Retirement Today – I Love Charts

I love charts, particularly when they show one of my stocks going from bottom left to top right. Charts give such an incredibly clear picture of what has happened to a stock’s share price over time. A picture is worth a thousand words as they say. I use charts all the time to help with buy and sell decisions but I can’t claim to be an expert at interpreting them. Whilst they are crystal clear about the past, what they have to say about the future is the big question. The trend lines are quite clear, highlighting the trading bands, and shares do tend to stay within those bands. I can usually see the upper and lower resistance levels which seem to act as a control. Going beyond that gets difficult. I have read a lot about charts and followed a lot of the educational pieces in Marcus Today, but I still struggle to understand or more importantly to be able to see the complexities that facilitate prediction.

The list of indicator patterns which may or may not be there seems endless; pennants, flags, wedges, cup and handle, double tops and double bottoms. I believe there are about 35 in all. Sometimes they are clear, but more often than not I look at a chart and can’t see any of them. If I find them the next problem is to interpret them. I can’t claim to have had outstanding success in doing that, though I did manage to sell half of my MQG close to the top and some CSL too. MACD and the RSI helped with that. It was ‘MarcusToday’ that alerted me to the possibility, I just had to get the timing right.

My favourite style is the candle chart. Shows the big picture very clearly and has so much more information built in. The colour adds a bit of fun too with red for a fall and green when the going is good. I believe you can change the colours on some systems but red and green seem to work very well. I was surprised to discover that candle charts are a very old technique. According to Wikipedia the candle chart was developed in Japan by a rice trader in the 18^th century. That was nearly 300 years ago! The finance world seems to have been a bit slow to realise its value and didn’t adopt it until 1991 when Steve Nilson wrote a book titled “Japanese Candlestick Charting Techniques”. 

Like statistics, you can exaggerate or suppress the message from charts. A few weeks ago I saw NHF gain 5% on its results announcement. The next day the market turned around and decided the result wasn’t so good after all and cut it by 7%. On a daily chart that would have looked dramatic but on a weekly chart it would not show at all. If you are not into trading and prefer a long-term form of investment, using a weekly interval on your chart will save you some palpitations and help you see the big picture more clearly. Finance marketing people love a good chart. Always a bottom left, top right chart carefully chosen to avoid any bad years. A good tweak to the vertical scale can make a modest gain look like a bonanza.

The most impressive presentation of charting as an investment tool I've seen was from ‘Candlestick Queen’ Louise Bedford in an interview with Henry in his ‘On the Couch’ podcast. Here is the link. Louise’s enthusiasm for charting is compelling. If you missed I recommend digging it out for a listen (Thanks Harold, I have added the link.). If I was a lot younger, I might well study her methods but I think my brain is too old now to take it all in. She claims a lot of success with her training programs but it seems to me that following her might make investing a full-time commitment. I retired to have more freedom, not to tie myself to the stock market, even if that means I forego some income.

Looking back, while charts have helped me time my buying and selling, I identified my best-performing stocks by other and often different means. I have always looked for stocks that would grow and grow rather than chase dividends. The early ones were the banks that did provide dividends, but more recently they have come from the healthcare sector and most were highlighted in ‘MarcusToday’. RMD, PME and CSL have been wonderful investments for me, but RMD and CSL are now well down from their best. I sold some CSL but missed selling RMD despite advice from Henry. A bit too slow and indecisive. PME on the other hand is hovering around an all-time high despite a depressed market. Henry identified that one, and I had some personal contacts in the industry that supported his view.  I’m keeping an eye on the charts with that one, but also on the company’s enormous growth potential. ALWAYS LOOKING FOR THE NEXT ONE and my money is on Marcus and Henry to find it.

I’ve listened to many financial experts make the case that their particular approach to investing is best, the only logical approach! Why do they choose that approach? Which one will we choose to follow?

Personality I’m sure plays a big part in their, and our decisions (plus marketing). We have to be at ease with the way we are going. Enjoy the journey.

If you would like to email Harold, please click here.