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- Pages: 13
4/16/2008
Combining Fundamental and Technical Analysis
Making BETTER trading decisions with
Fundamental and Technical Analysis
(FaT) By Benny Lee
Copyright © 2008 by Benny Lee, NextView
Combining Fundamental and Technical Analysis INTRODUCTION 1996 : • Got into the stock market frenzy while in college • Started attending some technical anaysis seminar • Got first charting software, MetaStock 1997 : • Started trading the futures market in 1997. • Was against the trend, Lost heavily 1997 – 1999 : • Worked in a Recruitment Agency (Need to pay back debts!). • Started to study about trading. Discovered and learned mistakes • Developed trading strategies and traded lightly. • Learned about Automated Trading Strategies
Benny Lee
1999 • Started trading privately. Stocks and Futures, Malaysia and Singapore. • Started learning TradeStation and Omnitrader. • Training Consultant to a Software Company. (This was when my training experience started) Copyright © 2008 by Benny Lee, NextView
1
4/16/2008
Combining Fundamental and Technical Analysis INTRODUCTION 2004 till present: • Still trading privately • Joined NextView Group as Regional Trainer, later as Chief Market Strategist
Training/Coaching Experience (More than 8 years): Professionals and Retail Investors in Malaysia, Singapore, Thailand, Vietnam, Pakistan and Hong Kong Speaking Engagements (More than 6 years): Malaysia, Singapore, India, Indonesia and Thailand Copyright © 2008 by Benny Lee, NextView
Combining Fundamental and Technical Analysis INTRODUCTION
Copyright © 2008 by Benny Lee, NextView
2
4/16/2008
Combining Fundamental and Technical Analysis TRADING VS INVESTING
TRADING VS INVESTING
Copyright © 2008 by Benny Lee, NextView
1
Combining Fundamental and Technical Analysis TRADING VS INVESTING 1. REQUIREMENTS THE INVESTOR LOOKS AT THE INSIDE The investor finds value in the company and they buy believing that the company will continue to have profit growth, no matter what the price. THE TRADER LOOKS AT THE OUTSIDE The trader does not care about a company and they buy believing that the price is right, regardless of the company fundamentals.
2. COMMITMENT THE INVESTOR FALLS IN LOVE WITH A COMPANY The investor decides to last the relationship for a long period of time, despite knowing that they have its ups and downs THE TRADER INTEND TO HAVE A SHORT TERM RELATIONSHIP The trader is not willing to have down periods with the company, therefore only commit short term relationship Copyright © 2008 by Benny Lee, NextView
2
3
4/16/2008
Combining Fundamental and Technical Analysis TRADING VS INVESTING 3. ACTIVITY THE INVESTOR DOES NOT NEED TO LOOK AT SHARE PRICES ALL THE TIME Investors who buy and hold are not affected by market volatility, therefore they do not cre about price movements. They are only interested in dividends. THE TRADER IS ACTIVE AND LOOKS AT SHARE PRICE FREQUENTLY The Trader identifies opportunities to buy and sell at the right price and time. Therefore, they have to monitor the share price actively and also trade actively.
4. COST THE INVESTOR HAS HIGH COST MAINTAINING THE RELATIONSHIP The investor needs to have holding power a.k.a. lots of money to hold a long term position. Furthermore, dividends are taxable THE TRADER HAS LOWER COST The trader does hold a long term position therefore always have cash. Capital gains are not taxable. Copyright © 2008 by Benny Lee, NextView
3
Combining Fundamental and Technical Analysis TRADING VS INVESTING
TRADING VS INVESTING
You decide which type of method suits you! Copyright © 2008 by Benny Lee, NextView
4
4
4/16/2008
Combining Fundamental and Technical Analysis UNDERSTANDING THE 2 RISKS
WHY DO TRADERS FAIL? NO PLAN • Becomes emotional… • Gets Confused… • Be at the mercy of others…
To Buy or not to Buy
• Lack of Discipline… • Leads to FEAR…
Copyright © 2008 by Benny Lee, NextView
5
Combining Fundamental and Technical Analysis UNDERSTANDING THE 2 RISKS
WHY DO TRADERS FAIL? NO RISK MANAGEMENT • Does not know the risks… • Becomes a gambler… • Afraid to lose… • Leads to FEAR…
Copyright © 2008 by Benny Lee, NextView
6
5
4/16/2008
Combining Fundamental and Technical Analysis UNDERSTANDING THE 2 RISKS
WHY DO TRADERS FAIL? NO MONEY MANAGEMENT Bad reward to risk ratio Have huge drawdowns… Becomes over greedy Leads to FEAR…
Copyright © 2008 by Benny Lee, NextView
7
Combining Fundamental and Technical Analysis UNDERSTANDING THE 2 RISKS
INGREDIENTS OF TRADING CONFIDENTLY
Money Management
Risk Management STRATEGY
Trading Plan
Copyright © 2008 by Benny Lee, NextView
8
6
4/16/2008
Combining Fundamental and Technical Analysis UNDERSTANDING THE 2 RISKS THOSE WHO FAIL TO PLAN, PLAN TO FAIL… What is a Trading Plan? A Trading plan is a set of ideas or rules to make trading decisions (entry and exit), often known as trading set ups.
