Some thoughts about market timing

After many years of struggling, in the end, I realise that identifying trends is still the most important skill in chart reading. Various indicators are mostly trying to catch small turns in the price directions. Since charts are based on historical data, the information we can get from the charts are mostly lagging. Using charts to catch immediate changes in price direction is quite difficult. However, for long term trading or investing, I think charts are more useful in telling us the future movement in prices. Certainly, for longer term investing, the market fundamental is still the major deciding force. Reading the chart helps us know where we are relative to the overall position. That in turn gives indication of when to buy and sell.

Many gurus advised us not to time the market. Certainly, that is fine if we consider 25 years ago when we have time and if we could set aside say $100K or more and we invest based on pure fundamentals, we would probably be sitting on $millions. That is because we could ride on the overall market growth. However, if you are now over 45 and you are unlikely to be able to set aside say $100K for next 20 years without touching it. Then, you are in a different position. You would probably want to make sure you are buying at low prices.

My belief is to use both fundamental as well as technical analyses to make investments in stock market. Use fundamental to select the company stocks that are worth investing. Use charts to decide when to make the purchases. Investing is a long term commitment but it does not mean holding on the the stock forever. Buy more during the market crashes and sell some during the bull runs. This reverse strategy should work best for long term investors.

In terms of timing the market, using trend lines should be the best. Using weekly charts and plot the trends and decide entry and exit points serves best. Patience is the key to this kind of investing. Stay in cash with little or no interest can be quite frustrating but that is part and parcel of the game.

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Spanish Debt Issues

There is a lot of talk about Spanish sovereign debts recently. I came across a research paper which I think is very useful for me and wish to share it here. This is taken from www.fundsupermart.com, an online fund broker where you can purchase funds form various fund managers. This portal provides some research and comparisons and it is essentially a self service portal. From the chart provided, we can see that there is a problem for Spain to service their debts for the next 4-5 years if the debts are not re-structured. With this kind of risk, no sane investors would want to risk their money to buy Spanish bonds. They can only turn to European central bank for bail out. The blue arrow is a fictitious line I draw assuming re-structuring is going to happen. Essentially, they have to move the payment of capitals into next 5-20 years to be affordable. In addition to that, they can't make additional loans. This is just taking a very simplistic view of the situation. To have that hap...

Stock Price Trend - Continuation Pattern

Here is the truth about stock price trends: it tends to follow something called continuation pattern. Price trends once established, will tend to continue in it direction. This is similar to the law of physics. Taking at look at the current market, you will notice that indexes like the S&P 500, Dow Jone or Nasdaq Composite are in down trends. Depending on the type of investor or trader you are, you many want to remember this law by heart and constantly reminding yourself about this law. Some people don't like to use the terms bull market or bear market because they think that they are versatile traders and they can make money in either up trend or down trend. For, me, there is no harm in using any terms you want to describe the market as long as you have great discipline in your investing or trading strategies. I tend to use the words investing and trading interchangeably because in both cases, they are all about speculation. The difference is probably in the time horizon that ...

Professional Investor's advice, market hype etc.

This is an article that I read on 26th September 2012. It has been over a year now and I suddenly remembered. I'd posted this last year with some other predictions from CNBC etc. During then, I was very fascinated listening to these experts. They are so confident and so logical. I always admire their ability to "read" the market and manage hundreds of millions of dollars of other people's money. So of them managed billions of dollars. Then I thought what if they ever go wrong? Won't they lose a lot of money? So, I think it would have been interesting to remember what they said and then we verify later. On 26th September, the S&P 500 index closed at 1433.32. One year went on and it went up another 19% from there. Below is S&P 500 over last one and a half year. As we can see, the market has still been a bull. Over the one year period, the S&P 500 index did correct itself. However, it was a

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