Post by TradingForGod on Aug 11, 2004 20:09:18 GMT -5
Hi, Everyone. My name is Randy, but I go by the nickname TradingForGod. I’m really happy to be contributing to the Christian Traders website. I hope that you’ll find the thoughts and ideas expressed here helpful as you make your trading decisions. I want to use this first column to share a little about myself, and why I have such a passion for trading, and technical analysis in particular. In the next several columns, I’ll talk about the basics of technical analysis and describe in a little detail the main things that I watch to develop a market point-of-view. After that, it’s wide open. My plan right now is to do a rotation of analyses. One day I’ll talk about stock indexes, the next energy commodities, then currencies/bonds, etc. I know that most, if not all, of you trade primarily stocks so the major focus will be on the financial markets. If you have questions about individual stocks, I’ll try to give you a technical overview, but I’ll only be able to do that on a few stocks each week so I as for your patience if I don’t get to a particular question right away.
Okay, so much for the preliminaries. Let me tell you a little about myself. I have worked in the oil and gas industry for over 20 years, and have been involved in commodities trading for the last 12 years. I became the natural gas futures and options trader for a major oil company in 1992 almost by accident. But I found I really enjoyed trading and have done it ever since. About 15 months ago I quit my job to try and start a philanthropic foundation (Trading for God) that would make money trading the markets and then give it away to fund evangelical missions and humanitarian causes. It’s a dream that I have had for many years, almost since I first started trading. I originally thought that I would just join an existing organization doing this kind of work. I sure didn’t want to try and start it on my own. But there really isn’t a group like this that I have found, so after a lot of prayer I stepped out and tried it on my own. Unfortunately, it hasn’t worked out as I had hoped, so I am in the process of going back into the corporate work force. But the dream still lives, and who knows how God will use it down the line.
When I first started trading, I came from a very strong “fundamental analysis” background. My previous job had been long term corporate planning, and my group analyzed the natural gas market fundamentals to come up with a long term price forecast for capital budgets, etc. I tried to use these same analytical methods to trade natgas futures, but was not very successful. Almost as a defensive action I taught myself technical analysis be reading books. To be honest, I went into it thinking that technical analysis is “voodoo”. The idea that future price action can be predicted with any accuracy based on past price action seemed ridiculous to me.
BUT GUESS WHAT? As I began to apply the analysis principles I was learning to my trading, my results improved dramatically. I was shocked. I didn’t understand it, and I still didn’t quite believe it. But the results were indisputable. Over time I gradually became a purely technical trader. I found that when my technical view was opposed to my fundamental view, the technicals almost always won out. It may have been that I was just a lousy fundamental trader. ;D But I have come to believe that technicals really do work.
You may ask (I certainly did), WHY do technicals work. I’ll give you several potential answers to that question.
Answer#1: It’s a self fulfilling prophecy. If enough people watch the technicals and trade off them, they will make what the technicals show is going to happen, happen by default.
That’s a commonly held belief, even among some technical analysts and traders. But I think it is totally wrong. To begin with, someone had to discover the various technical methods in the first place and determine that they were worth watching. The man who thought of trendlines didn’t know that trendlines worked until he tried them. At that point, there was no mass following of people looking at a particular trendline, so there was no “herd mentality” to fulfill the self-fulfilling prophecy. Also, I can tell you that no two technicians looking at the same charts come up with exactly the same interpretation. It’s kind of like reading the Bible. You can have 10 people read a passage and come up with 10 slightly, or greatly, different interpretations of what it means. Analyzing charts work the same way. There is a lot of commonality, but not unanimity. Certainly not enough “group think” to make a difference.
Answer #2: Technical analysis measures the total market psychology at any given moment. People’s actions based on their understanding of supply and demand, and the psychological drivers of fear and greed, repeat over and over. Technical analysis provides a picture of those repeating patterns.
This is much closer to the truth. “The Market” is the sum total of everyone’s opinions about supply and demand based on their own understanding of market drivers. {That makes sense, doesn’t it?} So at any given time the market price reflects “the market’s” assessment of fair value based on known supply and demand information. No one has all the information, but collectively “the market” has almost all the knowledge. As new knowledge is gained by market participants, the supply/demand balance changes and price changes accordingly. {Still makes sense.} For example, let’s say that crude oil is trading at $40 and the market is in balance. A trader from a big oil company gets a call from his production department saying that a major offshore platform has gone down and he needs to buy oil on the open market to supply the company’s refinery. That’s a change in supply/demand…less crude is being produced. The trader takes an action based upon this change…he buys crude oil on the open market. As a result of his actions, the market price changes…it goes up. As a result of prices going up, another trader who thought the market price was too high and had sold short, gets stopped out. He has to buy back a large position which makes prices go up even more. But when he finished his buying prices are then too high to be sustained and someone else sells crude as a result. Crude oil prices fall back a little bit.