We make trading decisions through: Quantifiable information – fundamental and price information
Unquantifiable information (Second hand information) – news, rumors, tips, recommendations
Copyright © 2008 by Benny Lee, NextView
9
Combining Fundamental and Technical Analysis UNDERSTANDING THE 2 RISKS
Fundamental vs Technical Analysis
Copyright © 2008 by Benny Lee, NextView
10
7
4/16/2008
Combining Fundamental and Technical Analysis UNDERSTANDING THE 2 RISKS There are 2 types of RISKS in trading: i) Information/Analytical Risk How much information did you get for this trade? Are your analysis good (Technical/fundamental? Do you have enough experience? What is the hit rate of your mechanical system?...etc ii) Monetary Risk (Position size) How much money are you willing to risk for this trade?
Copyright © 2008 by Benny Lee, NextView
11
Combining Fundamental and Technical Analysis FUNDAMENTAL AND TECHNICAL ANALYSIS Fundamental Analysis I) FINANCIAL PERFORMANCE A good company has good financial performance. Performance based on the revenue, profitability, cashflow, gearing, assets etc. It is the blood of the company II) MANAGEMENT A good company has a good management team. The management team’s experience, contacts, exposure, leadership abililty, vision, mission etc. It’s the body of the company.
It takes years to be able to study the fundamentals of a company. To get fundamental information is another big obstacle. Later I will show you how to get the Analysts work for you. Copyright © 2008 by Benny Lee, NextView
12
8
4/16/2008
Combining Fundamental and Technical Analysis HOW TO FIND EXPERTS WORK ON COMPANY FUNDAMENTALS? Broker Research Houses Most equity brokers have their own research department and they will provide you with their reports if you have an account with them. OPEN AS MANY ACCOUNTS WITH DIFFERENT BROKERS. LET THEIR EXPERTS DO THE WORK FOR YOU.
Independent Research Houses Independent Research houses are research companies that are not affiliated with any broker or fund managers. Their reports are believed to be less biased. However, independent research report services can cost you a lot.
Copyright © 2008 by Benny Lee, NextView
13
Combining Fundamental and Technical Analysis HOW TO FIND EXPERTS WORK ON COMPANY FUNDAMENTALS? Real Time News Stream The most cost-effective way is to subscribe to a real-time news that compiles and aggregates all reports from research houses and feed the info to you. For Example, the Dow Jones Newswire Market Talk that features reports from many brokers.
Realtime DJ News from NextView Advisor. The Advisor has a platform that provides a search function on archived news. Copyright © 2008 by Benny Lee, NextView
14
9
4/16/2008
Combining Fundamental and Technical Analysis HOW TO FIND EXPERTS WORK ON COMPANY FUNDAMENTALS? Real Time News Stream
Copyright © 2008 by Benny Lee, NextView
15
Combining Fundamental and Technical Analysis PROBLEMS WITH FUNDAMENTAL ANALYSIS REPORTS Real Time News Stream
Source: Bursa Malaysia Copyright © 2008 by Benny Lee, NextView
16
10
4/16/2008
Combining Fundamental and Technical Analysis HOW TO FIND EXPERTS WORK ON COMPANY FUNDAMENTALS? Real Time News Stream
Copyright © 2008 by Benny Lee, NextView
17
Combining Fundamental and Technical Analysis PROBLEMS WITH FUNDAMENTAL ANALYSIS REPORTS When you make a decision based on Fundamental Analysis, you are getting ready for at least a 1 year commitment, high cost (cash liquidity) and go through market volatility.
