Technical analysis is when someone attempts to forecast the future direction of prices by studying the past market date, which is primarily price and volume.

I had traded in the past based purely on technical analysis with mixed success. The times when I have not been successful was when I had a very short-term holding period, sometimes less than a day and often just for a few days.

I know all about technical indicators such as Bollinger Bands, RSI, MACD, OBV…and the myriad of chart patterns like Rising Wedges, Cup and Handle, Head and Shoulders and Candlestick patterns like Inverted Hammer, Dogi, Homing Pigeon and down to the most basic concepts like support and resistance.

All good stuff and all of it has it’s place in my opinion.

But for me, with the course I decided to take with my method, I decided that my ideal holding period would be 1 year or more. Therefore, using many of these technical indicators to determine if I should enter a trade, or when I should enter a trade became less important, in my opinion.

I was not going to make short term trades as a day trader, swing trader or even as a position trader. In my mind, using many of these indicators and over analyzing charts for well-known patterns, did not become as important.

However, I can tell you this…I do stick to some of the basics.

I use charts – I don’t just blindly buy into a company with great fundamentals without looking at the chart. You might own a great company that is solid as a rock doing quite well, but end up holding it for over a year (or more) while waiting for everyone else to notice the same thing and then finally…finally the price will move upwards. That is why it is important to look at the charts.

Here is what I look for:

• I make sure the chart isn’t in an obvious downtrend
• I look at volume for signs that something is changing
• I look for sharp price movements that show that again…something is changing.
• I don’t use indicators. I’m just looking at price movement and volume

I believe one of the dangers of getting too wrapped up into the details of technical analysis is that you lose sight of the big picture. To overly rely on a technical indicator tell you when to buy or sell is madness.

If you already know the fundamentals are rock solid and now you look at the chart and notice that an uptrend has started, along with an increase in volume, what more do you need?

It is widely quoted that about 90% of all traders lose money. Most wash out, blow up their accounts (believe me, I’ve done that) and then an ever-present new batch of traders comes in to take their place.

That being said, there are lots of traders, using all sorts of strategies, that are extremely successful. However, it is very difficult…way more difficult than new traders think, to become successful.

Ok…I’m off of my soapbox. 🙂

What I look for

• A base – This is a period of horizontal, mostly sideways movement that could have gone on for months or a period of years
• An uptrend – The start of an uptrend, breaking out of the horizontal accumulation/base period.
• A volume increase – The recent volume (number of shares traded) has shown recent signs of increasing when compared to the past.

Let’s look at some charts!

I think best way is to start showing you some charts of actual trades that I have made. Though each chart is unique and have differences, there will always be a few commonalities.

GNSS

Below is a weekly chart of GNSS.

I want to point out several things with this chart. Before the upward sloping trend (the blue line), notice there is over a year of horizontal price movement.

I would probably have purchased GNSS at some point along the uptrend that I showed with the blue line, but didn’t see the chart until much later.

After the sharp dip that most every single stock chart encountered in March and April of 2020, due to Covid, notice the massive increase in volume that I highlighted in the green box. This is telling us that something is changing. People are starting to take notice and sure enough, the stock ripped higher.

I waited for a pullback where the stock would find some type of support, which often is the top of a previous high. A concept of technical analysis is that often that future resistance (marked by a former high, becomes future support). Sure enough, that green bar that I drew across that previous high did become support. I waited a bit to make sure and made my entry.

Let’s look a little closer.

Below is a daily chart of GNSS

With this chart, I didn’t change anything, I just zoomed in a bit more and moved to a lower timeframe, switching from weekly candlesticks to daily candlesticks. It is with the daily chart that I use to make my decision about an entry (you can see my note where I entered). I had a bit of a loss on paper shortly after I bought in, but again, the price held and the “re-test” confirmed that I was in safe territory. Also, I have confidence knowing that my analysis of the fundamentals show that the company is doing well financially, so it isn’t likely to implode.

So my only task from here is to just sit back and hold…which I did.

OIIM

Below is the WEEKLY chart of OIIM

Same concept…

Look at that long, boring base period. This is a stock that holds numerous, valuable patents related to battery and LCD screen technology, which it had been developing and selling for years. Again, you could have bought on the fundamentals and held. Waiting for everyone to notice. Wasting time.

As before with GNSS, I want to look at a chart and see that after a bit of a base/accumulation period, that things are starting to change for the better.

And wow, have things started to change with OIIM!

You see the volume increase that I am looking for (the green box). That is confirmation that the market is starting to believe that OIIM is undervalued and the ever higher bidding is pushing the price to newer and greater highs.

Below is the DAILY chart for OIIM

This closeup shows my entry point. Notice that huge spike of volume towards the start of August 2020, then some sideways/downward movement. The stock didn’t tank after that upward spike like you see with most “penny” stocks under $5. It held. Of course, this company has solid fundamentals. It is not your typical “penny stock”.

When I looked into the fundamentals, I couldn’t have been more excited. I thought the stock was WAY undervalued from a fundamental standpoint and though the price had already zoomed up from a bit over $1/share, I felt confident that I was still early.

That brings me to a valuable insight I want to pass along.

Sometimes you can get scared that a stock has moved too high and you can’t imagine that it can go much higher. It looks to you by studying the chart that the price is up in nosebleed territory and due to come crashing down.

Don’t fall into that trap!

Have confidence in the fundamentals. If the fundamentals are there and the growth is there, the share price will continue to rise. Imagine those that sold out of Amazon when everyone thought that it couldn’t go much higher during the company’s early years. Had they held, had confidence in the company, they would have been “richly” rewarded.

Want to see a painful example of this? Check out this tweet from a guy about selling his Bitcoin for a “big” profit and expressing regrets that it was now even higher…at $8 from 2011.

As I type this in February, 2020…Bitcoin is almost at $50,000. Imagine if he had held?

I’m not saying to blindly hold and never sell. If you think the fundamentals have changed, the reason you bought the stock is no longer there and the price is starting to show classic signs of a downtrend, by all means….get out!

If you thought OIIM’s chart looked like it has been entering nosebleed territory, check out this next chart that I’m going to show you…a stock that I still own (and wish I had bought more of.

APPS

Here is the DAILY chart for APPS

One might say I should have gotten out on that big spike when the earnings came out, right?

I didn’t

One might say I should have gotten out on the pull back when it got over $10/share, right?

I didn’t.

Let’s take a look at what apps has been doing since then by taking a look at the weekly chart.

Here is the WEEKLY chart for APPS

Again, notice the same theme, a period of not so much going on and then a general surge in volume that I highlighted in the green box.

I could have sold at $5, or $10. Should I have gotten out in August after the sharp dip it took when in the $20’s.

As I type this now (2/7/2021), APPS is at $88/share. At this point, perhaps I can diversify a bit, but heck…do you see what I am saying?

Have trust in what you are buying. APPS has amazing fundamentals.

When you have sound fundamentals going for you, a solid chart showing that things are just getting started to confirm that you are getting in at the right time…trust what you see. Trust what you own.

Aside from the fundamentals (my study of the balance sheet and income statement) and the technical charts, there was something else that I want to talk about next…

That is a changing story for a company. New catalysts.

Part 4 – Catalysts

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