Themes to look for on a stock chart

Devilscrown

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I started “managing” a portfolio about a year ago. I started out by listening to podcasts, reading articles and relying on what others were saying about good investments.
I am trying to learn more about how to read stock charts and look for themes or trends to try and have my own opinions about stocks that have strong potential. Can anyone offer advice on themes to look for or resources to read to help me develop a better understanding?
Thanks!
 

SAJ-99

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I need a little more info. What do you mean by “read” a stock chart and “themes”. There are a lot of different types of charts. You can Google a lot of stuff and get basics. What platform are you on might help? All the majors have learning modules to explain stuff, too.
 

VikingsGuy

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I like to compare a stock's total return (appreciation + dividends) against S&P500 total returns over the last 20 years (10y for tech stocks). If it consistently underperforms then I don't want it, if it consistently mimics then why bother owning separately and instead just put the money in a low load S&P500 tracking index, if it has a similar overall return, but is countercyclical with S&P500 then consider it a bit of a "hedge" against your S&P500 investments if you are looking for that, and if it overperforms the S&P500 do your homework and make sure you aren't buying as its run has come to an end.

I find the analysis interesting, but as I have said before and as implied in the above, there are tons and tons of peer-reviewed studies that show no one can beat the market in the long run. It gets even worse when you look at the investment costs and tax inefficiency of active trading. Any examples of, "but Bob bought Telsa at the bottom . . . ." are just hindsight cherry-picking. The Powerball Lottery is a great investment vehicle too if we just interview the winners.
 

Devilscrown

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I like to compare a stock's total return (appreciation + dividends) against S&P500 total returns over the last 20 years (10y for tech stocks). If it consistently underperforms then I don't want it, if it consistently mimics then why bother owning separately and instead just put the money in a low load S&P500 tracking index, if it has a similar overall return, but is countercyclical with S&P500 then consider it a bit of a "hedge" against your S&P500 investments if you are looking for that, and if it overperforms the S&P500 do your homework and make sure you aren't buying as its run has come to an end.

I find the analysis interesting, but as I have said before and as implied in the above, there are tons and tons of peer-reviewed studies that show no one can beat the market in the long run. It gets even worse when you look at the investment costs and tax inefficiency of active trading. Any examples of, "but Bob bought Telsa at the bottom . . . ." are just hindsight cherry-picking. The Powerball Lottery is a great investment vehicle too if we just interview the winners.

Thank you for sharing this idea, it is a common sense approach and there is an intelligent simplicity to it. I obviously want to try and beat the S&P average and would love to do well with these investments, but equally this is a hobby that I am trying to learn because I find it interesting and it gives me something to focus my spare time and energy on (outside of hunting season).
Any advice on:
1) How do you establish a base point that is a fair entry level on a stock? What do you use to tell you if you are buying at a high point or in the middle of an strong run?
2) What do you use to help you establish a stop loss point? When you have a positive run what do you use to help you determine whether to sell or add to your position?
3) How do you use to spot accumulation and distribution trends and what other volume indicators do you use?
Thanks again for your thoughts and help.
 

Devilscrown

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Joined
Jun 30, 2020
Messages
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Location
Idaho
I need a little more info. What do you mean by “read” a stock chart and “themes”. There are a lot of different types of charts. You can Google a lot of stuff and get basics. What platform are you on might help? All the majors have learning modules to explain stuff, too.
I have been using E*TRADE but I opened a Td Ameritrade account because they offer more research options. I started to play with some of the chart overlays but there are so many advance options and layouts that I quickly became overwhelmed. I was curious what other people use as tools when researching a stock. For example, if I am interested in investing in PayPal and I want to research if this is a good (5 year) investment, rather than rely on other people’s opinions on if this is a buy, hold or sell, how to other investors perform the research to determine if this would be a good investment?
 

Shangobango

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I have come to the conclusion, due to time constraints, that it is best for me to deal with mutual funds and index funds.