$7.10
MOST OF THE TIME, Price Falls After Recommendation
$5.00 (5/3/08)
Copyright © 2008 by Benny Lee, NextView
18
11
4/16/2008
Combining Fundamental and Technical Analysis PROBLEMS WITH FUNDAMENTAL ANALYSIS REPORTS
$3.22
MOST OF THE TIME, Price Falls After Recommendation
$2.72 (5/3/08)
Copyright © 2008 by Benny Lee, NextView
19
Combining Fundamental and Technical Analysis PROBLEMS WITH FUNDAMENTAL ANALYSIS REPORTS
$4.18
$3.90 (5/3/08)
MOST OF THE TIME, Price Falls After Recommendation
$3.30 (22/1/08)
Copyright © 2008 by Benny Lee, NextView
20
12
4/16/2008
Combining Fundamental and Technical Analysis PROBLEMS WITH FUNDAMENTAL ANALYSIS REPORTS
$9.20
MOST OF THE TIME, $8.20 (5/3/08) $7.60 (24/1/08)
Price Falls After Recommendation
Copyright © 2008 by Benny Lee, NextView
21
Combining Fundamental and Technical Analysis PROBLEMS WITH FUNDAMENTAL ANALYSIS REPORTS FUNDAMENTAL ANALYSIS DOES TELL YOU THAT THE COMPANY IS GOOD FINANCIALLY, BUT DOES NOT TELL WHEN IS THE BEST TIME TO BUY AND WHAT IS THE RIGHT PRICE
THAT IS WHY WE NEED TECHNICAL ANALYSIS
WITH BOTH, YOUR TRADING DECISION RISK IS MINIMAL!
Copyright © 2008 by Benny Lee, NextView
22
13
Combining Fundamental and Technical Analysis
Making BETTER trading decisions with
Fundamental and Technical Analysis
(FaT) By Benny Lee
Copyright © 2008 by Benny Lee, NextView
Combining Fundamental and Technical Analysis INTRODUCTION 1996 : • Got into the stock market frenzy while in college • Started attending some technical anaysis seminar • Got first charting software, MetaStock 1997 : • Started trading the futures market in 1997. • Was against the trend, Lost heavily 1997 – 1999 : • Worked in a Recruitment Agency (Need to pay back debts!). • Started to study about trading. Discovered and learned mistakes • Developed trading strategies and traded lightly. • Learned about Automated Trading Strategies
Benny Lee
1999 • Started trading privately. Stocks and Futures, Malaysia and Singapore. • Started learning TradeStation and Omnitrader. • Training Consultant to a Software Company. (This was when my training experience started) Copyright © 2008 by Benny Lee, NextView
1
4/16/2008
Combining Fundamental and Technical Analysis INTRODUCTION 2004 till present: • Still trading privately • Joined NextView Group as Regional Trainer, later as Chief Market Strategist
Training/Coaching Experience (More than 8 years): Professionals and Retail Investors in Malaysia, Singapore, Thailand, Vietnam, Pakistan and Hong Kong Speaking Engagements (More than 6 years): Malaysia, Singapore, India, Indonesia and Thailand Copyright © 2008 by Benny Lee, NextView
Combining Fundamental and Technical Analysis INTRODUCTION
Copyright © 2008 by Benny Lee, NextView
2
4/16/2008
Combining Fundamental and Technical Analysis TRADING VS INVESTING
TRADING VS INVESTING
Copyright © 2008 by Benny Lee, NextView
1
Combining Fundamental and Technical Analysis TRADING VS INVESTING 1. REQUIREMENTS THE INVESTOR LOOKS AT THE INSIDE The investor finds value in the company and they buy believing that the company will continue to have profit growth, no matter what the price. THE TRADER LOOKS AT THE OUTSIDE The trader does not care about a company and they buy believing that the price is right, regardless of the company fundamentals.
