Most blog authors on StockCharts.com are writing about the current markets and do an exceptional job. I do not write about the current markets as I wanted to share my experiences after 40+ years as a technical analyst. Not only experiences with trading and investing, but model building and money management. I also share the details of all the Master’s degrees I have – those expensive learning experiences that hopefully I learned something from. Since I rarely go back into the archives of other’s blogs that I read, I wondered if that is common or not. Hence, after talking with Chip, a summary of my past articles might encourage new readers to take a look as most of the material is timeless. That’s timeless, not worthless! This is the sixth of the summary series and starts in August, 2016 and ends in October, 2016. I’ll try to do future summaries whenever I have a dozen or so articles to include. You can click on the article name for a link directly to the article.
Can you pull the trigger and make a trade after you do your technical analysis? If you cannot, relax, you have lots of company. Well, relax isn’t exactly what you should do, you should figure out why. Great technical analysis websites like StockCharts.com make all the analysis easy to accomplish, but only confidence in your personal analysis can pull the trigger. Plus you have to decide what technical analysis makes you the most comfortable. I think the gap between doing the analysis and acting is big, especially in the technical analysis community. Another big overload in this community is the giant number of books available; one cannot read them all. At least read mine.
This is the third installment in this series which deals with investing heuristics. Investing and golf both have a distance problem; it is the distance between your ears that can make you successful or not. In this article I covered Communal Reinforcement, Endowment Effect, Halo Effect, Overreaction, Prospect Theory, Self-Attrition, and Self-Deception. Reading and understanding why you do what you do will most certainly help you be a better trader / investor.
Hmmm! I hope this one doesn’t need an explanation.
In this article, I was critical of the mutual fund ranking companies. Critical? Me? Too often they will offer the performance of a large selection of funds (usually based upon style, such as large cap growth) and tell you how they performed over the last 10 years as a group. Problem is, many funds have dropped out because of poor performance, so only the survivors are included. If they included the ones that dropped out the numbers would not nearly be as good. What they give you is not a good sampling of actual performance!
Probably one of my most popular articles (especially because Chip liked it). The media is 24/7 with investment news and advice, however, most if not all of it is not worth a thing when it comes to trading / investing. Most is just observable information; many think it is necessary to know everything they can, but most don’t know how to turn that information into actionable information. Actionable information means you can actually make a trade from the it. The giant brokerage firms produce beautiful color documents/booklets dispensed as research, when it fact it is produced just to get you to make a trade – it is marketing and a far cry from good research.
I spent over 10 years selling technical analysis to advisors and found that showing them the fallacy of modern finance worked best at getting them to think about technical analysis. In this article I discuss the Wall Street message that says you must stay invested or you will miss the 10 best days of the year. I show what happens when you miss the 10 worst days of the year. Diversification is a free lunch and should always be used, just don’t believe it will protect you from bad markets. Compounding is the eighth wonder of the world is attributed to Einstein, however he left out an adjective; positive compounding is the eighth wonder of the world.
Technical analysis is growing over time. However, the ebb and flow is usually tied to bull and bear markets. During extended bull markets, many begin to think we won’t ever have a bear market again and drift away from technical analysis. Sadly, this usually happens when they need technical analysis more than ever, often just before a major top. Trust me, I’ve been there. Find a disciplined technical approach; live and breathe it. Convince yourself that it is the absolute best way to make investing / trading decisions.
This was an attempt to ready you for the next market top. No one will ever announce it; even though many have been calling for it for years and eventually they will be right. And they will certainly remind you about that when it happens. This article hopefully would convince you that a trend following approach with stops and rules would mean you don’t ever have to worry about these things; your approach (model) will just take care of you. Unless you abandon it for some foolish reason.
When I wrote my “The Complete Guide to Market Breadth Indicators,” I attempted to show how much different new highs and new lows were from the other breadth components like advanced, declines, up volume, and down volume. New highs and new lows are based upon today versus the price 52 weeks ago; whereas the other components are based upon the previous trading day; a gigantic difference. This indicator which is now in StockCharts.com’s symbol list, was an attempt to measure the price performance over the past year and see if the new high or new low was appropriate.
Support and resistance are mainstays in technical analysis and probably also the most misused and misunderstood. For a long time now, I only look at horizontal support and resistance lines as they are based upon the foundation of technical analysis – price. An investing heuristic called anchoring is one of the reasons price-based trendlines work so much better. Angled trendlines are what newsletter writers, hobbyists, story tellers, and TV experts use. Avoid them!
This is the second in a series, hence the II. Over the years I am amazed at the absolute crap that has become part of technical analysis. This is the stuff that is created and touted by those who do not make trades with real money. In the previous article on this subject (I), I discussed the Fibonacci series and did a withering analysis of it. Here I discuss retracements and hopefully show that given enough retracements, one of them is bound to work – especially with the ever-faithful 20/20 hindsight. I also discuss the difference between analysis and reporting (story telling). After two articles shooting sacred cows in the head, I have yet to get any hate mail.
Dance with the Trend,