hey guys, its me again and would like to share my insights into trading/investment and the three key areas of
1. Fundamental analysis
2. Technical analysis and
3. Market physcology
when I went to Uni, I did a trading unit and it covered the three major areas of trading which are FA,TA and market physcology.
I think this is the only unit in Uni that I actually enjoyed and learned something practical enough for me to think of myself as a financial independent person (i.e. even if I quit my full time job, I could be quiet capable of making a living just trading the markets).
1. what is fundamental analysis - my take on this is simple. Analyze cash flow statements look at how much a company is making and how much they are spending. When and most of the time with specs, outgoings are going to be higher than the revenue they are making. I'm not too bothered whether they are spending more than they are making, but as long as they are in the right sector and that sector is experiencing great growth. As long as they have enough money to get them through a few more quarters. To me a trader, I want to make sure that the risk of a capital raising is minimal before I will purchase a stock. This is stock trading 101. You don't want to be caught in a capital raising - they are 90% of the time issued at a 20-25% discount to last trading price. When you see a company raising funds at a premium tell me because I want a share of that business.
I remember when I first started trading the biggest mistake I made was not doing enough F/A. I bought into a stock where it had a terrible management team (one that made headlines on the news for all wrong things). The management of the company had a bad history with the law and after buying a huge amount of stock that company went into TH for three months. During this three months I had a lot of time to research the company and found all the negative news flow from the past which made me so mad. I am not going to name this company but they are now in the medical cannabis business and still trading. So F/A is still important to be a successful trader. Three key areas to look for are Liquidity (cash position of the company), Management (look for prior experience in large corporations) and in the Right Sector.
2. What is Technical Analysis - to be a successful trader you need to be able to read a simple chart. The story here is funny. When I was overseas years ago, I have an uncle who was looking at charts and my uncle is an ordinary guy(no university degree, he ran his own small business). He knew I was interested in trading and asked me about what to buy and how I do it. I looked at his chart and went, "I'm not as pro as you, I don't use charts." When I got home, I started to read Hot copper and the veterans here would post a chart with lines drawn and I did not understand a thing what they were referring to. When I did the trading unit it taught me how to read charts. I can read charts and I understand how they work. In simple words, a chart is just a representation of past share prices and depending on the chart you use it can tell you different information/data. For example a Candlestick chart will tell you the open price, close price and the high and low of a price for a particular day. having a months worth of this data will give you the information that you need. It is a representation of past performance for you to predict how the share price will perform. Some people don't believe in technical analysis- but in its most simple form- you only need to learn to read the 52 week high, 3 yearly high and 5 yearly high. Bring the daily chart for a monthly chart, or a weekly for a yearly chart and just look at where the price is now and where the high is. Most of the time other traders are looking at the same charts, its simple to read.
What works for me when there is a huge jump in a share price, I bring up my daily chart for the past month, see what the price is now, where the monthly high is, make a judgement based on F/A whether it can try hitting its monthly high target. If the answer is yes, and the share price hits that target, a lot of the times that's when you can call it a "Chart breakout" then you need to analyze a yearly chart and decide whether based on F/A and market physcology whether it could try the yearly high.
Some people may use fibonachery, chart patterns, wedges, falling wedges, there are just so many chart patterns but I think keeping to the most simple chart reading style works for me most of the time. Trading is simple and like most things in this world, less is MORE.
Market Physcology
This is another very important skill to learn and its the hardest one to learn. This is how you feel and react to the markets. If you have been in the markets long enough you know when to buy and when to sell shares. As a general rule of thumb, people tend to Sell in May and go away. This is for tax reasons.
However, overseas markets in particular the US markets can interfere world wide markets and you can feel it when markets are volatile and when they are quiet. If you want to learn this part of trading, you can invest some time into the VIX index which measures volatility. I don't use this, but it is an important tool for trading. I generally just use my own experience and read the papers and Bloomberg to judge how I feel about the markets as a whole.
So at the end of the day, if you can learn your own style and have your own routine for F/A, T/A and a little bit of market physcology you will do better than the other guy who does nothing.
You don't need to do a whole heap of analysis before getting into a stock. You take a few minutes as you react to the news (good or bad) to make a trading decision. This whole process of T/A,F/A, market physcology as you practice and get better at should take you a few minutes at most so you don't miss that winning trade.
This is all just my way of trading, you may have your own, but this is what works for me.
Please share your thoughts on this.
Again, I'm no expert at trading., but I have been able to make myself a living and one day I would love to write my own book (sarcasm). I have poor English writing skills so I wont do that, but I am very passionate about trading and finding my own financial independence.
as Jack Ma says, when your 25 you can make as many mistakes you want in life that is your reward because you can do it, when your 30-40 you want to teach someone how to do it. When your 40-50 you need to plan your own way and do what you know best and when your 50-60 you need to learn from the young people and invest in them - because they are smarter than you.
In in the age group where I want to teach someone how to do it. Hopefully by the time in 40-50 I can plan my own way and by 50-60 I can learn from the young.
