Stock Analysis Talk

This posting and stockanalysistalk.com provides information using market trend analysis for technical analysis of stock data for market investment, stock market trading, portfolio management, and investment position for financial growth.

Let’s talk about moving averages in this posting.  Good technical analysis of the market is like free money because it provides good trading signals that take the emotion out of the trading decisions.  Moving averages are a key part of the technical analysis.  The “big players” talk about the 200-day moving average as being key.  This helps to determine a Bull or Bear market.  If the stock price is above the 200-day MA it is a Bull market, and if the stock price is below this MA it is a Bear Market.

Trading signals generated usually need to be different based on a Bull or Bear market, so the moving average helps to determine the market type.  The only problem is that this indication has quite a lag time, so the trader needs to be patient.  The good news is that there are enough securities to choose from that you can keep you portfolio active most of the time.

Other players look at the 50-day moving average in determining the same Bull/Bear signal.  Its time lag is smaller and it gives a good indication of the market type as well.  The problem to watch out for is when the stock price is oscillating back and forth across the line.  This condition causes a non-described market or possibly a sideways market.  The trading signals still work, but I prefer to break the market into three types, Bull, Bear, and Sideways to help define the trading signals.

Why does the moving average work?  Well, to a greater degree it is a self-fulfilling prophecy.  If enough traders use them, and if enough money is moved based on them, then they will work by default.  Much of the technical analysis is based on that very premise.  Other parts of technical analysis have more foundation.  My favorite saying for describing why the market did what it did is that “It did what it was suppose to do”.

Trends can be used to help pick securities that offer good probabilities of positive gains.  The slope of the line gives some indication of the stock’s momentum.  Also, if you look at the convergence or divergence of the 50-day and 200-day lines, they can act as a heads-up for a changing market.  Check out some of the so-called “Picks Of The Day” and see how they stack up with the moving averages.

I found a site called caprockanalytics.com that provides a free market trend analysis.  I went and checked this out and was somewhat amazed.  I am not sure how they do this, but it looks really advanced.  One part looks like a moving average trend line without the time lag, and another parts looks like a prediction line.  They have some really powerful stuff. 

This posting at stockanalysistalk.com provides information using oscillators for technical analysis of stock data for market investment, stock market trading, portfolio management, and investment positioning for financial growth.

Wow, this is a large topic. There are quite a few different oscillators, and they fall into three different categories. There has been much written that describes the basic uses and signals from oscillators. I believe in a lot of it, and they can be used to make trading decisions. In fact, I use them all the time, but probably not in sense that an avid believer would. I think you should do a web search on MACD, STOCHASTIC, RSI, etc. and read the wonderful information that exists. It is really interesting, and it is all good data. There are various packages available that let you develop a trading system, and if you take the various oscillators and try to develop a trading system around one or several together that the results are still lacking something. If you read the oscillator different for different types of markets (bull, bear, sideways), the results get better. But now you have the problem of determining what type of market you are in. There are some interesting things you can do that will make this easier. I haven’t stumbled across this technique described anywhere, but I am sure somebody has written a book or article about this method. Once you have read up on the various oscillators and understand how the one you like works.  You can do some interesting maneuvers to find good rewards. I like the Stochastic Slow oscillator, and it is easy to find in most web charting tools. Take the Stochastic with some data, an index like the S&P 500 is a good place to start, and analyze it over the last couple of years. Now look at the same data over a longer period with a time frame (compression) of 1 week and then 1 month. If you could overlay all of these charts with a common time base (x axis), you would see that the amount of movement of the data varies as these three oscillators go in and out of phase with each other. This really doesn’t turn into an indication of magnitude as much as it describes the strength of direction. Of course you can do quarterly and yearly, if you have enough history data, but the overall affect starts to loose clarity as you dilute this too far. I do NOT base my trading system strictly on the oscillators, but they surely contribute. Knowing when positions are over or under bought at various time compressions tells a big story.

Let me share a belief. In general, I believe the market is reasonably predictable. You can’t predict anomalies, but you can predict a normally traded market. This is not an easy task, but I believe some people have found the methods to do this at various degrees. If the market falls out of prediction, then a anomaly has happened, which is a very small amount of the time. Will we probably not be able to take the information from out various discussions and predict the market, but we will be able to make better informed trades.

