Technical Analysis and me

When I started to be interested in the stock market, I only thought in earning a lot of money. After reading a couple of basic manuals in order to know how the stock market works, what I wanted to know was how to earn fast and big money. I wanted to know the secret formula to earn money non-stop, because I thought that people who know how to invest in the stock market earn money continuously. In that moment, technical analysis appeared in my life.

The first book that I read of these characteristics was “Secrets for Profiting in Bull and Bear Markets”, written by Stan Weinstein. He shows his point of view about the stock market since the first moment, as we can see in this paragraph:

“Buy low, sell high! That’s the shortcut to a fortune, right? Wrong! It is just one of many loss-causing clichés that the crowd chants as the lose money year after year”

To be frank, he convinced me completely. All through the book he shows many graphs in which we can see that how investing in the adequate moment and following the bullish trend, we can obtain profitability of over 100% almost without difficulties.

Just after finishing the book, about April 2007, I thought that I could invest successfully. I was convinced of that only looking at the graph I would know what I had to do. I thought that taking into account trends, moving averages, resistances, supports and all that kind of information I could start to earn money without risk and non-stop. After the analysis of many graphs, I found two evident buying opportunities that I can remind perfectly: Mapfre and Banco Popular. I could see myself counting the earnings. Here we can see both graphs.

Mapfre:

Popular:

As you can observe, in both graphs the trend line is clearly bullish. Moreover, in both graph we can see how the price broke the resistance, being a double resistance in the case of Mapfre. It seemed two manifest buying opportunities, at least according to the book that I had read. However, Mapfre’s share price fell from more than €4 to less than €2.5 and Banco Popular’s share price fell from €16 to less than €9. It was a complete disaster.

After these two mistakes, I realize that something was wrong, that my knowledge about the stock exchange was not sufficient, so I decided to read one of the most complete technical analysis books: “Technical Analysis of the Financial Markets” by John J. Murphy. In this book I could learn all related to technical analysis, with which I thought I would be prepared to earn money definitively.

Despite I had advance knowledge about technical analysis, I continued without seeing any profit. Neither trends, nor moving averages, supports, momentum, MACD… Nothing worked in order to forecast future performance of the stock market. My knowledge only was useful to find defects and explanations (always a posteriori) which explained the reasons for my forecasting errors.

Finally, after so many disappointments with technical analysis and so many attempts to become rich quickly trying to forecast the short-term performance of the stock market, I realized that it was almost impossible and, moreover, technical analysis made no sense for me. Perhaps it works for some people; nevertheless, from my point of view, I don’t find it effective and I find it very risky and, over all, lack of the most important thing: a solid basis in which it could be settled.

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