RE: IG Interview with David9 Feb 2022 20:24
I think this is pointless with you muscles but some others might find it sort of interesting: Anyway here goes:
There are 2 ways of picking a stock, Fundamental and Technical Analysis (FA & TA) FA looks at the company, its market, what it does, profit/loss, balance sheet contracts etc and decides if it looks undervalued. Typically the timescale is relatively long term ,1 year plus.
TA measures sentiment and that is represented in the SP and graphically shown in chart patterns and works most effectively over a short time frame. It works on the basis that crowds are predictable and will likely do predictable things when stimulated correctly. Money, with Fear & Greed thrown in work a treat.
Nether system is remotely fool proof. People who use TA will typically buy and sell much more frequently to try and profit from likely moves in the SP and expect to take small profits but achieve these small gains more frequently than a Long term holder might achieve.
Its possible to mix both methods. (I find it adds a layer of unnecessary complexity, so I stick to TA)
What most people who deride TA (and thats fine, by the way, each to his own,) always ignore 2 things. One is TA is an odds based approach, it tries identify what is most likely. Its not predictive in the sense that it will fore tell the future.
And the other big thing with TA is money management. If you are going to trade frequently you don't want big losses otherwise you are out of the game. MM is as important as the chart itself. Without good MM, the chartist is unlikely to be successful.
I have a simple but for me effective money management system: I sell 30% of my original purchase when it rises to 30% profit and sell another 30% of the original holding when it hits 50% profit. That way I have recouped 84% of my original stake and am therefore risking 16% cash balance but am holding 40% of the original shares.
It helped me offset the loss on ADV and helped me also here last time.
TA&FA are completely inter-related. How can they not be?
(Any unexpected news that surprises the general market will by definition surprise the holders of the stock whatever method they use.)
Anyway, good luck.