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I have had comments from people who have asked me to explain why I seem to be always "hedging" my market analysis. I tend to give both sides of the story and never commit to either being a bear or a bull.. I think there is a basic misconception of what TRADING is all about. As a trader I am not interested in predictions of future action. I am not married to an opinion ,but instead take a neutral view of the market and take a proactive stand based on the evidence the market constantly throws at us. This creates a very lucid and dynamic mindset which is crucial if one wants to succeed in the long run.
If I tend to give an analysis depicting 2 sides this is precisely the skill needed by a trader. Scenario building as it is called is a major component in the skill sets that a trader needs to have. Many people tend to stick to an idea and hold on to it until "hell freezes". The end result of this mindset is long term ruin.
Proactive involvement is essential if one truly wants to mitigate and control RISK which in the final analysis is the "secret sauce" of surviving the market place. It is for this reason that as a TRADER not an investor that I take such views that can change dramatically.
Risk control demands that one has to constantly be adjusting and fine tuning exposure. By having a neutral stance one can react without having to justify a change in view based on the evidence that the markets exhibit.
In the end, the TRADER's mindset creates a picture of a person without conviction which is totally the opposite since it is precisely the conviction of accepting change that creates the long term element needed for profitable long term success.
In traditional technical analysis one of it's many concepts are Trend Reversal Chart Patterns.
The more common would be the following:
1) Head and Shoulder
2) Double/Triple Tops and Bottoms
4)Cup and Handle
These variety of patterns do occur in market action,but I think there is an inclination for traders to try to search for them at the wrong places in market cycles. A basic tenet that I adhere to is that if you need to "search" for it then it is not there. If it is not obvious then don't let your imagination go wild and create the pattern. Likewise, it should develop after an extended or mature price trend. We should avoid designating patterns when trends have just begun and is in the process of developing into a more sustainable trend. When trends begin don't start looking for reversal patterns at it's early stages. If these patterns pop up after let's say an extended up or down move lasting for many periods , days amd months then the reliability factor of it's validity increases. Why? simply stated it is at the right place at the right time.
So, don't spend your time lookng for these patterns to show up at "every" turn or swing in price activity. When it is truly there it will "pop out" and stare at your face.
I was just left in awe how this guy can monitor all these charts. If you think keeping up with just 5 under your portfolio is hard enough, wait 'til you see how many set-ups he have. This is on another different league. How about you? How do you do your trade?
Watching the market drop and not being able to profit from this bear phase is a pity. Unfortunately, I think the PSE has not yet fully set in place the mechanics that would allow for "short selling" of shares. If it did then we would have a "two way market" and would be able to trade both bull and bear trends without restrictions. It would be nice if we can follow the " US model " no up tick rule" and "no naked shorts". I will not go into the details of these terms,but the key is that being able to sell short is going to open opportunities to really join the ranks of developed markets. Likewise, the bear will not become a problem for those who have the skills to play both sides.
Can you imagine what will happen if the PSE does enter a prolonged bear market. One will be trying to catch "bottoms" for a bounce (technical rally) and will be breaking the first rule of trading by going against the major trend. Like they say "trying to catch a falling knife".
Well, hopefully the bear won't hang around long enough.
All of a sudden I am seeing an increase in articles and commentaries in some daily newspapers about the the vulnerability of the Phil stock market. In fact, one even had it as a banner editorial.The irony is that this sell off was triggered amid the headlines of the 7.8 GDP growth.
The funny thing is that only a few weeks back the story was generally " Go ! Go! Philippines" . Don't get me wrong I am all for the "Philippine Miracle". We deserve it specially our marginalized countrymen.
What is my point? Simply stated in the stock market or markets in general don't take everything you read, hear and see as the infallible truth that will take markets sky rocketing into outer space. I am not saying that what is out there is fabricated news not at all. If you get carried away by the bullish news and hype of how great things are then don't be surprised if you get caught in a downward spiral. You know what? Stock prices also go down and can stay down longer than we can emotionally handle. I recall a joke I heard in an investors forum many years ago -" Long-term investments actually start out as short -term bets until they turn sour and Mr Investor cry's out loud "Not to worry I will hold it and include it in my collection of long term investments". Sounds familiar???
