyone ever heard of it. At $19. Now look at it. I didn't go along for the ride because I was in TNH when I lacked confidence in my own discerning abilities. But I was in it at a time when there was no reason for my having any confidence in those abilities. Today, I'm much more confident in my discerning abilities. What I lack is patience at times, and that is my number 1 priority this year to develop. Oh, and not to become overconfident!
My opinion of "gut instinct" is this: If you really want to trust your gut, you'd better have experience in that which you are applying your instincts. Our "gut" instincts are a confluence of many things--emotional, intellectual, experience. IMV, experience is the great validator of our emotional/intellectual decisions. You cannot have a well calibrated gut if you have no experience. And that experience means that you have an a$$ kicking or two--and absolute disaster--and you have successes. When you've a bevy of experiences,both good and bad, then your gut can give you some good feedback. Otherwise, it is an uninformed hunch--though one that could bring great rewards!
Don't get me wrong, I'm a big believer in gut instinct and in the business world, my gut was wonderful. I had a colleague that would call me "The Oracle". (Malcolm Gladwell of Tipping Point wrote Blink that spoke of this phenomena. But that moniker was hard won, and I've the gray hairs to prove it.
Writing this post in response to these good comments has been very helpful to me in clarifying some "to do" list items--one is to bring my Logical Trader book back to my desk, and find my Excel Worksheet--Oh, and write a post on it.
4 comments:
leisa- i don't really use sentiment indicators (at least, not anymore than i use charts)...i rely more or less on my own read of market sentiment regarding any particular position i follow. So i guess you could say i just go with my gut...which is why i'm always interested in hearing what others have to say about such things...(of course, i do my share of looking at charts and reading opinions on a daily basis in the process of arriving at a decision to trade)...to each his own...
2nd_ave
Ha, Leisa I have the same problem with regards to my gut. Too often my gut says the opposite of what I see. I hesitate and miss out. Although I have the proverbial ice water veins. I can watch my stocks skyrocket/plummet and I feel no joy or fear. Hmm could be I'm just brain dead. Ha. I believe it might be a timeline thing. Most of my trades are for min 3 months upwards to 5 years for some stocks. To quote Jesse Livermore " It was never the trading that made me money but the waiting"
william B
William--Let's hope none of us wind up like Jesse!
amen
2nd_ave
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