The market movement is comprised of up and down movements that vary in frequency, phase, and magnitude. Therefore, the oscillators help put these cycles into perspective. If you can time the cycle, then you have most of the battle won. The cycles and oscillators won’t get you a perfect trading system, but by putting different time compressions together with the oscillation periods you can do pretty well. An example of how this might work is: if the monthly and weekly compressions are on there way up but not over bought yet, then the daily down cycles should be small and the daily up cycles should be larger. This describes a Bullish market and you may decide to ride through the cycles. As these compressions get out of phase you get different types of movement in data and can handle them accordingly. Go ahead and study these affects, and I’ll come back to this subject sometime in the future embellish it further.

There is an article at stockcharts.com, “Introduction to Technical Indicators and Oscillators” that has a lot of good information on Indicators and Oscillators. http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:introduction_to_tech#centered_oscillators

This might be a good place to get some useful information. I performed web searches on the various types of oscillators and found much information.Â

This posting at stockanalysistalk.com provides an introduction into technical analysis of stock data for market investment, stock market trading, portfolio management, and investment positioning for financial growth.  To make money in the market, proper position selections, diversification, and non-emotional decisions need to be the main objective.

Proper Position Selections – This really varies from investor to investor depending on his/her comfort zone.  Meaning, the amount of gain potential verses risk that is comfortable to the investor.  Selections can be in the category of Mutual Funds, ETF’s (Exchange Traded Funds), or stocks.  Positions should be selected because they show potential for gain.  Selecting a position because it is popular, has a good product, or is a good company may not yield the returns desired.

Diversification – Funds are managed entities that carry different levels of diversification, depending on the funds charter.  To some degree, the Funds carry less risk, but also offer less gain potential.  Diversification of stocks must be managed by the investor and can have a high or low risk/performance depending on the selections.

Non-emotional Decisions – This is easy to say, and is rarely achieved.  I have been trading for many years now, and I still have trouble with this one.  But, never the less, it is the proper goal.  Therefore, I believe that good analysis with buy/sell triggers helps take the emotion out of the situation.  It is really hard to develop that perfect trading system, so adequate analysis is the primary goal.

Day Trading, which I have done, is a topic in itself and is not going to be the main topic content of this BLOG.  End-Of-Day trading lends itself to the majority of traders/investors and will be the main focus.  End-Of-Day simply means that the analysis and review of positions is done at the end of the day to determine what should be done for tomorrow.  In actuality, this can be done daily, weekly, monthly, and etc. but, the more frequent you analyze you positions, the less risk you incur and the greater the potential you have for maximized gains.

Analysis can be performed to achieve different types of trading.  There is momentum trading, trend trading, swing trading, and market timing.  In my context, momentum and trend trading are similar but not exactly the same.  Also, swing trading and market timing are similar but not exactly the same. 

Before we dive into all of this, lets talk about the philosophy of investing.  There is an opinion that you can’t time the market, so you should buy and hold for the long term.  I do not hold with this opinion, and the market from 2000 to 2003 should be a good lesson because it vaporized billions of investment dollars.  My personal philosophy is to manage your losses.  Give back, to the market, as little as you can achieve while allowing your gains to work in a positive manner.  That is easy to say, and we will work on the methodologies that allow that to realized.  There will be cases where you would have made more gains with the buy and hold, but the reverse is also true.  I would rather sacrifice some gains to manage my risk.  I have beaten the gains of the market significantly for years now, and that is not at all hard to do.  If you prefer the buy and hold philosophy, then your position selection process needs to encompass different factors then what is normally used in technical analysis.  I do not take a position of telling you what is the proper thing for you, I only tell you what I prefer and how I analyze and trade.

 I have yet to have an analyst tell me what is going to happen tomorrow.  They spend all their time telling me what has happened and why it happened.  I have had various investment advisors, and I am sure there are some very good ones out there.  But, I have been quite disappointed in the ones that I have dealt with.  It became obvious to me that if I wanted more gains in the market, I would have to do more myself.  Therefore, if you want great gains in the market you have to spend a greater amount of time, and if you want extraordinary gains in the market then extraordinary things must take place.  I take the position that different levels of technical analysis can, and will, result in respective levels of gain.  But keep in mind that not all good yielding analysis is hard or complicated.

There are services available that perform market analysis and guide you in your investment process and decisions.  Some are really extraordinary and others are really bad.  I have found one service that has surpassed any analysis I have found to date, but I will hold that back for now so we can concentrate on the task at hand, achieving some degree of technical analysis to access position potential and risk.

This posting acts as an introduction to this BLOG.  I suspect I will be somewhat redundant in the future, but I will try to choose and stick to a particular topic.  Feel free to comment on the postings and suggest future topics.