The main difference between the two schools, most notably, is that TA specializes mainly in short term entry and exit strategies, while FA concentrates more on spotting stocks with decent growth potential over a period of time. Both are necessary schools to learn in order to become a Sophisticated Investor (SI), but in my opinion, no SI could've lived without either one of them.
Having said so, during my early days, I have learnt a handful of harsh, difficult lessons for buying stocks based on brokers' recommendations. I am not saying that brokers don't give handsome advice. I only mean that you must choose your brokers wisely, and educate yourself to the extent that you are competent enough to evaluate your brokers' recommendations.
It's not as difficult as it sounded. As the saying goes, "It's never difficult for a businessman to differentiate what is a deal and what is a rubbish". Similarly, it shouldn't be difficult for an investor to have done the same to investment opportunities.
Learning the chart has led me to spot many short term opportunities for quick capital gains, such as BJCORP, in this case. In the previous two instalments, I have made four decisions :
- Asking Gary to wait and see before he enters into position in end February 2008.
- Asking Gary to exit in end April 2008.
- Entering (myself) in early April 2009.
- Exiting the position 6 days later, making a 45.5% gain.
Decision 1:
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| Illustration (i) : Decision 1 |
A roughly estimated support of RM0.985 (recorded at the low of 25/02), and a resistance of RM1.31 (recorded at the high of 25/01) can be seen.
Rather easily, you can see that the support and resistance levels here weren't convincing. There are two reasons for that statement:
1) Untested Support & Resistance.
2) No Higher Low, Higher High.
In a stock downtrend, it is unlikely to see a resistance even being tested, and support withstanding a breach. This is due to the nature of a stock downtrend that the stock would record a lower low, and lower high. I'm not convinced that a trend reversal is happening right now. A signal of bullish reversal would normally be a record of higher high and higher low, accompanied by the support level tested on at least one occassion.
Moreover, I would be pretty cautious at this moment when a Shooting Star was formed on the 27/02. It could have been a false signal for all you knew, but knowing its formation at the top of an uptrend usually gives a bearish signal. Those were the reasons why I did not encourage Gary in entering the stock at that moment.
Decision 2:
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| Illustration (ii) : Decision 2 |
The stock then moved sideways for a number of weeks, testing the resistance of RM1.15 a couple of times. Although the price has managed to make a higher low, but at the same time, it failed to make a higher high. Again, it did not justify a signal of bullish reversal.
Technically, I advised Gary to escape when a Bearish Engulfing was formed around the strong (tested multiple times) resistance level.
Decision 3:
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| Illustration (iii) : Decision 3 |
In the later plunge, the stock surprisingly made a higher low, forming another support of RM0.50. Both resistance and support were then tested. Just as a new resistance was formed at RM0.52, the support was then broken in mid February 2009.
After the stock rebounded off the previous support of RM0.445, the stock then moved up strongly to break the resistance of RM0.52, and then retraced down. The once resistance would then turn support. However, at this point of time, the support was untested (weak).
Later on 07/04, a Hammer was formed. Being the support was weak, it could have been a false signal, so I waited for a confirmation. On the next day, a white candle was formed with its base resting on the support, accompanied with good volume. This was the confirmation I needed. Also notice that the white candle formed on 08/04, being read together with the Hammer on 07/04, formed a Bullish Engulfing.
I then queued to enter at RM0.55, which was the opening price on the next day, anticipating that the stock would pull back to its resistance of RM0.60.
(Note : We will discuss more on Volume Analysis when the time comes. For now, just keep in mind that in TA, volume is king. No matter how good the technical setup for a stock is, without good volume, the price would probably just won't break up!)
Decision 4:
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| Illustration (iv) : Decision 4 |
Now, I would ask my readers. Should I sell at this price?
The answer is NO. In TA, we always wait for confirmations prior to making a move. Just as I waited for a confirmation to buy the stock, I would also wait for a confirmation to sell the stock. The confirmation that I would be looking out for is a black candlestick to show the beginning of a bearish trend.
On 10/04, the price continued to go up, without showing any bearish signal. On 11/04, it showed a Doji. A doji is usually formed at the top or the bottom of a trend, hinting a reversal is imminent. Then again, to be on the safe side, we have to wait for a confirmation of such signal. If a black candlestick is formed on the next day, then it is confirmed that the stock price is going on a downtrend.
On 12/04, no black candlestick was formed still, as it continued to rocket up and break the next resistance of RM0.74. The following resistance would be the preceding high of RM0.80. On 13/04, the price broke RM0.80. However, the trend came to an end, when the bears came back on 14/04, and a black candlestick finally emerged.
I exitted on the noon of 14/04 (noticing the intra-day trend and volume) after the price came down and touched RM0.80, thus making a profit of 45.5%.
My readers, it is not difficult to spot all these opportunities and plan (sometimes, you time) your trading strategies and at the same time, manage the risks associated in a long (buy) or short (sell) position. In fact, I have made thousands in this particular stock after April 2009, when it continued its uptrend, using the exact same strategy - candlestick patterns and support & resistance.
Of course, there are a lot more indicators and candlestick patterns that I would be sharing with my readers in the upcoming articles, to enhance your chances of success.
I remembered there was once when I chatted with Gary over Instant Messenger, and he made this remark:
"Shares are risky. I won't invest in shares anymore."
It is important not to lose yourself in the stock market. Of course, there are times when we failed to make money and got hit flat. Even I have experienced that before, many times! Therefore, it is important to always stand up from where you fell, and valorously challenge the market again.
For Gary, I feel sorry to him that he has just given up a very useful investment vehicle available to him in his life, that could have made him more wealthy than what he already is.
So, my friends. Do you think that you should invest based on stockbroker's recommendations anymore? Well, of course you do! Brokers always do have the BEST Insider tips that you might just need, and I MEAN it! You might just get hyper rich relying on their information. That's why you get yourself a broker, right? But you will need to be a distinctive investor who knows which are the good deals, and which are the bad ones.
So from today onwards, just before doing what your brokers recommend you to do, always remember to tell your brokers...
"Thanks for your great advice! But, give me some time. I need to first look at my Chart..."
Thank you for reading, and happy Charting. :-)
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