Technical Analysis: A Letter to Mr. Luck

Dear Mr. Luck,

Hello there.  I hope you’re doing very well.

I get that the Heavens are capable of screwing me at times to allow me to hone my strength. Believe me, I’m grateful with things wonderful, but I want to be spared with misfortunes. So there must be someone I can blame, it must be your known enemy -I’ll call him Mr. Menace.  Yes, Mr. Menace mostly offers me unfavorable outcomes.  He has risks, uncertainties, fear, loss, sadness, inequalities and what have you.  While I also get your comfort at times, I’m wondering if you Mr. Luck could help us defy him.  Apart from carrying protective charms, stones, keys or burning incense or sage, what else should we do to reap your most precious gift- luck? Are there tools I can use?

I’m not so much into street gambling and casinos (because I rarely win), but I think luck is what I need while I do my stock trades.  I hated math so much so I resorted to charts.  Charts have been my friends, they’re like music to my ears. It gives me concise and clear picture without so much numbers and formulas. Believe me, they do work at times but he can be stubborn can drag me big time.

Before consulting back to you, I had some research, read some books and attended seminars conducted by know-it-all brokers and what not. All they can offer are tools and guides with their usual disclaimer “To use at my own risk”.  I’m very thankful to them though.

One said, Technical Analysis is a tool to forecast future financial price movements based on history. Like weather forecast, it uses wide variety of charts that show price over time.   They also introduced me to Chris Kacher (pronounced cocker)- the greatest technician so far.

technical analysis1

They say, charts have 3 types, the candle stick, Bar, and Line (Candle stick as the best).

type of charts

By using Charts, one must determine the Resistance and Support level.  Resistance level is the price range at which there is an increase in the supply of a stock.  The price at that brings on increased Selling.  While Support level is the price at which there is demand for a stock.  The price area that brings an increase in Buying.

types of trends

Using the Charts, there are 3 types of Trends.  One, Uptrend when the price movement of a financial asset when the overall direction is upward.  Downtrend is the price movement of a stock when the overall direction is downward. Many traders seek to avoid downtrends to cut some losses off.  Lastly, Side bars also known as Horizontal trend.  It describes the horizontal price movement that occurs when forces of supply and demand are nearly equal.

support and resistance final

Here are some technical tools we can use.

1.       Moving Average

moving average

2.       MAE (Moving Average Envelopes)

moving average 2

3.       Bollinger Bands

boliinger

4.       RSI (Relative Strength Index)

rsi

5.       Stochastic

stochastic

6.       MACD (Moving Average Convergence Divergence).  Most trader’s personal choice of chart.

macd

Volume can be a big part of technical analysis too.  This is the amount of shares that trade hands from seller to buyers as a measure of activity.  If a buyer of a stock purchases 100 shares from a seller, then the volume for that period increases by 100 shares based on that transaction.

20140816_150119

As Jim Cramer once said, “Once in a while, the market does something so stupid it takes your breath away”.  They say, in the world of investing, there are no sure bets, there are risks in everything.  Maybe even the premier traders using fundamentals and charts combined can be screwed and be cheated by Mr. Menace at some point in their investing life.

So what do you think Mr. Luck, Do I need those?  Should I stick to fundamentals? Or do I combine you and the above knowledge (which they also are not so perfect afterall)? Or maybe Mr. Menace is always there to stay, we just need to deal with him from time to time. I don’t know, but in the meantime, will you let me borrow some LUCK?  Let me know your thoughts.

Sincerely,

Palengkera

Reference materials courtesy of Carl David Cabrera of www.philstocks.ph

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One thought on “Technical Analysis: A Letter to Mr. Luck

  1. Pingback: My Complicated Relationship with Math | marketraveler

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