Up and down, up and down. Over and over again. There are thousands of decisions, big and little, made by people every day that alter the supply/demand picture, and therefore price, of everything that is bought and sold. It’s impossible to keep track of all off these decisions, much less model them in a meaningful way. BUT, we can observe the effect these decisions have on price action and make educated guesses about how those actions will affect things in the future. That’s what technical analysis tries to do.
Answer #3: There is something bigger going on.
I would not necessarily say this to a general audience, but since this is a Christian trading site I’ll put forward this notion and let you decide what you believe. I think that there is a creative order to the universe. Our Creator set up the universe with immutable forces that govern everything from the motions of the planets and stars to the way that DNA replicates itself in the nucleus of a cell. We can observe a lot of those forces, and even measure them, like gravity. But there is a whole lot more that we DON”T understand. Part of that, I think, is the way that markets act over time. I think that there are forces that we cannot begin to understand that work to shape the market action in the same way that the moons revolution affects the ebb and flow of the tides. I’m not saying that God makes the price of Microsoft fall by direct intervention. Maybe He does, but I’ll let Him speak for Himself. I am saying that His creative order permeates the very fabric of our lives, and that includes the way the markets work.
Technical analysis can, I believe, give us glimpses into this Divine creative order. We are human, of course, and our minds cannot comprehend it all. We see “as through a glass, darkly”. But occasionally the image is not so dark. Sometimes when things are really going well I can almost see the bars appear on the chart before they actually show up. It’s like seeing just over the edge of the horizon. At those times, I feel closer to God than at just about any other time. It is really, really powerful.
THAT is why I love technical analysis. I think it is a way that God can reveal Himself to those that are willing to look. That being said, you don’t have to believe that yourself to read this column. This isn’t going to be a metaphysical treatise. I will try to provide clear, concise comments about key technical indicators. Over the next several days we’ll talk a little bit about those indicators, what they are and what they are supposed to measure, so that we can have a common vocabulary for our conversations together.
One last preliminary…the normal disclaimer type statements. I am not a registered commodity trade advisor. I am just a regular guy putting forth his own ideas. Use the information and recommendations at your own risk. Nothing here should be construed as a solicitation to buy or sell anything. There is a substantial risk of loss from trading activities. All recommendations are low in carbohydrates and high in polyunsaturated fats.
I hope you find this column helpful. God bless each of you as you pursue His will for your lives.
TradingForGod
Okay, so much for the preliminaries. Let me tell you a little about myself. I have worked in the oil and gas industry for over 20 years, and have been involved in commodities trading for the last 12 years. I became the natural gas futures and options trader for a major oil company in 1992 almost by accident. But I found I really enjoyed trading and have done it ever since. About 15 months ago I quit my job to try and start a philanthropic foundation (Trading for God) that would make money trading the markets and then give it away to fund evangelical missions and humanitarian causes. It’s a dream that I have had for many years, almost since I first started trading. I originally thought that I would just join an existing organization doing this kind of work. I sure didn’t want to try and start it on my own. But there really isn’t a group like this that I have found, so after a lot of prayer I stepped out and tried it on my own. Unfortunately, it hasn’t worked out as I had hoped, so I am in the process of going back into the corporate work force. But the dream still lives, and who knows how God will use it down the line.
When I first started trading, I came from a very strong “fundamental analysis” background. My previous job had been long term corporate planning, and my group analyzed the natural gas market fundamentals to come up with a long term price forecast for capital budgets, etc. I tried to use these same analytical methods to trade natgas futures, but was not very successful. Almost as a defensive action I taught myself technical analysis be reading books. To be honest, I went into it thinking that technical analysis is “voodoo”. The idea that future price action can be predicted with any accuracy based on past price action seemed ridiculous to me.
BUT GUESS WHAT? As I began to apply the analysis principles I was learning to my trading, my results improved dramatically. I was shocked. I didn’t understand it, and I still didn’t quite believe it. But the results were indisputable. Over time I gradually became a purely technical trader. I found that when my technical view was opposed to my fundamental view, the technicals almost always won out. It may have been that I was just a lousy fundamental trader. ;D But I have come to believe that technicals really do work.
You may ask (I certainly did), WHY do technicals work. I’ll give you several potential answers to that question.
