Hello you wonderful and intelligent individuals that make up this forum, i sincerely hope you are doing well.
I was kindly wondering when reviewing a stock, whether its for a long term or short term trade, there is lots of technical indicators that can be used that are helpful. There is so many indicators such as Oscillators, such as Relative Strength Index, Commodity Channel Index, and MACD Level. Further there is lots of different types of Moving Averages such as Exponential Moving Average (10) and Simple Moving Average (10).
I kindly wondered for determining the momentum for either a short term or long term trade, whether just learning what a few of these indicators mean is helpful please? Further or is it a case of the more of these indicators you learn, the more they can help you become successful by using as many as possible, or is a few still effective please? If anyone kindly has any thoughts on this i would be forever grateful and thankful for your support.
Sending you lots of good wishes and i truly hope you become massively successful. All the very best and take care.
In my opinion the indicators you list are useful for technical analysis which is generally something that is used for short term trading, not long term investing. The indicators give you different viewpoints to help you understand that price movement which is important to a trader, but does not give you any insight into the business fundamentals of the company in question.
If you are investing for the long term in a company then you really care about fundamentals. You want to know what the company does, if they do it well compared to their competitors, and how well the company manages its finances. When you invest in a company for the long term, you believe that their stock will do well over the years (decades) because of how well the company manages it’s operations and finances. You don’t really care about short-term price movements that often happen due to temporary factors.
On the other hand, when you trade in the short term you care very much about the recent price movement and the various indicators that help you quantify and categorize the stock prices. As a trader you really could care less about any fundamental factors. When I am trading, I generally know very little about what the company does or if it even does it very well. I don’t care if they make any profits and I have no idea what their revenues might be. I only care about the stock prices and how they appear to be moving.
That said, I consider myself to be both a trader and an investor. The thing is those are two totally separate things and I purposely do not allow them ever to cross. If there is a great company that lots of people invest in, I do not even think about investing if I trade that company or might trade that company. And the companies that I invest in are purposely not the type of company that is good for trading.
Now, I do believe that if you are investing, it is possible that you could use a trader’s technical analysis with all the indicators in order to fine tune your entries so that you are getting the best price or perhaps a price right before it begins to move up. That said, I do not do this. I don’t do it this way because my long term investments are not made based on stock price. I am not trying to buy low so that I can sell high. This is too close to a trader’s goals. My long term investments are made based on income, typically dividends. Big dividend stocks do not typically experience very much in terms of capital gains. Every time a dividend is paid the stock price goes down, and companies that pay big dividends take big ex-div declines. Often the increase in stock price just keeps up with the dividends paid so that the stock price doesn’t really move that much. If you get a lot of cap gains then that’s a bonus, but I’m never looking to sell so it doesn’t really matter.
Lastly as far as my favorite indicators I have posted in other places within this forum about some of the few that I use. Mostly the oscillators like RSI, but I’ve recently discovered Chande Momentum which is very similar. I also frequently look at the 50 and 12 period moving averages, but I don’t really use those lines as meaningful support and resistance like a lot of people do. I never use MAs greater than 50, even though a lot of people do consider those to be support.
Permit me, if you would, to offer an opposite point of view to your preferred practice of ignoring “fundamentals” if you intend a ‘trade’ and all but ignoring “technicals” if you intend an ‘investment’.
For me, unless I’m trading intraday and trying to get out of a position in minutes or seconds, fundamentals matter. Always. Always. Always. Why? Because the opposite side of my trade, which --these days-- is generally an algorithm-- knows them backwards and forwards and is cuing off of them.
As to which technicals and indicators are “best” to use, that’s strictly a matter of ‘Chef’s Choice’. I think which indicators an investor (or trader) uses actually doesn’t matter, because all of them are just derivatives of price and/or volume, and nearly all of them can be tweaked to offer the exact same signals. In general, though, I’d offer this advice:
re: Silent charts - no werds.
re: power of compounding
When to buy and sell SPY
Today, there was a BUY signal to buy SPY per Simon Sez III two (2) simple rules written on the back of a business card.and using Exponential Moving Averages.
