Investing in stock market - technical analysis

Investing in stock market

How to look at the chart using technical analysis?

Once upon a time, one of the very good technical analysts said that you need at least 10 years of looking at charts to start seeing the most likely scenario of future events.

When I started thinking about it, I came to the conclusion that there is much truth in it, though not quite. Of course, individual inquiry into knowledge will last much longer than using someone else's experience. This is one side of the coin. Now I would like to go to the second, more important.

Technical analysis in stock exchange investments 

Technical analysis requires an appropriate look at the graph. Analyzing charts causes problems for many people because they have a bad approach to them. I remember myself that I had similar problems a few years ago.

Although I used techniques from books by respected American authors in the field of technical analysis, I did not get away with anything. I just saw on the charts what I wanted to see, not what was actually on them.

I treated the graph as a drawing, which I have to analyse. Almost like a graph of some mathematical function. It was only after some time that I realized where my basic mistake was. More than half of those who apply technical analysis also make the same mistake.

The fact that every person analyzing charts should be aware of is that they are created by people! Now you can say:"But discover"! But maybe surely? Tell me, can you analyze the stock market chart in terms of what investors felt at any time?

Do you know at what point during the analysis, which feelings gray investors? Can you locate your greed and fear on the chart? Each tick on any stock market chart is at least one completed transaction.

One investor sells one investor and the other one buys. One is guided by the fear that the price will already fall, and the other by the greed that the price will rise. Both of them cannot be right! You have to analyze which investors are more interested and you will know which direction the course will follow.

Look at any modern consumer behaviour book and you will read there that 90% of people are driven by emotions in their purchasing decisions. If it weren't so, nobody would buy Mercedes, golden watches, branded clothes of famous creators.

Daewoo Lanos, the cheapest Casio watch or a jeans set from a nearby bazaar will perform the same functions at a much lower price. So tell me where is the logic here? Of course, people buy such things for prestige, improving their humour, impressing friends. Do you think that in the case of an attachment, what is investment on the stock exchange? Of course not!

Psychology of investing in stock exchange

This is the psychology of investment. People investing on the stock exchange or any other market are guided by greed and willingness to earn as much money as possible. In my opinion, the theory of rational investors' rationality is highly exaggerated and somewhat outdated.

George Soros himself, the best manager of all time hedge funds,"the man who broke the Bank of England" and forced him with his speculation to withdraw the pound from the ERM system, writes in his book "Crisis of World Capitalism"that markets are not in balance for more than 90% of the time. They are either overvalued or undervalued. That's why the world stock exchanges are constantly revolving in cycles of booms and bequests.

If you start looking at the charts as if you were behaving the crowd and knowing what emotions investors are experiencing in the current situation, you don't need anything more. This is exactly what the technical analysis with all its tools, such as Japanese candles and moving averages, is intended for. Analyse what investors now feel and determine what they are going to do in the future.

It seems to be very simple, and yet most people don't understand this simple thing. Instead of selling at the top, they buy, and when the price drops, they wait. After all, they let them run their nerves and sell them practically at the very bottom of the correction, making a significant loss.

Then the price moves upwards, but the investor does not buy back any more, because he feels fear of another loss and looks at the price of the company's shares as it grows, penetrates the peak at which he bought it upwards. However, he spit himself into a chin that he did not buy back his shares. I know something about this, because I have done it many times in my own investments.