Answer#1: It’s a self fulfilling prophecy. If enough people watch the technicals and trade off them, they will make what the technicals show is going to happen, happen by default.
That’s a commonly held belief, even among some technical analysts and traders. But I think it is totally wrong. To begin with, someone had to discover the various technical methods in the first place and determine that they were worth watching. The man who thought of trendlines didn’t know that trendlines worked until he tried them. At that point, there was no mass following of people looking at a particular trendline, so there was no “herd mentality” to fulfill the self-fulfilling prophecy. Also, I can tell you that no two technicians looking at the same charts come up with exactly the same interpretation. It’s kind of like reading the Bible. You can have 10 people read a passage and come up with 10 slightly, or greatly, different interpretations of what it means. Analyzing charts work the same way. There is a lot of commonality, but not unanimity. Certainly not enough “group think” to make a difference.
Answer #2: Technical analysis measures the total market psychology at any given moment. People’s actions based on their understanding of supply and demand, and the psychological drivers of fear and greed, repeat over and over. Technical analysis provides a picture of those repeating patterns.
This is much closer to the truth. “The Market” is the sum total of everyone’s opinions about supply and demand based on their own understanding of market drivers. {That makes sense, doesn’t it?} So at any given time the market price reflects “the market’s” assessment of fair value based on known supply and demand information. No one has all the information, but collectively “the market” has almost all the knowledge. As new knowledge is gained by market participants, the supply/demand balance changes and price changes accordingly. {Still makes sense.} For example, let’s say that crude oil is trading at $40 and the market is in balance. A trader from a big oil company gets a call from his production department saying that a major offshore platform has gone down and he needs to buy oil on the open market to supply the company’s refinery. That’s a change in supply/demand…less crude is being produced. The trader takes an action based upon this change…he buys crude oil on the open market. As a result of his actions, the market price changes…it goes up. As a result of prices going up, another trader who thought the market price was too high and had sold short, gets stopped out. He has to buy back a large position which makes prices go up even more. But when he finished his buying prices are then too high to be sustained and someone else sells crude as a result. Crude oil prices fall back a little bit.
Up and down, up and down. Over and over again. There are thousands of decisions, big and little, made by people every day that alter the supply/demand picture, and therefore price, of everything that is bought and sold. It’s impossible to keep track of all off these decisions, much less model them in a meaningful way. BUT, we can observe the effect these decisions have on price action and make educated guesses about how those actions will affect things in the future. That’s what technical analysis tries to do.
Answer #3: There is something bigger going on.
I would not necessarily say this to a general audience, but since this is a Christian trading site I’ll put forward this notion and let you decide what you believe. I think that there is a creative order to the universe. Our Creator set up the universe with immutable forces that govern everything from the motions of the planets and stars to the way that DNA replicates itself in the nucleus of a cell. We can observe a lot of those forces, and even measure them, like gravity. But there is a whole lot more that we DON”T understand. Part of that, I think, is the way that markets act over time. I think that there are forces that we cannot begin to understand that work to shape the market action in the same way that the moons revolution affects the ebb and flow of the tides. I’m not saying that God makes the price of Microsoft fall by direct intervention. Maybe He does, but I’ll let Him speak for Himself. I am saying that His creative order permeates the very fabric of our lives, and that includes the way the markets work.
Technical analysis can, I believe, give us glimpses into this Divine creative order. We are human, of course, and our minds cannot comprehend it all. We see “as through a glass, darkly”. But occasionally the image is not so dark. Sometimes when things are really going well I can almost see the bars appear on the chart before they actually show up. It’s like seeing just over the edge of the horizon. At those times, I feel closer to God than at just about any other time. It is really, really powerful.
THAT is why I love technical analysis. I think it is a way that God can reveal Himself to those that are willing to look. That being said, you don’t have to believe that yourself to read this column. This isn’t going to be a metaphysical treatise. I will try to provide clear, concise comments about key technical indicators. Over the next several days we’ll talk a little bit about those indicators, what they are and what they are supposed to measure, so that we can have a common vocabulary for our conversations together.
One last preliminary…the normal disclaimer type statements. I am not a registered commodity trade advisor. I am just a regular guy putting forth his own ideas. Use the information and recommendations at your own risk. Nothing here should be construed as a solicitation to buy or sell anything. There is a substantial risk of loss from trading activities. All recommendations are low in carbohydrates and high in polyunsaturated fats.
I hope you find this column helpful. God bless each of you as you pursue His will for your lives.
TradingForGod
