To all, (T.A. verses F.A.)
I think that the fact T.A. (market timing) is more an "art" than a science will always make it hard to convince those who do not believe that it works...
There are people who are very good at it and make a lot of money while other people just don't get it. If your not good at it, T.A. won't work for you and you will be convinced that it doesn't work at all.
The reality is that best way to invest is to use a combination of T.A. and F.A. invest. It is very foolhardy to buy companies just based on the charts because there may be a totally irrational reason for the stock to be moving the direction the charts are indicating.
If you just use F.A. you can miss out on potential profits by buying into good companies that are at the top of the cycle (overbought). These stocks are more likely to drop in price for a while before they continue on thier up trend.
Very rarely will anyone catch the top or bottom of any stock cycle, but everyone can recognize that if you buy close to the bottom of a downturn and sell close to the top you would make a lot more money that just buying and holding on. This becomes even more significant in a market that is moving sideways. In a rising market "buy and hold" will tend to be better becouse an over bought stock can keep going up for a long time. IOMEGA was over bought for a long time (I think several months) before it collapsed in price.
To be honest I think there is a lot of propaganda to scare the individual investor away from investing for themselves because a lot of financial interests (banks, mutual funds, insurance companies) would much rather you put your money where it is "safe" with them. It is obviously to their interest to have you think you are better off investing with them than for yourself.
There are several basic (boring) market timing techniques that consistently out perform both the market and your average mutual fund. The Dow one for example, is a well known, proven, "market timing" technique that consistently gives a 19% or better annual return.
(see http\\www.fool.com for more).
I recommend that everyone try T.A. and see if it works for them and forget about the "common knowledge" or "academic studies" that "prove" it doesn't work.
If you want to try T.A., don't do too many indicaters at first. A good way to start, is to learn how to use 1 indicator and see if it works for you before you move on to another indicator.
I've done tests on 5 to 10 stocks at once and based on the T.A. guess which way the stocks will move the next day using the following:
UP, Down, Don't know. Every time I've done the test I've been right about 70% to 80% of the time. If it was truly random (and T.A. didn't work) you should be right 50% of the time. The farther out you try to predict the trend the less accurate you will be. I would be surprised if you were right 100% of the time becouse there are factors that affect the market that are totaly random (bad news, Greenspan, etc...).
I personally like:
bollinger bands for longer term trends (several weeks to months out)
stachastic for short term trends (up to a few days out).
100 day charts for support and resistence levels
For F.A. I like the P.E. ratio being at a discount to other companies in the same group.
I understand that the The Motley Fool's Online PEGulator is a good way to value high growth stocks but I don't use it.
www.stocksmart.com has some good (free) T.A. charting sections and there are other web sites that are even better.
Good luck to all
Carl Fritch |
