For many years, I have come across many people successfully mastered the art of Technical Analysis. However I have also met many people who fell into the trap of “Searching For the PERFECT Formula”. This is a common problem of beginners, especially those beginners who had experienced some wining shortly after starting learning about technical analysis. Once they had learned some basic, they began to find and explore some complicated techniques or formulas. They think that they can earn profit by learning the basic, if they were to learn the most complex technique, the profit would be much higher.
However, the truth is absolutely the opposite. They should stick to the basic and master the very same technique, for being success in the stock market does not come over-night. The end-result of searching a “Get Rich Fast Track” will eventually fail. In fact, if practiced correctly and patiently, a simple indicator like Bollinger Bands or Moving Averages can be extremely effective.
We have to know that, even Warren Buffet is creating his wealth by a conservative 20% yearly compounding return.
In Technical Analysis, we apply the simplest element, which is price and volume. Because all indicators are derived from price and volume. In other words, price is the only leading indicator.
After a period of time, fluctuation of price movement shall form chart patterns, which is the most important form of Technical Analysis. The next important indicator would be Moving Average, which reflects the price movement over time, and of course, Bollinger Bands, which his a derivative from Moving Average. After many years of applying Technical Analysis in the Malaysian market, it has became an important Primary Indicator.
To identify any Chart Patterns, users have to draw out trend lines, supports and resistance lines. And we usually have a joke like “If you could draw any trend lines, support and resistance, you had already understood Technical Analysis.” In fact, this is absolutely true. I found out that these successful users are all using the above mentioned Chart Patterns, volume, Moving Average, and Bollinger Bands, and MACD, perhaps Stochastic and others, which is wrongfully regarded as “too common” by amateurs.
This is the original idea of WinChart, we recommend investors to understand the true meaning and interpretation of technical analysis. This not only help investors to learn technical analysis correctly, it also help investors to avoid the trap of “co-linear” effect of indicators.
I remember, long ago, when I was teaching the uses of MACD in one of my seminars, there was a gentleman, who claimed to be an expert in Analysis, saying that he had stopped using MACD 7 years ago, and he stated that his own way is better than MACD. He even claimed to be the teachers of local and neighboring countries' fund managers. Nevertheless, we shall not ignore this simple yet effect indicator. The MACD is derived from by 3 moving averages, and for those who are familiar with our way of analysis, you can actually use MACD to find counters that is moving against the down trend of the broad market. There were no method in searching for such stocks, but surprisingly with the simplicity of MACD, it works.
Fortunately, after searching for the “Perfect formulas” for some time, most users eventually turned to the basic to Chat Patterns, volume and Primary Indicators and MACD.
杨程築
海峡指数首席分析师
CC Yong
Chief Analyst
www.straitsindex.com
