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Guest Post by Carlo Mercado: Why I gave up technical analysis

Guest Post by Carlo Mercado: Why I gave up technical analysis

Here’s a guest post by Carlo Mercado, founder of Pinoy Stock Market website on why he gave up TA and chose the buy and hold route of investing. If you happen to drop by his blog, he’s shaken your brains with blog titles “Why I unsubscribed to TRC,” “Why you should not follow stock recos..” In this post, he’ll explain why he gave up on TA. Interestingly, he’s asked me my thoughts on this. So I got some response for him. Thanks, Carlo! And to readers, happy reading!

Many of my email subscribers have asked me plenty of questions pertaining to technical analysis. They may have not asked them directly, but the line of questioning points to that direction. When do you think this correction will last? Do you think the sell-off have exhausted already? Are we in a market correction? Are we still in the uptrend? Those were the questions waiting for a technical answer.

What my blog used to be.

My “old time” email subscribers would have noticed already that I deleted ALL post pertaining to technical analysis in my Pinoy Stock Market blog. I used to have posts on trend lines, RSI, MACD and SMA (plus the triggers on the buy, sell and hold). Of course, the appeal of technical analysis gave me so much Google love (aka high traffic).

Why did I delete them? As my blog grew over time, I noticed that I’m already building a relationship of trust with my readers. Plus, they (maybe not all) view me as an expert, even if I’m not. That being said, I will be putting my readers’ money on the line with something that I don’t use.

But on the side, I was studying it. I actually planned to put up a paid membership site where members will have access to my successful technical analysis trades. Kind of like a technical Truly Rich Club style. That study taught me one thing – it’s not for me!

Why I gave it up.

I know you have read/heard this over..and over again – it doesn’t suit my personality and risk tolerance. Is learning TA easy? Heck yeah! If I was able to post it before, then it has to be that easy. The real magic is in the execution of the rules. Letting your profits run is easy, but cutting losses?! Man!! That, I cannot take. It requires more balls than brains!

During the course of my study, I also tried to combine TA with other strategies such as SAM, peso cost average, and buy and hold. Another thing that I learned was that TA cannot be combined with fundamental analysis (FA). There’s a reason why they’re separated in the first place. One leans on timing, and the other one leans on time. One leans on investor sentiments, and the other leans on business angles. One leans on the short term advantage, and the other leans on the benefits of long term investing.

If you try to combine it, you will be in a huge mess. You can get away with it sometimes (because it’s the bull market), perochambalangyun! As I write this, reports claim that the PSEi already entered the bear territory. But the country’s fundamentals remain strong and intact. If you tried to combine TA and FA today, mababaliwkalang! They conflict each other, at least today.

After all those tries, buy and hold won my heart.

Conclusion.

Technical analysis works. No doubt about it. If you want to lean on it, you have to give up the business side of the stock market. That includes the news, Fitch upgrades, credit ratings, cashflows, etc. You just have to look at charts, and take off from there.

I know someone who does not even look at the company. He just inputs as many stock symbols as possible to his COL account. Then every morning, he scans each chart then executes his trades. No more looking at investment guides, and no more looking at the company name. Just charts! When I asked him why, he just told me, “If I see a good chart, it doesn’t matter if it’s ALI, BLOOM or any company. A good chart is a good chart, no matter what company it is.”

I may have missed something.

Those mentioned above are just top-of-the-head reasons. You may not be convinced as to why I gave up technical analysis, and you might have a few questions. Feel free to drop them in the comments. Also, I’ll be glad to hear objections too. Krissy, what are your thoughts on this?

About the Author: Carlo is a finance advocate and author of Pinoy Stock Market blog, where he teaches responsible stock investing to his fellow Filipinos.