To all I say again- "Get educated and learn to make your own decisions. There is no one out there no matter how noble of intentions who will take care of your hard earned money more than you will."
To answer this question requires a definition of terms.There are at least 3 styles of trading namely 1) Active Trading 2) Momentum Trading 3) Swing Trading. The difference lays in the duration one holds a position.
1)Active Trading- holding a position for a 1 to 4 day period
2)Momentum( scalping) Trading- holding a position for a period of a few seconds to a few minutes.
3)Swing Trading- holding a position for at least a few days to a few weeks.
So which style do you want to pick?
Your choice may be dependent on your emotional and psychological make up. If you are a risk averse person who wants to sleep soundly at night without having to worry about what can happen the next day then momentum maybe the way to go. If you are capable of holding overnight risks and having the fortitude to deal with 2 to 5 day volatility then the active style may be your comfort level. For those who are willing to take bigger risks for bigger rewards and are emotionally in control of fear and greed then join the Swing Trader club.
After deciding what camp you belong to then you develop a Trading Plan that captures the appropriate time horizon matching your trading style.
What doe this entail?
Simply speaking the methods are essentially the same across styles the basic variable here is what price data you will utilize to trigger your entry and exit points. The methodology can be the same.
In other words, if you are an ACTIVE trader you would apply your method on daily ,hourly and 15 minute intervals. A MOMENTUM (scalper) trader will apply it on tick, 1 ,5 to 15 minute intervals. A SWINGER will focus on 2 hours, daily,weekly, and even monthly intervals.
To be more precise don't use a 1 minute price chart if you hold positions for days and weeks. It is a useless chart for your needs. If you are a momentum trader a daily/weekly chart will not provide you with a sensible picture.
An example to review is the method of analysis that I have shown in the more recent videos( with a 15 minute chart) on this blog. I have focused more in ACTIVE trading ( 1 to 5 day moves). Take note that a bullish move or a bearish move can last for a few days only which matches an active style. If I wanted to follow a SWING move then I will be focusing my attention to the daily and weekly chart and not necessarily use the 15 min charts. If I wanted to catch the intra-day micro trends(momentum) I would be using 1 and 5 minute charts.
So the bottom line is that one has to use the proper time frame matching
the trend one is trading.
One final note when one claims he/she buys and holds a stock and reviews his/her positions maybe 2 to 4 times a year this is not TRADING this is INVESTING.
I got a call from an old friend who asked me- " OK if today was a possible reversal day what do I buy and what do I do ?" My answer was very straight to the point -"I don't know!!!"
A misconception that many market practitioners/traders have is that trading decisions are -"ONE SIZE FITS ALL". This expectation is a major reason why so many fail in the long run. One has to realize that TRADING markets require a TRADING PLAN that is tailored fit to ones unique situation. It is analogous to expecting every runner in a marathon to run at the same pace and perform equally well. Only the individual runner can determine exactly how to run the race based on his/her own understanding of ones physical and emotional capabilities.
Trading is very similar a coach or mentor can teach you the rudiments and the nuisances that trading entails,but ultimately your victories will depend on you and you alone.
So when I answer "I don't know" I am actually telling you to "Hey! don't put your trust on what I am saying,but develop your skills and your discipline to be able to answer that question yourself." I don't say this fastidiously .Many of us have a desire to become successful in trading ,but are not willing to put the time and effort necessary to develop the skills demanded. We want the quick answer -Buy this or sell that and expect accuracy and reliability . In truth even the so called experts and mentors including myself make countless mistakes. Don't think that the veterans are infallible that is farthest from the truth.
At the end of the road YOU have to take charge and take responsibility.
