Technical analysis/chart reading - L/S Equity
For you LO and L/S equity analysts and PMs, both MM and SM:
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How often does tech analysis go into your decision making to buy/sell (or trim/add on the margin?) or does it affect timing of purchases (e.g. RSI is high so let’s wait a week to cool before buying)
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How often do you as a PM override an analyst decision based on fundamental analysis? (They think earnings will be good, but chart has been weak relatively into earnings implying market knows something)
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How often does it add value to process (avoid blowups or help cut losses)
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How much do you weigh fundamental vs. technicals (knowing that they are linked as weak technicals are often tied to weak fundies and vice versa). 60/40%? Or 80/20?
Does being at a LO vs SM/MM differ in view here?
Working at a MMHF, in a pretty short-term oriented pod.
Technical analysis is used as an additional argument to support a thesis. It's never the main pillar of it.
I would say the weigh is typically 70/30 and it goes to 50/50 during periods of 'return to mean' momentum (we basically are only looking for beaten down stocks).
More importantly, we use chart to retrace the equity story and understand what's baked in the current share price.
I learned about technical analysis from my old man who is a veteran solo investor and previous asset manager. He had a whole bible on technical analysis and I think it is definitely useful when paired with fundamental analysis.
I incorporate RSI, MAs, patterns (ex.: Shoulder-Head-Shoulder) in all my analysis regardless of time horizon. I don’t go very extensively into it, I just try to get an understanding of the market’s perception for the stock. Essentially, its fundamentals alone aren’t sufficient because at the end of the day you’re always hoping someone else is gonna pay for it more than you did in the past. So for instance, a heavily bought RSI and a shoulder-head figure could indicate there is a lack of buyers currently and that negative surprises/news would be more impactful than positive ones. Which yields the question: do most market participants have a significantly different perspective to mine, and if so, what would it take for their return estimates to change?
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