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Hey all,
I was wondering how many of the DGIs decide on buying a stock based on technical analysis? I've always used fundamental analysis and look for value to initiate and/or add to a position...but Ive come across some investors who use fundamental analysis simply to filter out and narrow down choices, but the final trade decision is taken based on technical analysis.
A couple of other follow up questions (since Im noob in technical analysis):
- Which metrics do you use (or to put it in another way - which metrics are the most important ones)?
- If you have links/resources to learn more about it, I would appreciate you sharing it.
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I could never understand or see what others saw in the squiggly lines, triangles or waves so I've never paid attention to it. I certainly don't use it to trade. Half the time, when I read some technical anaylsis and look at a chart, I see the opposite of what the person says is the technical interpretation. I'm stuck at trying to figure out the value and whether it's time to buy or not.
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“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan
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Yeah, I've never read anything that can get me to think that TA is anything other than voodoo.
When I'm making a buy decision, I do compare a company's current metrics to historical, such as whether the yield or p/e is near the high or low end of its historical range. One guy tried to convince me that that is a kind of TA. I didn't agree, but I suppose if you squinted really hard it might be kind of the same. But I doubt I'll ever be convinced that finding patterns in the past price movement can give you any actionable information.
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Agree, I've never seen technical analysis offered up with any kind of explanation of the reasons behind the supposed named patterns. The best explanation I have heard is that it's self-fulfilling; i.e., if the market sees a double top, the stock will go down because the market sees a double top, or if the market sees an ascending triangle, it will break out because that's a bullish signal and traders will buy.
On the other hand, the few concepts I do know (resistance, support, channels, etc) live in my head, and they do make a difference in when I decide to buy a stock. I picked up some ESV the other day around 49 because it's at major support, it's cheap, and it just looks like easy money.
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I'm still in the building out the portfolio stage, so I've been purchasing many of the big blue, DGI usual suspects, and now am in the satellite acquisition stage to "juice" things up a bit. Am kicking myself for not adding to my KMP position this a.m. before the markets opened. So my "TA" usually consists of checking the stock against divvy growth specs first, and then I kind of subscribe to a method a SA contributor espouses who says purchase in the mid-range of the one year high-to-low range. Yes, I may have paid too much sometimes, but having turned 62 last week, and officially retired (although working a non-profit job), I feel a need to put my money to work right away, and not sit out for 16-24 months waiting on the big dip. All in all, life is good.... No complaints.
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Not sure what type of technical analysis others use but found most attempt to project future earnings, others look at trends and again try to project into the future.
I settled on dividend history, dividend growth history, yield, yield average, and payout ratio. Now that I've got my core holdings (don't plan to add any other companies), I monitor dividend and dividend growth only.
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I will sometimes use tech charts as a tie breaker (RSI, 50-200 mov ave, MACD).
An excellent intro to tech is the IBD "How to make money in stocks":
http://www.investors.com/offer/splash.aspx?id=htmmis
Really, all you need is David Fish's Champions spreadsheet and FastGraphs by Chuck Carnevale.
Cheers
There are people who use up their entire lives making money so they can enjoy the lives they have entirely used up
Frederick Buechner
