Trade The Journey

Trade The Journey

Back to the Fundamentals without getting Technical!

“Analyzing the is market harder than I thought” is what I thought as I made my way back home after a long day at work. Fortunately for me, I had a ways to go due to the traffic, so I had time to think about what I concluded.

 

The more you learn, the more you realize how much more you need to learn — the illusion of perfection.

 

I had just finished a twelve-hour audiobook on Intermarket analysis. This book took me two months finish. I listened to each chapter between two and three times.

When I first started studying investing, my immediate goal was to read as many books as possible on the subject of investing. If there were a gold medal awarded for speed reading, I would have received the medal. But did I truly understand the material?

 

NO!

 

Last year I felt the impatience growing, so I studied over time. Long story short, it didn’t help. You can’t rush these things. I’m reminded of the amateur gym goer who has no routine or experienced method of working out. They complete each exercise with a sense of urgency as if the next workout will accomplish the ultimate goal of a fit body.

After a FEW weeks of completing workouts at this pace alongside the accompanying soreness, few are ever seen again. Quick is not quick enough.

Seeing the importance of Intermarket analysis, I decided to pace myself.

I did not move on to the next chapter unless I understood the current one. This method proved beneficial.

 

This book covered the interrelationship of markets and investing, and of course, it got technical. Luckily, I had spent the last three or four months studying nothing but technical analysis.

Of course, this doesn’t compare to the years the masters have completed, but its a start. The reason why technical analysis became a needed skill to understand the book is because the best way to compare assets is on charts. Its a visual representation of the asset’s movement. For instance, as commodities rise and inflation follows, the interest rates will move up to combat inflation.

If rates are rising, what happens to bonds? They fall.

What’s the best way to visualize the relationship between commodities and bonds? In my opinion, charts.

 

Only the professionals and the experienced know that markets should not be analyzed in isolation. My guess is the author assumed that the reader had reached a certain level of understanding.

 

The technical analysis section lacked because it’s hard to visualize the patterns on a chart. To listen to audiobooks on technical analysis you almost have to know the patterns by memory.

Once you learn the patterns, technical analysis loses its mystique of complexity. Analyzing the meaning of the projections and what they forecast is the complicated part.

What I mean in terms of complexity is the visible part. Some traders decorate their chart with indicators with intricate patterns and numbers. Others choose to keep it simple.

Looking at the chart below, you gain a sense of what I mean:

But once you understand the meaning, it all opens up. The averages, patterns, trend lines, and so forth symbolize something. What that something is, depends on the eyes looking at the chart.

 

At the root of technical analysis is the human psychology resulting from supply and demand. The emotions of the crowd are measured through the indicators.

 

Double tops, ascending triangles, bottlenecks and whatever pattern you can think of symbolizing the emotions so take notice. I say notice because correctly identifying the pattern is the hard part.

Identifying the pattern as its emerging requires skill and attention to detail. Its also requires you to be flexible in your thinking because the pattern could fail.

Do you see the point I’m trying to hammer home?

 

There are no sure things. So this week I moved back to studying the fundamentals. The fundamentals involve the numbers and analyzing the company from a business perspective.

Based on the report, management and a host of other factors that are measured and displayed in the reports:

Is this a sound company?

Is this an undervalued company that will showcase its value as time goes on?

These are quite different from the questions technical analyst is asking. I’ve read that true technical analyst could care less about what the company does.

These are varying but accommodative perspectives that have one ultimate goal: profitability.

The fundamental aspect viewed as less risky and more cemented as a gauge of value. The technical aspect, focusing on the supply and demand factors, the chart.

It feels as if I’m learning about the fundamentals with a different understanding. Fundamentals, I believe, will give me a better understanding of the ultimate direction of the companies stock.

And the technical side provides me an entry/exit points but more importantly it gives me a better idea of the stock’s sentiment.

 

The ultimate goal is not to be correct but to understand what I am doing. This way I can accurately assess what truly works for me.

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