2. COMMITMENT THE INVESTOR FALLS IN LOVE WITH A COMPANY The investor decides to last the relationship for a long period of time, despite knowing that they have its ups and downs THE TRADER INTEND TO HAVE A SHORT TERM RELATIONSHIP The trader is not willing to have down periods with the company, therefore only commit short term relationship Copyright © 2008 by Benny Lee, NextView
2
3
4/16/2008
Combining Fundamental and Technical Analysis TRADING VS INVESTING 3. ACTIVITY THE INVESTOR DOES NOT NEED TO LOOK AT SHARE PRICES ALL THE TIME Investors who buy and hold are not affected by market volatility, therefore they do not cre about price movements. They are only interested in dividends. THE TRADER IS ACTIVE AND LOOKS AT SHARE PRICE FREQUENTLY The Trader identifies opportunities to buy and sell at the right price and time. Therefore, they have to monitor the share price actively and also trade actively.
4. COST THE INVESTOR HAS HIGH COST MAINTAINING THE RELATIONSHIP The investor needs to have holding power a.k.a. lots of money to hold a long term position. Furthermore, dividends are taxable THE TRADER HAS LOWER COST The trader does hold a long term position therefore always have cash. Capital gains are not taxable. Copyright © 2008 by Benny Lee, NextView
3
Combining Fundamental and Technical Analysis TRADING VS INVESTING
TRADING VS INVESTING
You decide which type of method suits you! Copyright © 2008 by Benny Lee, NextView
4
4
4/16/2008
Combining Fundamental and Technical Analysis UNDERSTANDING THE 2 RISKS
WHY DO TRADERS FAIL? NO PLAN • Becomes emotional… • Gets Confused… • Be at the mercy of others…
To Buy or not to Buy
• Lack of Discipline… • Leads to FEAR…
Copyright © 2008 by Benny Lee, NextView
5
Combining Fundamental and Technical Analysis UNDERSTANDING THE 2 RISKS
WHY DO TRADERS FAIL? NO RISK MANAGEMENT • Does not know the risks… • Becomes a gambler… • Afraid to lose… • Leads to FEAR…
Copyright © 2008 by Benny Lee, NextView
6
5
4/16/2008
Combining Fundamental and Technical Analysis UNDERSTANDING THE 2 RISKS
WHY DO TRADERS FAIL? NO MONEY MANAGEMENT Bad reward to risk ratio Have huge drawdowns… Becomes over greedy Leads to FEAR…
Copyright © 2008 by Benny Lee, NextView
7
Combining Fundamental and Technical Analysis UNDERSTANDING THE 2 RISKS
INGREDIENTS OF TRADING CONFIDENTLY
Money Management
Risk Management STRATEGY
Trading Plan
Copyright © 2008 by Benny Lee, NextView
8
6
4/16/2008
Combining Fundamental and Technical Analysis UNDERSTANDING THE 2 RISKS THOSE WHO FAIL TO PLAN, PLAN TO FAIL… What is a Trading Plan? A Trading plan is a set of ideas or rules to make trading decisions (entry and exit), often known as trading set ups.
We make trading decisions through: Quantifiable information – fundamental and price information
Unquantifiable information (Second hand information) – news, rumors, tips, recommendations
Copyright © 2008 by Benny Lee, NextView
9
Combining Fundamental and Technical Analysis UNDERSTANDING THE 2 RISKS
Fundamental vs Technical Analysis
Copyright © 2008 by Benny Lee, NextView
10
7
4/16/2008
Combining Fundamental and Technical Analysis UNDERSTANDING THE 2 RISKS There are 2 types of RISKS in trading: i) Information/Analytical Risk How much information did you get for this trade? Are your analysis good (Technical/fundamental? Do you have enough experience? What is the hit rate of your mechanical system?...etc ii) Monetary Risk (Position size) How much money are you willing to risk for this trade?
Copyright © 2008 by Benny Lee, NextView
11
Combining Fundamental and Technical Analysis FUNDAMENTAL AND TECHNICAL ANALYSIS Fundamental Analysis I) FINANCIAL PERFORMANCE A good company has good financial performance. Performance based on the revenue, profitability, cashflow, gearing, assets etc. It is the blood of the company II) MANAGEMENT A good company has a good management team. The management team’s experience, contacts, exposure, leadership abililty, vision, mission etc. It’s the body of the company.
