<<By the way adairm, you're a smart chap, what are you doing with technical analysis? >>
Hey! Thanks for the complement!
First off, let me say that in the long run, it's earnings that will drive the price of the stock. Fundamental analysis tries to determine the earning power of stocks.
Gorilla Gaming goes beyond the typical fundamental analysis based upon financial ratio analysis, gross margin determinations, sales projections, etc. Gorilla Gaming is an effort to determine a stock's (company's really) potential to overwhelm it's competitors. Because if it is able to do so, a gorilla can become more profitable by commanding a higher market share and demanding higher gross margins than companies forced to compete in commodity markets.
Technical Analysis is a tool designed to measure the psychology of the market. In the short term, it matters not whether a stock has a 60% or 63% gross margin. If more traders are thinking the stock will go down, they sell, and the stock goes down! So, TA measures the psychology of the 'crowd'.
I prefer when I buy a stock that it go up. TA provides a way to improve on the chance that when I buy, it will go up. It's not perfect. Things happen. But if I can improve my odds, why not?
You see, I've read all sorts of studies that try to disbunk TA by saying that prices are just as likely to fall as rise. And a chart of coin flips looks remarkably like a chart of a stock.
The problem with these studies is they are based upon statistics! A coin does not 'remember' whether the last toss was a heads or tails. However, stock traders do remember what they paid for their stock. If it goes the way they want, they get emotional, greedy, giddy! If it goes bad, they feel remorse, despair, panic! They make decisions not based upon whether or not the stock is a gorilla and has great future earnings, they buy or sell because of the way they feel!
If we know how they feel, and we can rationally weigh their emotions to the value we know exists in our gorillas and kings, can we not use this information to our benefit?
Oh, I know there are lots of essoteric indicators that some TA advocates live and die by. It is no accident that one of the most respected TA books, "Trading for a Living", by Alexander Elder, is written by a psychologist.
Myself, I like to draw trend lines, and determine support and resistance lines to improve my chances to make profitable investments. I find my most satisfying trades/investments are made when using a combination of FA, Gorilla Gaming, and TA.
Best,
AdairM |
