Voodoo Magic is here to stay

Monday, 16th April 2018 14:48 - by Ranjeet Singh

Although I barely look a day over 70, it might surprise you to know that I have been in the investment world for about 25 years. At the start of that journey I was fortunate to work at some of the major investment banks at the time including Royal Bank of Scotland and Deutsche Bank and over the years it has saddened me to watch their demise.

I remember working for “Sir” Fred Goodwin, who was a demi-god at the time, but actually turned out to be a villain after it was found that his reckless actions helped cause the collapse of RBS. I remember watching the news back in 2008 as angry investors threw tomatoes at his window as he hid in his Scottish residence. This was after he refused to give back his massive bonuses despite pensioners losing their life savings after RBS had to be bailed out by the Government.

However, I also have very good memories of RBS and not least because it was where I began my journey as a technical analyst. At the time technical analysis was regarded as Voodoo magic, hocus pocus, nonsense. I remember being ridiculed or just felt sorry for as I pored over charts to find investment opportunities whilst my colleagues used the traditional forms of fundamental analysis including dissecting balance sheets and profit and loss accounts. ‘Poor him’ I could hear them thinking, ‘he has more chance looking at tea leaves’.

Fast forward more than two decades and it’s interesting to see how big the shift has now become and I am so thankful I didn’t lose heart. Since then I have continued to learn and apply technical analysis which is why I can now look at a chart formation as easy as I can read a book. Where it takes others hours to find trading signals I can usually pick them out within seconds or minutes. I may not get them all right of course and technical analysis has its flaws like any investment strategy but it’s like driving a car. You need to keep driving in all conditions, rain, sleet or snow, in order to really get any good at it. In fact, I have been driving for as long as I have been using technical analysis – that’s a long time.

And whilst back-testing is useful (which is where you go back and look at charts but not trading them live at the time) it’s severely limited. I remember watching the trading screens as the tragedy that is 9/11 unfolded. I remember holding a short position in the FTSE100 market as the planes hit the twin towers and I remember the chart going completely crazy. The candlesticks that I was monitoring lost all sense of reality. These were huge 5minute candlesticks hundreds of points in length, and gaps in between them. I had no idea what was going on. My brain was in overload. One second, I was trading and making money, the next I was completely lost. I couldn’t understand what was happening. It was the day that the world changed. My heart cried for the victims. I went through so many emotions. I was even scared something could happen to me. I was trading for myself at the time in my flat, which just so happened to be on the 16^th floor in one of the highest residential blocks in London!

The point that I am trying to make is that you can’t relive those moments. Either you were there or you weren’t.

Although nothing could compare to 9/11 in terms of the level of loss and tragedy, from a trading perspective and impact on the financial markets I suppose the closest thing in terms of a flash-crash was probably Black Monday in 1987. And again, whilst one can look back at the charts you can never fully appreciate being there at the time. One can never know how it really felt to be there at the moment trading, feeling the emotions with their money on the line. That’s a whole new ball game.

The reason I mention this today is because the S&P500 has recently broken through it’s 200 day moving average which is very significant. It is the one indicator that many technical analysts like me follow and moreover many computer trading algorithms are programmed to automatically sell and go into cash when events like this take place. It’s a process known as ‘de-risking’.

Technical analysis whether people like it or not is here to stay and so it’s best to embrace it with open arms rather than reject it.

The fact is that if there are tools available that will make your job easier, and as an investor or a trader we would be stupid not to use them. Technical analysis is an amazing tool that has allowed me to be the trader that I am today. It gives me the confidence in making the decisions that I need to, right or wrong, and I know that it can help you too. If you haven’t already I would suggest you learn about TA because the voodoo magic is here to stay.

And if that doesn’t work then I find carrying a box of PG Tips with you at all times can also be quite handy.

Today’s video can be seen at https://youtu.be/VZB_GsZs-VQ

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.