Simon & Co is bulletproof, very accurate, hardly ever lose money and is the closest thing to the Holy Grail. Then again once in a blue moon, a headfake comes alone.
In horse racing analogy, buy at the Starting Gate plus one bar and sell at the Finish Line plus one bar…
Which is better SMA or EMA?
Since EMAs place a higher weight on recent data than on older data, they are more reactive to the latest price changes than SMAs are, which makes the results from EMAs more timely and explains why the EMA is the preferred average among many traders.
Quill - a poor church mouse scratching for a living as a Swing Trader for over 48 years and an Investor for over 60 + years.
Here’s a chart that confiirms your ‘BUY’ signal for SPY. I wouldn’t act on it just yet, due to the unsettled geopolitical situations domestically and abroad. But that’s just me, and I’m a chicken trader who prefers to bet on things that offer more certainty.
This may be very true, however it is also often the case that those who are cuing their trades opposite you, and who are doing so based on fundamentals are making bad decisions. Yes, it is helpful to understand what is fueling the psychology of other traders, but I have personally found that if I allow myself to get too caught up in fundamentals then my emotions come into play. I have found that it turns out to be better to ignore fundamentals, but perhaps that is more an emotional weakness on my side. The fact of the matter is that prices in the short term can and do (often) go against what fundamentals say should happen.
As I have said in other threads, I do believe that SPY is getting ready for a reversal in the upward direction, but I am not willing to say that it would be the start of a significant uptend that would result in a new 52-week high. The early October lows have been broken establishing the downtrend from late-July. I personally believe that any uptrend that develops will be temporary and we will still hit lower lows in November. September was a down month. October is currently a down month and I believe it will likely end down. And I believe that November will probably also be negative. Unless, of course, I am totally wrong…
January, February, August, September are bad months for the HODlers (hanging on for dear life). July is the very best month for SPY.
Click on the years at the top right hand corner for comparing the years looking for the best months for action.
Permit me, if you would, to quibble with your pushback on the importance (or not) of “fundamentals”.
Of and by themselves, fundamentals don’t say --and can’t say-- what should or shouldn’t be done. Nor do charts. Both are just collections of facts that have to be formatted and interpreted.
Do analysts, traders, investors, algorithms often focus on the wrong facts or misinterpret them? For sure. If they didn’t, markets would be “efficient”, and no one could make money in them, or at least not the big money that’s often possible.
I’m not here to try to tell anyone else how they should or shouldn’t invest (or trade), nor as Sshwager has demonstrated in his series on “market wizards” is there any one, single way that works for everyone. I just do know this. If I’m bottom fishing and the fundamentals of what I’m betting on confirm the technicals, the trade is more likely to work than not. John Murphy puts it this way:
FA + TA = RA (aka, Fundamental Analysis plus Techical Analyis equals Rational Analysis)
Completely understand your viewpoint, Charlie. However, I have found that at least for me, I find that I am much more successful if I do not mix trading philosophy with investing philosophy. True, many investors try to apply technical analysis used by short term traders in order to refine their entries and exits. It is also true that many traders try to trade in the short term by using long term fundamentals in order to increase their chances of success. I just find that for me personally I cannot mix the two at all.
Now, granted, I do trade in the short term, and I do invest in the long term, but I never ever trade a stock that I use for investments. Nor will I ever buy a stock for long term investing that I may also trade. If it is even possible that I might want to trade it, then it is totally off limits for long term investing no matter how great the potential. I do not invest in the long term by trying to buy stocks low with the intention of selling decades later when I retire at a big profit. I don’t do this because that is just exactly like trading. Buy low, sell high. Trading in the long term. I just won’t do this.
But that’s just me. That said, I will never stop advising other traders to ignore fundamentals if they are trading in the short term. Fundamentals are more of a hindrance than a help to your psychology. Your beliefs and opinions will only get in your way. But that’s just my opinion.
Again, I find myself disagreeing. More than once I’ve found a really promising chart and then I pulled their numbers only to find out the company was yet another pie-in-the-sky piece of trash of the sort TMF likes to hype.
OTOH, when ‘over-sold’ technically is confimed by ‘under-valued’ fundamentally–yes, both are merely opinions— I make good money, more often than not.