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The Basics of Technical Analysis

A technical analyst’s best friends are charts and patterns. But to the uninitiated, these are hard to make sense of. Once you get a hang of the basics however, your new-found knowledge can be used to search for potential investment opportunities.

The Assumptions

Before we get ahead of ourselves, let’s start from the beginning. What is technical analysis anyway?

Simply put, it is a study of past price movement patterns and market data to forecast future price movement directions that is built on 3 key assumptions:

1) Key factors are accounted for
The company’s fundamentals, broader economic factors and market psychology, are all priced into the stock, removing the need to consider these factors separately.

2) Prices follow trends
After a trend has been established, prices tend to move in the same direction.

3) History tends to repeat itself
This is because market participants tend to react consistently to similar market events over time.

However, it is important to remember that past performance is not necessarily indicative of future results. New factors or market conditions may arise which deviate from past trends and patterns.

Candlesticks as Building Blocks

You can’t think about technical analysis without picturing a candlestick chart. It may surprise you to know that candlestick charts are not a modern-day invention. They have been used since the 1700s, having been introduced by Homma Munehisa, a rice merchant in Japan.

There must be something to candlesticks if they have been able to stand the test of time. And indeed, a single candlestick holds invaluable information which investors can distil at a glance:

Spotting Patterns

Individual candlesticks can be strung together to form charts which technical analysts pour over, looking for patterns which give them trading ideas. However, you will have to understand how to spot these patterns and what they mean before you can capitalise.

Here are two simple patterns to ease you into things:

Putting It Into Practice

These two patterns are just the tip of the iceberg. There are many other technical analysis patterns that you can learn about that may help you spot potential trading opportunities.

But even if you know what patterns to look out for, there is an entire universe of stocks to choose from. If you have no prior interest in any stock, it would be hard to know where to begin. It simply wouldn’t be efficient to look at charts of every single stock and find actionable patterns within.

One possible option is to use stock screeners to identify stocks that meet your own criteria. For example, a stock screener can help you find stocks like the one below that exhibited a head and shoulders pattern, during a specified period of time.

Source: Technical Insight on Maybank Kim Eng’s KE Trade platform

Technical analysis is useful for investors to understand. But like we highlighted earlier, it isn’t infallible and is built on several assumptions. Therefore, it is best to use technical analysis along with other tools in your investment toolkit, like fundamental analysis, and to practice often in order to gain a better understanding of how these strategies could help you meet your investment goals.

Disclaimer: This message is for general knowledge or information only. It is not an offer or invitation to buy or sell securities, futures or other products or services. Our products or services vary in different jurisdictions, subject to their respective terms and conditions and the licences our affiliates and us hold. This message is not an advice or recommendation for any financial planning, investment, legal, tax or other purposes and, accordingly, no responsibility or liability is assumed by us or our affiliates, whether directly or indirectly, from any person taking or not taking action

Start 2017 Right By Creating A Year-End Financial Checklist

As we reach the end of the year, there are several things that you need to pay attention to.

DETOXIFY YOUR WALLET WITH THE DEBT DIET

The Yuletide season is all about merriment and festivities. Due to the overall positive spirit that it exudes, you may want to shy away from the looming shadows of your debt. I suggest that you pause for a moment. Now is a good time to acknowledge your credit score and to cut back on your spending.

Debt takes a toll on your relationships, your family, and your future. It is only hurting your financial health. You do not want this suffering to roll over the next year. This is why you must consider to go on the “debt diet”. The debt diet uses practical ways to help you get back on the right track. Read about it, here.

OPT FOR GROWING YOUR WEALTH

It comes as no surprise that the newbie investors are apprehensive when it comes to the timing of their initial stock purchases. However, it is important to realize that time is your ally whenever you first invest.

The compound interests of your strategic investments will add up despite the current condition of the market. You will most likely have time to recover. This idea may seem like common sense to you, but there are many Singaporeans who wish that they started investing earlier on.

KEEP YOUR INSURANCE POLICIES IN ONE PLACE

Insurance is your safeguard against unforeseen and unpleasant events. It is a way to minimize your risks and cushion your potential losses. If you are a client of several insurance companies, it is a chore to hold all the policy documents. This is where PolicyPal app comes in. It is an app that allows you to keep all your insurance policies in one place.