If you are on TD Ameritrade you can spend hours and hours going down the rabbit hole with their learning materials. They have lots of modules on technical trading that may interest you.
 

SAJ-99

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I have been using E*TRADE but I opened a Td Ameritrade account because they offer more research options. I started to play with some of the chart overlays but there are so many advance options and layouts that I quickly became overwhelmed. I was curious what other people use as tools when researching a stock. For example, if I am interested in investing in PayPal and I want to research if this is a good (5 year) investment, rather than rely on other people’s opinions on if this is a buy, hold or sell, how to other investors perform the research to determine if this would be a good investment?
If you became overwhelmed it is because you are trying to take in everything, rather than looking for a few specific things that you prefer to use. If you use TD Ameritrade (which was bought by Charles Schwab, but this still applies) download Think or Swim app to your computer and log in through that. Yes, it will be overwhelming. In the Analyze-Fundamentals section there will be a lot of data on the company and collective opinions of analyst. This advice has nothing to do with "reading a chart" which is a whole different level of overwhelming analysis.

Like the other responses, I suggest you just buy low-cost index funds with at least 90% of your money. But human nature pushes us to want to take these bets. Just please do it in small amounts. PayPal is a fine company and might get bought at a 20% premium and you feel like a genius, or it might have some scandal and the price gets cut in half. There is no amount of analysis that can predict the chance of either.

Screen Shot 2021-07-20 at 7.07.19 AM.png
 

VikingsGuy

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Thank you for sharing this idea, it is a common sense approach and there is an intelligent simplicity to it. I obviously want to try and beat the S&P average and would love to do well with these investments, but equally this is a hobby that I am trying to learn because I find it interesting and it gives me something to focus my spare time and energy on (outside of hunting season).
Any advice on:
1) How do you establish a base point that is a fair entry level on a stock? What do you use to tell you if you are buying at a high point or in the middle of an strong run?
2) What do you use to help you establish a stop loss point? When you have a positive run what do you use to help you determine whether to sell or add to your position?
3) How do you use to spot accumulation and distribution trends and what other volume indicators do you use?
Thanks again for your thoughts and help.
First, I echo @SAJ-99's great post above.

As for your 3 questions, I would be happy to give you my inflation-adjusted 2 cents worth, but still need to understand your underlying timeline, as my answers would be very different for each. Are you saying as part of your long-term wealth building you want to dabble with some specific stocks along the way on a similar time frame, or are you saying you want to do some "day trading"/"robinhood thing"?
 

Devilscrown

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Joined
Jun 30, 2020
Messages
36
Location
Idaho
If you became overwhelmed it is because you are trying to take in everything, rather than looking for a few specific things that you prefer to use. If you use TD Ameritrade (which was bought by Charles Schwab, but this still applies) download Think or Swim app to your computer and log in through that. Yes, it will be overwhelming. In the Analyze-Fundamentals section there will be a lot of data on the company and collective opinions of analyst. This advice has nothing to do with "reading a chart" which is a whole different level of overwhelming analysis.

Like the other responses, I suggest you just buy low-cost index funds with at least 90% of your money. But human nature pushes us to want to take these bets. Just please do it in small amounts. PayPal is a fine company and might get bought at a 20% premium and you feel like a genius, or it might have some scandal and the price gets cut in half. There is no amount of analysis that can predict the chance of either.

View attachment 188868

Thank you for the sound advice. I downloaded the sink or swim app on my phone but I think it will be more user friendly on a computer. I will spend time look at the analyze fundamentals section.

I have invested heavily into other retirement accounts and safer index funds. I put money aside in this smaller account just to have the opportunity to learn and play without messing up my real plan. In the td Ameritrade app when I select a stock their is a section titled rating and there are five different opinions about a stocks viability and future performance, I would like to someday have develop enough knowledge that I know the measurements they are using to come to this analysis and be able to do something similar on my own.
 

