Stock Market: Technical Analysis — Don’t Fall into The Trap!
I was a technical analyst. I did it for about five to six years. I knew all the chart patterns: cup and handle, double bottom, flat base, head-and-shoulders, etc., Later I wanted to expand my knowledge of technical analysis by studying Japanese candle sticks. So I knew all the major Japanese candlestick patterns: the doji, shooting star, bullish/bearish engulfing, piercing pattern, etc., I even dabbled in Elliot Wave Theory and Bollinger Bands.
I thought I was very wise in my technical analysis too. I only looked for bullish patterns during a bull market (to go long) and bearish patterns in a bear market (to short). I also combined that with fundamental analysis. I looked for bullish patterns for companies with good fundamentals and vice versa.
So how did I do? I did mediocre. I wasn’t doing any better than the strategy I’m doing now: buy and hold. Except that all this took too much time. I had to spend at least an hour every day researching and studying stocks and their charts. It was fun sometimes but annoying at other times. It is too much work for too little rewards. Also reading A Random Walk Down Wall Street sealed the deal for technical analysis. You should read it if you want to know more. Overall, people who believe in this stuff are delusional.
In theory technical analysis sounds logical. It makes sense for people who are used to seeing lots of data and patterns. Well the problem is that there aren’t any short-term patterns in the stock market. It’s pretty much random. The only sure fire pattern is that the market in general has an uptrend. Oh and you can’t predict the stock market in the short term.
So what should a sane stock strategy be? The boring kind. Buy and hold with a diversified portfolio. My current buy and hold strategy works great. I don’t waste time every day looking at charts. So if you guys are looking into technical analysis or have some that recommend it, avoid at all costs.
Stumble it!
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