After collating your policies, get a summary of your overall coverage. This will help you to decide if you have too much or too little policies. For example, you may avail the AIA GLOW OF LIFE (Critical Illness Insurance) instead of adding a special rider to cover female-focused diseases.

AUTOMATE THE PAYMENT OF YOUR BILLS

December is a hectic month! To save valuable time and effort, consider automating the payment of your bills. Schedule electronic transfers thru your internet banking feature.

You may also set up a bank GIRO. GIRO payments take a substantial amount of time. This is why your money must be available at least 3 working days before the bill’s due date.

Image Credits: pixabay.com

Doing an annual review of your finances can help you spend and invest wisely for the upcoming year. Take the pro-active route to financial wealth!

Sources:1, 2, & 3

A Dividend Investing Strategy

Singapore investors love their dividend stocks. According to the Investment Trends Singapore Broking Report 2015, 75% of investors polled stated that they usually invest in dividend stocks when trading on the Singapore market. And they are spoilt for choice! Many companies that list on SGX pay dividends. But with so many dividend-paying stocks out there, which stock would you consider?

A High Dividend Yield Stock: Better than a Low Dividend Yield Stock or?

That is the question. The stock with the highest dividend yield in the industry may look attractive now, but is a stock with 10% dividend yield better than one with 3% in the long run? Does a high yield stock always outperform a low yield stock?

High dividend yield should not be taken at face value. It always pays to dig deeper and find out the real story behind certain attractive numbers before deciding to invest.

Companies with a high dividend yield compared to the market average may not necessarily equate to companies with good financial performance. The high dividend yield could be the result of declining share price due to weak fundamental such as inconsistent earnings, high debt etc. Besides, high dividend yield may not be sustainable. If earnings fall, the management may cut dividends or eliminate the pay-out altogether. Hence, investors should also look at companies with consistent dividend payouts and with the cash flows coming from actual core operations.

A Dividend Growth Strategy

If a stock with a high dividend yield is not necessarily the best choice for long-term investors, then what other strategies are there? A dividend growth strategy for one, is something you might want to learn more about.

To clarify, dividend yield is the dividend amount divided by the share price. Dividend growth meanwhile is how much the dollar-amount of dividends given out increases each year.

Take this hypothetical example which compares the performance of two investors (based on certain assumptions where indicated).

Investor A: Invests in ABC Company which pays 7% dividend yield at the outset and every year after that.

Investor B: Invests in XYZ Company which pays 3% dividend yield at the outset.

XYZ Company has a lower dividend yield because they choose to reinvest some of their earnings into the business. The business grows, and so does their dividend pay-out – to the tune of 8% every year (e.g. $0.03 dividend per share in year 1, $0.032 in year 2).

Assume that the share prices for both of these companies remain unchanged for 25 years and both investors reinvested their dividends every year. Their performance can be found in the table below.

The Results
Investor A, the high yield investor, beats Investor B during the beginning years but the dividend pay-out and portfolio value of Investor B caught up in year 16 and 22 respectively. In the end, the total dividends received by Investor B are more than 3 times that of Investor A.

So, while Investor B received low pay-outs initially, he was rewarded with future growth. This is the underlying principle of the dividend growth investing strategy. Length of the period of investment would also affect the total dividends received.

Finding Dividend Growth Stocks

That will be the next question on your mind if you want to explore using a dividend growth strategy. Stock screeners come in useful here. A stock screener allows you to choose certain criteria, and to find stocks that fit the criteria you have selected.

Here is a set of criteria that could be used to pull dividend growth stocks:

Dividend yield>3%
Market capitalisation>200 million
Dividend growth rate (5-year average)>8%.

The stock screener below, for example, has found 17 stocks that match the above criteria. This provides a good starting point for investors to do further research into these specific stocks. Try to come up with your own set of criteria and see how it works.

Source: Recognia Strategy Builder on Maybank Kim Eng’s KE Trade platform as at March 2016

Disclaimer: This message is for general knowledge or information only. It is not an offer or invitation to buy or sell securities, futures or other products or services. Our products or services vary in different jurisdictions, subject to their respective terms and conditions and the licences our affiliates and us hold. This message is not an advice or recommendation for any financial planning, investment, legal, tax or other purposes and, accordingly, no responsibility or liability is assumed by us or our affiliates, whether directly or indirectly, from any person taking or not taking action

What Exactly Is Short Selling?