Devilscrown

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Messages
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Location
Idaho
First, I echo @SAJ-99's great post above.

As for your 3 questions, I would be happy to give you my inflation-adjusted 2 cents worth, but still need to understand your underlying timeline, as my answers would be very different for each. Are you saying as part of your long-term wealth building you want to dabble with some specific stocks along the way on a similar time frame, or are you saying you want to do some "day trading"/"robinhood thing"?

Thanks for the follow up questions. I have a pension, 401k, 401a, cash savings and fixed assets. I am 17 years from retirement, but think I am building a adequate plan for retirement. The funds that I have saved for this are money that I budgeted into my monthly household budget and have saved up, so they really don’t effect me if things go south or I find that I am terrible at this.
My vision is to invest 80% of portfolio funds for at least 3 years and measure how they are doing at that time. If things are going well I am happy to leave them longer. The other 20% I would like to use more with a trading mindset to make it more interesting and have some short term action to occupy my attention while the other money is playing the long game.
I typically have extra money to add every month to this formula.
My idea of a successful outcome would be to have fun, learn a lot, and try to average 10% or higher earnings over five years. If I decide to sell at some point and use the cash to buy a piece of property or something then at least I was able to enjoy the experience while it was accumulating rather than have it passively sitting in a bank or bond account.
Thanks again for your interest and advice
 

Cheesehead

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Dec 6, 2017
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511
I think as long as your main funds are indexed, and you know you are there to learn, it’s ok to do some single stock stuff. I used to spend a lot of time thinking about it.

I would suggest you:
-Listen to and read Mohnish Pabrai and Joel Greenblatt
-Look into/understand Magic Formula Investing (hokey name, decent concept)
-Not worry about volume, recent stock trends etc, and instead remember you are buying a slice of a business not a ticker. If the business is under or fairy priced, and grows earnings over years, you will do well. If anyone refers to ‘technical’ anything, run away.
-Value Investor’s Club is worth joining

Good luck and have fun
 

RobG

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regarding podcasts, experts, etc.... I'm an indexer, but several years ago my friend and I decided solar had a lot of growth potential. I had some play money so I figured what the hell, I'll put the play money in TAN, which is an ETF with a couple dozen stocks. A few years later the damn thing was up by a factor of 8. About that time it became one of those hot ETFs that all the stock gurus were saying to buy. Five months later the price is down 50%.

So the theme is if people are talking about it chances are it's time to sell.
 

Devilscrown

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Joined
Jun 30, 2020
Messages
36
Location
Idaho
I think as long as your main funds are indexed, and you know you are there to learn, it’s ok to do some single stock stuff. I used to spend a lot of time thinking about it.

I would suggest you:
-Listen to and read Mohnish Pabrai and Joel Greenblatt
-Look into/understand Magic Formula Investing (hokey name, decent concept)
-Not worry about volume, recent stock trends etc, and instead remember you are buying a slice of a business not a ticker. If the business is under or fairy priced, and grows earnings over years, you will do well. If anyone refers to ‘technical’ anything, run away.
-Value Investor’s Club is worth joining

Good luck and have fun
Thanks for the recommendations, I will check them out.
 

Shangobango

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Aug 5, 2019
Messages
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Location
Louisiana
The fact that the hooker and blow comment got more traction here than the advice I gave gives me some idea of my standing in this conversation lol.

The OP asked about patterns on a stock chart, which is a technical question, buts only gets advice on fundamentals along with being told if anybody mentions technical considerations run... have a good one gents.
 

RobG

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Dec 10, 2010
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Run from technical analysis. Short term trading is best modeled by a random walk so you start out with a 50/50 chance of beating the market.

On top of that, unless you can set up a brokerage account account in a 401(k) or Roth, you will pay taxes on your gains so you will piss away 20-30% of your gains so your odds are even less than 50/50 of beating the market.
 

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