is going to increase in value in the near future. To understand technical analysis, we have to
understand the basic. Recently, even people who are not specialized in finance are talking
about the Fibonacci retracement, Fibonacci circle, and Fibonacci Fan etc. Further, they
are using the Fibonacci ratio such as 23.6%, 38.2%, 50%, 61.8% and 100% of the vertical
distance of the peak and trough to predict the retracement level of the most recent move without
understanding the basic of technical analysis. Their practices are very dangerous because they
are risking their wealth for something that they don't even understand.
Okay, let's go back to the chart above. We can see a red horizontal line that represents a strong
support of CCB at $6.1. After 3 times of bouncing back from the support level, The stock finally
breakout downside (shown by black arrow). Seeing this opportunity, an experienced technical
analyst ideally could short the underlying, buy put option, or sell call options. Or they can long
bear put spread or long bear call spread (PS: Those strategies not suitable for every investors.)
Because the stock formation is a double top formation, we can measure the move in order to set a
target price for the downside breakout. It is the vertical distance measured from the top of the highest
peak of the "mountains" to the support level (about $0.6). Then we can calculate the target price
=$6.1-0.6=$5.5.
Next, let's talk about the most recent move of CCB. Recently, it breakout the $5.6 with higher than
average volume. Then, $5.6 becomes the recent support of the stock. The double bottom bottom was
form the recent move (vaguely). If the stock can stay above $5.6, the potential will be at least
=$5.6+$0.6=$6.2. In my opinion, this outcome is very likely to happen in the near future.
Thank you very much for reading the post!
Please leave comment if you have any question,
I will get back to you ASAP.
Alan Lee
BA (Honour) in Economics
University of Alberta
CFA Level 2 Candidate
Hello Alan, your article seemed clear and logical. But as a beginner in making an investment in stock market, I am quite confused as I don't know what I should learn first. Could you kindly make an advice for beginners like me? Thanks a lot!
回覆刪除Thank you very much for your comment!
回覆刪除No matter what your investment horizon (it is our jargon for the time period holding the investment) is. Learning fundamental side of investing does not hurt. For example, You can learn the top down approach or the bottom up approach to select your stock pick. Top down approach starts with the
Macro Economy->Sector->Industry->company.
The bottom up approach is just the reverse of top down approach.
The problem with technical analysis is. This school of analysis is too sujective, and it is not alway correct depending on the news and psychology of the investors. If effective market hypothesis is correct (the semi-strong form is proved to be correct already), technical analysis is completely useless. It means that you cannot beat the market. Therefore, investors use technical analysis to determine the entry point and exit point always use stop loss order to limit their loss on all positions. They also learn the betting strategy to increase their chance winning such as martingale betting strategy, anti-margingale betting strategy, or Kelly's criterion. Let think of it as gambles, and the stop loss order determine your bet on a particular position.
Finally, we are focusing on technical analysis, fundamental analysis is not the focus of this blog.
Nice to talk to you here
Good luck for your journey to investing!