Technical Indicator Wisdom 2
Only when a long-term trend has been identified, assess daily and intraday charts.
The search for easy answers to trading is usually equated to using new signals and complicated techniques. This all-consuming and encompassing search is, in fact, not necessary. Rather, the novice trader should first understand what his or her true trading ability is as the skill to improve trading does not rest on new techniques, but actually centers on the trader’s own personality, behavior, discipline, privately developed strategies, and what his or her trading goals are.
Since the publication of my first book, Share Analysis & Company Forecasting (1995), I have trained hundreds of traders and found a simple truism: traders start out well following their own rules, but quickly become inconsistent and then trading losses surpass profits. While there are many reasons for sources of trading errors, this volume focuses on reducing complexities of using a combination of fundamental and technical analysis to trade in a rapidly shifting global environment.
The volume does discuss, as do many other books, how technical triggers work, including candlesticks, MacD, Bollinger Bands, and Moving Averages. This is where similarities end. This volume uses both fundamental variables and technical signals to assess, choose, and buy shares in a simple to understand methodology.
Instead of identifying a host of fundamental variables that could affect shares, and then throw a ton of technical signals at you, I have limited all these issues in steps that can be easily and—more importantly—quickly implemented to enable you to buy any form of stock exchange security.
And to do this taking into account investor sentiment and timing.
Why now? Aren’t popular technical triggers enough? Surely, candlesticks have become the accepted form and shape to analyze any market or individual share? I am sure that experts have told you that using the MacD and Relative Strength Index (RSI) are enough to determine buy and sell signals and, therefore, investor sentiment. Do we really need alternative chart signals to improve trend forecasts? The short answer is that markets are no longer independent. Global factors radically influence market sentiment to the extent that candlesticks cannot alone efficiently represent a definite trend.
In actual fact, as global markets become more connected, fundamental analysis will play an increasingly more important role; lagging or leading indicators between markets need to be better understood to become more efficient in trading. As such, the ability of traders to understand these variables forms the basis of all trades before technical triggers can be used to identify potentially profitable trends.
Under a globalized market, where world markets influence each other, economies have been influenced by the severity of terrorism, major earthquakes, unbelievably high national debt levels and civil wars. The trader’s ability to compare one market to another has become increasingly complex, impairing ability to make consistent profits.
Hence, your skills in applying charting triggers simultaneously to fundamentals will enable you to understand share’s price data, possible changes in that data and enable you to project key trading ranges.
The aim is to establish areas of resistance or support before implementing technical triggers. By using these alternative methods to forecast key fair value price ranges, the trader actually gains skills and enhanced confidence to shape his or her long-, medium-, and short-term strategies and tactics.
The result improves decision making and thus profitable trades. These volumes should provide enhanced confirmation and better understanding about trends and related direction and strength. When used correctly, these volumes should also reduce traders’ reliance on subjective opinion, whether from media, corporate, or investor relation news and releases.
In fact, too much technical analysis and triggers without a foundation of sound fundamentals will hamper correct trading decisions. Consequently, I hope that the proposed approaches set out in this volume will help you to evaluate trends in an easier and quicker manner. It is also my intention that this volume will promote new research into fundamental analysis and how to use these factors with technical triggers.
Charts should track global market cycles, differences between world major economies and political systems. Currently, they do not.
Charting usually focuses on share price and share price history. The norm is thus to ignore all outside influences and forces that could move prices. I have heard technical analysts say: “You don’t have to understand anything other than technical signals, as everything is already included and accounted for in the securities’ price.”
What about new company listings? These do not have a price history, so should we ignore all of IPOs? How can you tell that an earthquake will happen? Is the potential of a future disaster or war already taken into account in a securities’ price?
Least of all, some politicians are apt at making capricious statements which move markets in completely illogical ways. Technical analysis on its own ignores such influencing events. There is thus a very urgent need to assess world trends and patterns in a simple format and then to relate these variables to a set of technical signals and guidelines.
Once such combined fundamental and technical variables have been assessed, a final decision to trade must be based on a filter that incorporates sentiment analysis and timing. While all this may sound too time consuming and complex, relax—all these factors are amalgamated in this volume in a simple set of guidelines.
Intelligence vs. Success
I have met many professionals, who have read a number of my books and quickly made the decision to become professional traders. Surely, you can easily change careers and become a trader? Other people do it, so why can’t you?
I am in no way discouraging you to change your career to that of a trader. I am merely pointing out that stockbroking is a profession that takes many years to achieve a reasonable level of success. Image a dentist deciding to trade as a career?. That seems reasonable. Now imagine a trader changing his or her career to dentistry? Could he or she perform dentistry without the necessary qualifications and experience? Now, why is it any easier for the dentist to assume that—without study—he or she can become a successful and profitable trader?
It takes years of hard work, gaining experience, skill, and knowledge to become really successful as a trader. On an optimistic note, I have trained new traders to achieve a solid level of trading accomplishment. Trading is not a Get-Rich-Quick scheme. New traders will encounter obstacles and major problems that must be immediately resolved. Trading is thus not for the faint hearted.
I believe that day trading necessitates complete and in-depth knowledge of industry and markets and the ability to rapidly assess the tsunami of contradictory information that will engulf you if you let it. Build a character of discipline and patience to endure boring routines and you will have a starting point to changing your career.
To many professionals, who have approached me to change their careers to that of trader, the idea of trading means long lunches, spending more days at the seaside than in front of their computers, and a life of luxury. It takes time, patience, and diligence to achieve a life of uncompromised wealth; the lifestyle many of us aspire to.
The good news is that all this is possible!
If you want to achieve unbelievable wealth, contact me on [email protected] and I will assist you to effortlessly move from your current career to that of trader. So, come with me on this journey and let’s set simple rules to trade effectively.
As always, enjoy and contact me personally if you have any question, whether theoretical or practical.
Chapter 3 is an introduction understanding the equity cycle.