Although I am also a person who lives on technical analyze and trades on patterns, but let's not over rate TA.
The truth is that we can use all the indicators, patterns, theories, but we are still play the odds. There is no such thing as "Certain" even we master the chart reading. As a TA, we could be right for 5 mins. That is about it. If we don't have sound strategy or risk management, Chart reading isn't going to help us make money.
Also let's not under rate FA. Over the long run, it is the fundamental that determine the price of an asset. Just like old said: "you can fool all the people some time, you can fool some people all the time, BUT YOU CANNOT FOOL ALL THE PEOPLE ALL THE TIME!". Eventually, it is FA that determines the value of your investment.
I am not saying that I am the expert of anything, but following are my own observations and lessons for how to invest:
1. Think like fundamentalist but act like Technician: I have to admit that it is very difficult to do. Because the nature of my style pretty much doesn't enforce me to buy when everybody is selling and sell when everybody is buying. Most likely, I would chase the performance. But after many years of experience, I would say that avoid the crowd is important. Think the fundamental first before commit my hard owed money is essential. As a TA, where to enter a trade isn't really a problem for me. I agree that buying the left side is very painful and not a sound bottom fishing strategy. I like to wait until trend changes even it is a sound fundamental.
2. Risk management: In my opinion, the reason that most people always loss money in stock market is that they are lacking of portfolio management and risk management. Most of us would try to locate a 10 bagger or to make a kill in single stocks. But that is pretty much like playing the lottery. The key to successful investing is to make money steady. Take measured risk and hedge accordingly. Understand that only very few people can win the lottery, it is not likely to be you. So "ALL IN" strategy and use margin are basically suicide.
3. Know the Odds: No matter what, we are all playing the odds in stock market. When the odds are small, you bet small. When the odds are big, you bet big. But the key is to know when the odds is big, when the odds is small. This is also the most difficult part to me. Because my style of trading also doesn't enforce me to play at the right side. This comes back to fundamentals and avoid the crowd. If you don't know fundamentals, how can you know when the odds are really great on one side?
4. Plan your trade and trade your plan: As a trader, the key thing is to plan. Before we enter a trade, we should always think about risk first (how much money we like to loss) before think about profit. If the exit door is too far away, it is not likely a good trade, nor saying investment. You are likely to be killed even before you reach the door. When we enter a trade, it is 50/50 chance of winning. No better than flipping the coin. So we'd better have plan B in hand. When the trade goes wrong, know when to bail is essential. No excuse about how good the fundamentals are to you, nor what fool.com think about your holdings. Those are ridiculous arguments. Turning a trade into long term investment is very wrong. If you bet on long term, you'd better have a plan to accumulate over a period of time, and spread your costs (sound strategy of accumulating).
Ok, these are my thoughts. What I want to say is that don't over rate TA, and under rate FA. Upon investing, you need to think independently and manage your portfolio and risk. TA can help you but it is not an essential element as many claim. Many great investors never ever read the chart.
The truth is that we can use all the indicators, patterns, theories, but we are still play the odds. There is no such thing as "Certain" even we master the chart reading. As a TA, we could be right for 5 mins. That is about it. If we don't have sound strategy or risk management, Chart reading isn't going to help us make money.
Also let's not under rate FA. Over the long run, it is the fundamental that determine the price of an asset. Just like old said: "you can fool all the people some time, you can fool some people all the time, BUT YOU CANNOT FOOL ALL THE PEOPLE ALL THE TIME!". Eventually, it is FA that determines the value of your investment.
I am not saying that I am the expert of anything, but following are my own observations and lessons for how to invest:
1. Think like fundamentalist but act like Technician: I have to admit that it is very difficult to do. Because the nature of my style pretty much doesn't enforce me to buy when everybody is selling and sell when everybody is buying. Most likely, I would chase the performance. But after many years of experience, I would say that avoid the crowd is important. Think the fundamental first before commit my hard owed money is essential. As a TA, where to enter a trade isn't really a problem for me. I agree that buying the left side is very painful and not a sound bottom fishing strategy. I like to wait until trend changes even it is a sound fundamental.
2. Risk management: In my opinion, the reason that most people always loss money in stock market is that they are lacking of portfolio management and risk management. Most of us would try to locate a 10 bagger or to make a kill in single stocks. But that is pretty much like playing the lottery. The key to successful investing is to make money steady. Take measured risk and hedge accordingly. Understand that only very few people can win the lottery, it is not likely to be you. So "ALL IN" strategy and use margin are basically suicide.
3. Know the Odds: No matter what, we are all playing the odds in stock market. When the odds are small, you bet small. When the odds are big, you bet big. But the key is to know when the odds is big, when the odds is small. This is also the most difficult part to me. Because my style of trading also doesn't enforce me to play at the right side. This comes back to fundamentals and avoid the crowd. If you don't know fundamentals, how can you know when the odds are really great on one side?
4. Plan your trade and trade your plan: As a trader, the key thing is to plan. Before we enter a trade, we should always think about risk first (how much money we like to loss) before think about profit. If the exit door is too far away, it is not likely a good trade, nor saying investment. You are likely to be killed even before you reach the door. When we enter a trade, it is 50/50 chance of winning. No better than flipping the coin. So we'd better have plan B in hand. When the trade goes wrong, know when to bail is essential. No excuse about how good the fundamentals are to you, nor what fool.com think about your holdings. Those are ridiculous arguments. Turning a trade into long term investment is very wrong. If you bet on long term, you'd better have a plan to accumulate over a period of time, and spread your costs (sound strategy of accumulating).
Ok, these are my thoughts. What I want to say is that don't over rate TA, and under rate FA. Upon investing, you need to think independently and manage your portfolio and risk. TA can help you but it is not an essential element as many claim. Many great investors never ever read the chart.
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