By: Jose Aranaz
Seasoned Trader, Senior Mentor
The debate on what makes more sense Fundamental or Technical Analysis has been going on since time in memorial.In fact, "price charts" were frowned on as being magical and voodoo like . In the early days of technical analysis and the Dow Theory "Chartists" were not taken seriously. The super stars of Wall Street were the Stock Analysts who would come out with fantastic looking reports on what to buy and sell based on their volumes of research on company valuations and forward looking scenarios.
Understandably charts where considered as something similar to "TAROT CARDS ".Why on earth will I risk my hard earned money based on drawings,lines, colors and wiggles on graphing paper. How absurd!!!
The irony is that there is really no conflict between the two. They both serve a purpose. Understanding how to use them is the key.
Fundamentals are essential in identifying present and future value. It spells out the factors ,variables and elements ( fundamentals) that will create future value. The problem is that most market participants make decisions not necessarily based on such fundamentals.A price of a stock or any asset can be perceived as over or undervalued,but unless actual transactions (trades) are executed to reflect this over or under valuation the perception remains to be that -a perception of value. There can exist a gap between what ought to be the value and the actual value dictated by the marketplace.
Technicals on the other hand reflects what is and not what it ought to be.In other words, the price is reality. You may not agree with the value (price) and may have a whole litany of reasons to support your disagreement,but it will not change the value(price) that the market is accepting. The market does not care what your opinion is and will behave according to the dynamics of the marketplace. Unless the markets(buyers/sellers) accept the value that you passionately defend to be the realistic price based on present and future valuations it will remain to be a passionate cry .
In the final analysis, the key lies on market participants accepting or rejecting the fundamentals.If they do then it will be reflected in price action if they don't it will likewise be manifested by price behavior. Technical Analysis then becomes a tool that can provide the probabilities that fundamentals are either being accepted or rejected.
Touching on the Philippine situation - fundamentals are said to be "extraordinarily and exceptionally" bullish. Data does support such views.
When stock analyst and economist point to this bullishness as a reason to load up on Philippine equities they make great sense and ought to be right.
In fact, the probability of seeing much higher prices for Philippine shares is quite high based on this fundamentals.
The question remains when this may happen and if it will happen. Getting to point A to Z is not a straight line and maybe a guessing game. The time horizons are unclear and only time will prove things right. Technical analysis can map out the path to getting from point A to Z. Price charts and indicators can help in determining acceptance or rejection of this Philippine miracle. ( which is by the way, long time coming!)
By: Jose Aranaz
Seasoned Trader, Senior Mentor
Formerly from Merrill Lynch
We’ve seen the market pullback over the last couple of days. It’s common for some to have this lingering feeling of anxiousness to let go or change their portfolio - as Mr. Jose Aranaz would put it “People behave differently when you have money on the line”. Have you done any reflection lately how the market movement has been affecting you?
It is during this time that having an investment strategy shines the most – whether it is by Fundamental Analysis or by Technical Analysis. The important thing is that you need to have an educated basis to guide you in achieving your investment goal.
But really, with the market in a steep decline the last several days, is this major cause for concern? For the day traders and short term investors, YES it is. We can only speculate if the SMA 2 will support the price or it will breakdown and test the SMA 3.
If we break this trading day into fractals, here is what it would look like. We have seen a fierce tug of war between buyers and sellers.
The sellers jumped in the opportunity at the first spike and it was all bear from there. Others call it a knee jerk reaction when a sliver of opportunity presents itself - in this case, an opportunity to sell. They panic sell to cut their loss or stop their bleed. I can only speculate how the market will behave tomorrow. Traders should be vigilant on their positions.
But how about the long term investors, should they be concerned? The answer to this is more complex. I wish to share with you two things and you decide what the answer will be for you.
DIVIDENDS AND PAPER LOSS
Remember that there several ways to earn from the stock market. You should also look into the dividends. That’s right. In a bearish sentiment, dividends are most commonly taken for granted. If you are long term holder, also take into account dividend declaration whether stock dividend or cash dividend. Accounting dividends can cancel or lessen your capital depreciation. Dividends are commonly available in blue-chip stocks.