It takes years to be able to study the fundamentals of a company. To get fundamental information is another big obstacle. Later I will show you how to get the Analysts work for you. Copyright © 2008 by Benny Lee, NextView
12
8
4/16/2008
Combining Fundamental and Technical Analysis HOW TO FIND EXPERTS WORK ON COMPANY FUNDAMENTALS? Broker Research Houses Most equity brokers have their own research department and they will provide you with their reports if you have an account with them. OPEN AS MANY ACCOUNTS WITH DIFFERENT BROKERS. LET THEIR EXPERTS DO THE WORK FOR YOU.
Independent Research Houses Independent Research houses are research companies that are not affiliated with any broker or fund managers. Their reports are believed to be less biased. However, independent research report services can cost you a lot.
Copyright © 2008 by Benny Lee, NextView
13
Combining Fundamental and Technical Analysis HOW TO FIND EXPERTS WORK ON COMPANY FUNDAMENTALS? Real Time News Stream The most cost-effective way is to subscribe to a real-time news that compiles and aggregates all reports from research houses and feed the info to you. For Example, the Dow Jones Newswire Market Talk that features reports from many brokers.
Realtime DJ News from NextView Advisor. The Advisor has a platform that provides a search function on archived news. Copyright © 2008 by Benny Lee, NextView
14
9
4/16/2008
Combining Fundamental and Technical Analysis HOW TO FIND EXPERTS WORK ON COMPANY FUNDAMENTALS? Real Time News Stream
Copyright © 2008 by Benny Lee, NextView
15
Combining Fundamental and Technical Analysis PROBLEMS WITH FUNDAMENTAL ANALYSIS REPORTS Real Time News Stream
Source: Bursa Malaysia Copyright © 2008 by Benny Lee, NextView
16
10
4/16/2008
Combining Fundamental and Technical Analysis HOW TO FIND EXPERTS WORK ON COMPANY FUNDAMENTALS? Real Time News Stream
Copyright © 2008 by Benny Lee, NextView
17
Combining Fundamental and Technical Analysis PROBLEMS WITH FUNDAMENTAL ANALYSIS REPORTS When you make a decision based on Fundamental Analysis, you are getting ready for at least a 1 year commitment, high cost (cash liquidity) and go through market volatility.
$7.10
MOST OF THE TIME, Price Falls After Recommendation
$5.00 (5/3/08)
Copyright © 2008 by Benny Lee, NextView
18
11
4/16/2008
Combining Fundamental and Technical Analysis PROBLEMS WITH FUNDAMENTAL ANALYSIS REPORTS
$3.22
MOST OF THE TIME, Price Falls After Recommendation
$2.72 (5/3/08)
Copyright © 2008 by Benny Lee, NextView
19
Combining Fundamental and Technical Analysis PROBLEMS WITH FUNDAMENTAL ANALYSIS REPORTS
$4.18
$3.90 (5/3/08)
MOST OF THE TIME, Price Falls After Recommendation
$3.30 (22/1/08)
Copyright © 2008 by Benny Lee, NextView
20
12
4/16/2008
Combining Fundamental and Technical Analysis PROBLEMS WITH FUNDAMENTAL ANALYSIS REPORTS
$9.20
MOST OF THE TIME, $8.20 (5/3/08) $7.60 (24/1/08)
Price Falls After Recommendation
Copyright © 2008 by Benny Lee, NextView
21
Combining Fundamental and Technical Analysis PROBLEMS WITH FUNDAMENTAL ANALYSIS REPORTS FUNDAMENTAL ANALYSIS DOES TELL YOU THAT THE COMPANY IS GOOD FINANCIALLY, BUT DOES NOT TELL WHEN IS THE BEST TIME TO BUY AND WHAT IS THE RIGHT PRICE
THAT IS WHY WE NEED TECHNICAL ANALYSIS
WITH BOTH, YOUR TRADING DECISION RISK IS MINIMAL!
Copyright © 2008 by Benny Lee, NextView
22
13
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