Krissy’s responses to Carlo’s post:
First of all, I’d like to thank you, Carlo for the mind-boggling title of your guest post. My talking stock diary would hate me if I were to use that title for a blog (as you all know, I use technical analysis). I think this is an honest feeling of what a new student of the market would experience. 
Let me clarify some points in the above blog:
  • I always stress my personal opinion that everyone who’s into stock market has to understand your own risk profile. You can start by answering the questions: What are your goals? Are you willing to risk your money for a long time or you need to recover capital plus gains/losses at a certain future date? Do you have enough money to trade stocks? Do you fear losing 10% paper losses of your portfolio? Can you sleep at night peacefully knowing your portfolio is down by some double-digit percentage? Would you be better off with mutual funds which fund managers manage everyday as their job?  
  • Now, determine your capabilities, your lifestyle if it fits a certain trading/investing strategy: Do you have time to monitor the market? Do you think you have the knowledge right now, the tools and resources to trade? Will trading/investing stocks have a conflict with your current job or business? Have you read books about investing, attended seminars or trainings?
  • Learning and practicing technical analysis requires time, practice and patience. It is a continuous learning process. It’s not a bull run everyday, when your paper gains can fool you that you’re smart or you’ve learned enough. Bad trades can teach you lifelong lessons, just what Tim Duncan said “Game 7 is always going to haunt me.” For veteran traders who have been there, done that, there will always be memorable trades that taught them valuable lessons they would carry for the rest of their career.
  • No strategy guarantees 100% returns. Whether it be a paid subscription, FA or TA – it will always be up to you – 1) if you follow them 2) if you don’t follow them. This is the stock market. Some may have been deceived that they have found a pot of gold when the stock market was rallying. But always remember that investing/trading stocks is risky, as stocks are one of the most volatile financial instruments. 
  • Now on strategy – stick to what works for you. Whether it be through paid subscriptions, FA or TA- it’s nice that you’ve tried TA and realized that hey, it’s not working for me! For some it does, for some it doesn’t. I would probably recommend you attend free TA and FA seminars given by online brokers to find out and be guided. Invest also in your own education so if you need to pay for a training or a book, do so to expand your knowledge. Seminars would really help if you want to be guided and if you need to fill in the gap between self-study and real results. There may be wrong notions about Technical Analysis which can be corrected through attending seminars and reading books. Once you have knowledge and apply it, you can recover your “learning fees” from profits.
  • You can always explore (if you have the means and capital) and try out different strategies, but it can be very costly. So I would recommend sticking to what earns money for you. Some do mix and match, some stick to FA/TA alone. The never-ending rift between that two lives on – as for me, what matters is what strategy helps me make money.
For newbies and start-up investors, I highly recommend attending the below event:

  • Fundamental analysis or technical analysis?
  • What are the key trading and investing strategies?
  • What is my risk profile as a stock market investor?
  • How do I deal with this current market conditions?
  • How do I profit in this volatile market?
  • How do I move from newbie to “know”bie?

Check out Overhaul! The Stock Market Strategy 2013 featuring speakers Bonner Dytoc, Ramir Libre, Ron Acoba, Nikki Yu and more. 

It is a whole day learning seminar on August 17, 2013 at Max’s Gateway Cubao.
Check out http://peraholic.com/ for details.

Super early bird rate ends next week so please register soon!

If you are a newbie or start-up investor in stocks, and you want to move from point A to point B in your knowledge in stock trading/investing, you’ve registered to the right event. Limited seats are up for grabs hence please take advantage of the super early bird rate.

Please do not forget to sign-up here to confirm your payment. There is a section here that says: “What do you want to learn in the seminar? Expectations? Questions you would like the speakers to answer?”

So far we’ve got very interesting questions such as “Do MF and UITF fund managers trade daily? What investment strategy do they employ?”

One who registered said “I want to learn everything about investing. This is the first time I attend this kind of seminar.”

We’ve got the best speakers for you to talk about fundamental analysis, technical analysis and market outlook. Personally, we’ve chosen speakers who have inspired me and the organizing team members for years that we’ve started in the stock market. It’s an event you and I should not miss.

Never miss the money rush!
Be in the money know.

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