The world of finance is huge and complex. There doesn’t seem to be an easy way to convey how the mechanics of the markets work, much less how the man on the street can profit from it. Or is there? If we were to discount the need to know the mechanics, in order to profit from it, and focus on the resulting price moves, we could actually consider Technical Analysis as the perfect tool for reading the markets.
And among the traders in Singapore, an in-depth knowledge of Technical Analysis is more common than not. Hence, earning ourselves the pseudo reputation as the Technical Analysis capital of the world. Candlestick patterns, chart patterns, and advanced indicators derived from price, the average retail trader in Singapore could tell you a lot about these just off the top of their heads. But what makes Technical Analysis seem so necessary for the average retail trader in Singapore?
Firstly, would be the impression that technical analysis seems to be easier to learn and understand than the likes of CAPM or Keynesian economics. The visual appeal of chart reading, with colourful indicator lines, makes it seem like child’s play.
Secondly the Singaporean population is also drawn to the idea of quick money. The general impression is that Technical Analysis is for shorter term trading, while Fundamental Analysis is only suited for longer term trading and not as appealing to the general public. The amount of research required to acquire, understand, and then make sense of the fundamental data takes a lot of time and skill. It is why super smart analysts at the banks are paid so much to produce their research reports.
This is also a natural push factor away from using Fundamental Analysis as most retail traders are not seeking this path when they take up trading or investing. Their goal is to generate returns, by trading and investing, without the intention of creating a second full-time job for themselves.
Technical Analysis also helps users make decisions in two ways. One is by reducing decisions to be made, and another is by providing visual cues to alert users that a decision point is approaching. Acting as a visual guide to traders makes Technical Analysis an invaluable tool. However, the difficulty lies in terms of decision making with information taken purely from the charts.
There are many advantages to using Technical Analysis. It’s quick, generally straight forward, and rules can be built easily and visually. However, trading profitably over the long run requires these technical skills to be augmented with context from something more robust. That “something” is usually company financials or macroeconomic news and numbers. Even macro news events can be a robust and valuable contextual overview to have when trading.
For example at this current moment, the US Federal Reserve has reiterated its stand to continue raising rates. This is a clear message that they think the US economy will continue to do well. That then allows Technical Analysis users to have a stronger conviction when they come to bullish conclusions in their chart reading analysis.
How did our small island state become so enamoured with the allure of Technical Analysis? A unique reason has probably got to do with the low liquidity in our markets, which makes it more difficult for large investors to hide their footsteps. While we have an incredibly high penetration of the internet amongst the population, this speed of information will never be faster than observing what the “big boys” are doing, from the foot prints they leave on the charts.
By the time we read about it in the papers, chances are the stock has already had some sort of movement.
The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Singapore Business Review. The author was not remunerated for this article.
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Collin Seow is a qualified Chartered Portfolio Manager (CPM) who holds a Certified Financial Technician (CFTe) qualification.
He has been awarded the Top 10 Achievers in PhillipCFD for many consecutive years and he is also a reputable trainer with long standing-record.
Collin is the proud inventor of a stock trading algorithm/software known as “TradersGPS”. Given his vast experience in trading, he is often sought after to speak at numerous prestigious conference such as Shares Investment Conference, Shareinvestor Carnival, Phillip IFest, Investor Wealth Summit and the MetaStock Conference.
Recently, he has authored his own book titled “The Systematic Trader”, that details his journey and methods on turning a $250,000 debt into profits through stock trading.