In the dynamic world of the investments, you will encounter the term “short selling”. How does it work and what are the rules behind it?

The age-old practice in investing is that you will profit by purchasing stocks in a low price and selling them for a higher price. Although you have invested in a seemingly good performing economy, some stocks or securities may go down. You cannot earn money by “buying low and selling high” in this circumstance. Fortunately for you, there is another way to make money! That is short selling.

Short selling plays a soothing music to the risk-taker’s ears. Its concept is relatively simple. It takes advantage of the market transitions from higher to lower prices. It occurs when an individual borrows a stock, sells it for a higher price, and purchases the stock again at a cheaper price. Watch this short video to grasp its essence:

Most local brokerage firms let you experience the ease of selling short. Just place an order to sell the stock and communicate with the broker. The brokerage firm will borrow the shares for you to sell. Then, it loans the shares to your account and conducts the sell order.

As with everything, rules shall apply. Here are just some of the common rules in short selling:

1. The “Uptick Rule” is one of the key edicts that short sellers abide. It refers to selling a stock short only when the last trade was a move up. You cannot short a stock that is moving down.

2. The odds may not be in your favor if you heard that a flock of investors are shorting the same stocks that you are shorting. There are so many risks if you short a stock that everyone else does. They can simply abandon their shorts if things do not go as planned. Doing so will drive the price to hike.

3. Short selling during seasonal holidays or during “options expiration week” may attract painful losses because those circumstances do not follow the natural or normal supply and demand.

Short selling takes advantage of the market transitions from higher to lower prices. The steep learning curve intimidates some investors, leading to avoiding it entirely. It is undoubtedly a skill that experienced investors develop!

Sources: 1, 2, & 3

Why I Failed At Budgeting

Making New Year’s Resolution is synonymous to crafting a new budget plan. Creating these two signifies an act of self-improvement. However, no plan is entirely foolproof!

These are just some of the reasons why I previously failed at budgeting:

I FOCUSED HEAVILY ON THE PRICE

Before purchasing a new laptop for work, I inspected some of the contenders from the well-known brands. My new laptop must not only fit my physical preferences, but also my financial limit of up to S$1,000. I searched vigilantly through the store and found a 14-inch HP laptop as well as a 14-inch Dell laptop. These two devices have the same processors and operating system. However, the main memory of the former is 8GB and the latter is 4GB. An important fact is that only the Dell laptop was within my budget.

Which one did I chose? The one with better specifications. Although it retailed for S$1,099, I still taught that it was a smarter investment.

According to a 2012 study published in the pages of the “Journal of Marketing Research”, people fail to follow their budget because they are more likely to spend more than they planned. You must not always beam too much focus on the price. Instead, compare the value (e.g., which has laptop optimal screen size and RAM) of what you are getting before committing to a sale.

MY BUDGET WAS TOO STRICT

Upon getting my first full-time job, I started to restrict myself. My goal was to make enough money to save up for my graduate studies and to help my parents in the household expenses. I did so. I gave about 10% of my salary to my parents and 50% would go to my savings account. I removed my trips to the spa and the cinema. A hefty savings greeted me at the end of every month. But, I felt burnout as there was no room for pleasure. This is when my budget failed me.

To turn things around, I started to make money on the side. I became a blogger that solicits money for endorsements. Eliminating unnecessary expenses is a good idea, but you must reward yourself (from time to time).

I FELT EXHAUSTED WHILE TRACKING MY SPENDING

You need discipline to track your own spending. I realized this firsthand. I used to compile all my receipts and banks statements. But, it got too exhausting! I started with a willpower to succeed until the constant vigilance took a toll on me.

A study supports my statement as it was found that self-control and intelligent decision making involves one’s energy supply. Once this energy runs out, you are more likely to go on a spree.

Image Credits: pixabay.com

Get things by following thru your plan. Practice is the key! Improved decision making and control will become second nature to you as time passes.

Sources: 1, 2, & 3

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