6 Reasons Long-Term Investors Should Learn Basic Technical Analysis

 

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Stock Market is by far the best investment avenue that you can grow your money overtime. It can’t be ignored the promising reward you can expect from high profit margin with compounding interests. However, Being a long-term investor, we need to equip ourselves as much as possible to be able to complete the finish line.

I’m already investing for several years. After getting the the hang of it, I eventually shifted to be a trader at the same time. My goal is to maximize profit in trading and reinvest it on my existing stocks and add up. I studied the market, took time to learn basic indicators and price patterns, did my own trading plan and to my surprise, I saw my investment multiplied exponentially in a shorter period of time.

Here are the things that you might consider on why you need to study technical analysis and understand its importance in your investment journey. Trading might not be your thing, but being aware on what’s going on will go a long way. It is very important to learn it  and apply it on an investor’s perspective.

1. Hyped buying

 

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I’ve heard many people asking me a dangerous question “What are the best stocks to buy these days and when to sell it”? I’ve seen it in many facebook groups and I can’t imagine how these people are halfway destined to becoming a victim. They are just helpless and very vulnerable to hypes and false tips. That was my mistake too, five years ago. I met this friendly and smart guy who’s welling to introduce me to promising stocks. That was I thought a very great opportunity.

Because I considered him as my mentor, I bought more and more shares from my hard-earned money and I was counting those “eggs ready to be hatched the next day”. I was so excited, up UNTIL…one day I saw my portfolio went down 45% and never heard from him again. And it went down and down…I had a paper loss of 50,000 pesos in just few months and as a newbie that was unacceptable. It was so embarrassing too. I did not know what to do and I did not want to tell anybody because it was so devastating to think that I was scammed. I had to figure it out to find an explanation and make my way out.

After selling stocks at a loss, I never opened my account for many months because of disappointment. After reading and doing thorough research, I’ve found out that I was hyped and the stocks I bought was already priced-in and oversold. Nahuli na ako sa pansitan! I took a vow not to depend on anybody’s recommendations and strategy again.

Risk is always there even for long-term investors. After all, risks are everywhere. You may lose money today even the slightest decision you’re making.

Take for example, If you bought stocks of  PLDT (symbol:TEL) few years ago thinking it is the best stock in the country, I can’t imagine how you will feel today when it goes down 50% in a short span of time. If you would still think to buy more because it’s on “bargain” because the market is down, think twice and beware. A stock will not go down  that much without a reason behind it.

2. Panic selling

 

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News are so noisy these days, Peso is devaluing, jobs will be taken from us, World War 3, and Mars Attack is coming hehe! You may be looking on your stocks on red, suddenly you would be probably having a second thought “Should I sell it now?” This is another dangerous question! Several days ago, I’ve seen these guys posting their portfolio and asking help on what to do with it because of dropping stocks. Fear is eating them and ignorance is killing them as well.

I had my share on my newbie experience few years back. I was already so convinced that my stocks are one of the strongest in the market which are Banco de Oro and MPI, not only that they are blue-chip stocks but I’ve heard a lot of good news and progress from these organizations. I already set my goal that I will spend long years with these stocks.

Then one day, I’ve read something in facebook that the market was collapsing and stocks would go to the bottom. I got  scared and I could not sleep. I read more in other news outlets and eventually I decided to sell my stocks in fear that I would be losing my money. After selling it at a loss, I was astonished that after few days my stocks went  up and never look back. I was left with despair and asked myself “Am I missing something?”

3. Maximize profit when the market is bullish (uptrend)

 

With years of managing my own portfolio, I observed many things that are happening in the market on a daily basis. I understood the need of an investor to have a deeper understanding on how the market behaves and how to take advantage on some tools to be more efficient. I already made profit 80% and above just using basic indicators. Learning basics are already good for a start!

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Familiarizing yourself with support and resistance is a very basic indicator yet very helpful. Support is where the buying pressure is intense (where price is considered cheap) and Resistance is where the selling pressure is intense and where the price is considered expensive and somehow oversold. Spotting where it is located would be a great advantage and can already give you an edge to take profit or for you to buy stocks to it’s cheapest price.

4. Maximize buying when the              market is reversing from bearish trend(downtrend)

 

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What should we do when the market is on downtrend? I seldom trade when the market is on crazy ride because it so hard to go against the current. Some traders are doing it but for me I would just spend my time saving more and preparing my funds and wait for the best entry. I identify myself as a position trader but sometimes I do swing trading depending on the trend of my securities. I usually hold stocks 6 months or more until I sold it.

I also opened two accounts for pure investing and one for trading…For investing account, I bought dividend-players and value stocks. For example JFC, AC,Aboitiz,MER,MWC to name few of them. The rest are for trading and for profit-taking.

Know the trends, be active when the market is on downtrend to accumulate more shares and look for good entry. Since market is volatile, be familiar on when is the right time  to put your money. Sad to say, people are excited to invest when the market is sky-rocketing and get disappointed when the market is dropping.

Practice the Moving Average so that you would know some buying and selling signals and confirm trends of a stock. If you are more on accumulating, then this indicator will soon be your best friend.

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5. Manage risks

 

 

What if by all any means one day the stock market will crash just like what happened last 2008 plunging the market down to more than 50%?

Part of our responsibility is to protect our funds. We need to take time to check it and monitor the market’s health. I’m not saying that you have to check it everyday but at least you have the time to look at it and do your simple due diligence. After all it is your hard-earned money. Yes it’s true that you can put an amount of money, leave it for many years and you can expect a very good return. I even wrote an article about it on on my previous blog How to Invest in the Stock Market the Lazy Way?

I would agree with this statement but being able to minimize the risks is another thing. I consider my portfolio as my business and it’s what really is. Anything that will happen to my fund is due to how I manage it.

Take for example with this 10 year chart of S&P 500 in the U.S., If you have invested on it beginning 2003  disregarding the trend of the market. You will still end up negative after 10 years.

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6. Market Knowledge

 

It is very important to know what you are getting into. You don’t need to have business degree to learn basic economics. Do your part and learn it one at a time. I learned most of them in YOUTUBE University, The biggest school in the world! The biggest mistake that a trader-wannabe makes is to join social media groups and be so dependent with it. For me, you’re just making yourself dependent to the information of “so called gurus” thus putting yourself on the situation of building a false confidence.

Every week, learn at least one indicator. Support and Resistance, Moving Averages, Fibonacci Retracement, RSI, MACD, Stochastics, Price Action, and Japanese Candlesticks.

Conclusion:

 

Rather than following certain guru or mentor, I chose to attend training to educate myself. I attended seminars at Caylum Trading Academy and from Absolute Traders. They conduct seminars on a regular basis. It is relatively expensive but the learning you’ll get is far compared from what you paid for.  I also encourage you to buy The Trading Code by Jason Cam which is very helpful.

Bottom-line is, choose financial knowledge than anything else. I would rather spend much cash on learning how to make money than looking at your portfolio eaten alive by the market. Our market is a devouring being, if you will not be wise-enough, it will consume you. Being an investor is not an excuse to not grow and learn more, after all, it is your decision to do something for yourself…

  • I AM a Long-term investor
  • I AM a responsible position trader
  • I AM here to take advantage and earn from the market!

“An investment in knowledge pays the best interest”-Benjamin Franklin

61 thoughts on “6 Reasons Long-Term Investors Should Learn Basic Technical Analysis”

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    Lobel Roderick Gemoya

    Learned a lot from you’re blog Sir….been in the market for 4mos. Traded once it’s successful thanks to trading code by Jason Cam. Pls email me if you have a talk here in Cebu I’ll be glad to attend.

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