Remember that a loss or a gain is only realized when you SELL your stocks. Otherwise, it’s just paper profit or paper loss. If you are a long term holder, bear in mind that a market cycle always includes recovery.
This is a 10 year weekly chart of the PSEi. The steep angle of the expansion of market on the latter part made the price far from the SMA 1. A correction, at this point, can be healthy. Not only that, it can be a buying opportunity. If you take a look at the stochastic, we are at the 80 level and we are sustaining that range. You can take a look at it as stocks being overbought, or as confirmation that the bullish trend is still strong. Even the MACD is in agreement. The bigger picture tells me that yes, the market is still in a bullish trend, and a correction maybe due. But in any case, if I am a long term investor, I could probably sleep tight for the next 2 years and let my investment do the work.
Happy investing everyone!
By: Ryan Ulysses Cruz
Director of Operations
Biz Whiz Business Training and Consultancy
*Biz Whiz regularly conducts free seminar on Stock Market Investing for Beginners. For more details. please visit the events page.
Red was color of last week. I've been watching S&P500 and Nikkei slide down due to market exhaustion. It wasn't a surprise that the local market emulated the activity. My portfolio slid down to - 3% in a week. Now, you would say, 3% is nothing. Yes it doesn't sound much if you are only investing cigarette money, as Jose Aranaz would call it, but imagine you have millions at stake. This would definitely change the picture. And if you study closely, 3% could've been your annual return in an SDA. I wish I have the latter but heck, I love watching the market rise and fall so the amount accounts to be miniscule.
Do I worry? Of course I do.. The market has been long due for a correction and I am just waiting for a catalyst to prime the adjustment. Last year, the Philippine market also had a dip in May. If you remain cognizant and vigilant, you would notice a recurring pattern during these months. I could not exactly pin point when but I think we are somewhere there now.. There has been a lot of profit taking in the last few days. The sellers are clearly winning. And I have to admit, I saw the signal but still remained affectionate on my holdings. Now I worry that I fell in love with my portfolio.
It got me thinking on my investment style. Why am I holding to sell when I saw a signal for a potential turn around? Some would say it is greed that holds grip. In some cases yes. But I think in my case, it is more than that. I keep clutching because I have developed a bond with them. Let's a look at one stock that I have - MEG
In March, the price - MACD line was diverging, the bullish momentum was diminishing. Same thing April with STS and price. I could've traded last March and April and played along the channel, made some extra, and forgot all about MEG. But I did not. Now it is testing the SMA 2 support with a potential to either bounce or break down. I still have it with me.
I had MEG for over 9 months now. I bought it with a target selling price of 3. Through this course, I have seen it grow, and it brought me delight to see it perform. It even broke my target. Watching the stock almost incessantly made me feel attached to it. It is more like parenting and seeing your child grow. That's the simplest analogy I can come up with. And when things like this happen - emotion creeps over logic, it is really a feat to let go.
Is it bad to fall in love with your stock? It would be oxymoronic if I say "if you think about it, yes". The governance of logic over emotion is always a grey area. But let me try attempting to be pragmatic over the situation. Forgive brute flinging to clear my judgment.
If you are a Fudamentalist, you take a look a the company financials, the management, and numbers to see if the business is sustainable and profitable. I am inserting a worksheet we did in Biz Whiz for MEG in our stock valuation workshop and MEG looked like this that time. Looked promising to me.
From a Technician point hower, you would care to take a look at the chart and the indicators like what I did earlier.
Or, you could marry both. Either way, investing decisions should be made based on analysis. Eureka! There you have it my friends. It is not so bad to fall in love for the right reasons afterall. The operative words here are "right reasons". Smart investors, like it or not, make informed calls that will always have a basis. When you fall in love with your stock, make it a point to fall in love with the right reason.
Ryan Ulysses Cruz
Director of Operations
Biz Whiz Business Training and Consultancy
* Biz Whiz conducts FREE Stock Market Investing seminars regularly. To find out more about the seminar, visit the events page.
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