Technical Analysis and Investment Portfolio Management

I suppose even the hardcore technical analysts might have a investment portfolio in which they might buy and hold scripts for significantly longer periods of time than the time frame they use in their trading activities. I also presume that their choice of scripts in the investment portfolio probably relies more on fundamental type of analysis.

I have been investing for over ten years now. And it is only been three years that I have been learning technical analysis and doing a bit of trading.

I have been trying to answer the question: can we use aspects of technical analysis in portfolio management also?

And the answer seems to be: yes, we can.

Let me illustrate this with an example.

I have been holding Asian Paints in my portfolio for over four years now. In the last 14 months particularly, it has shot up like anything - the PE ratio is hovering above 30 + and the fundamental analysts have been saying for quite some time now that it is overvalued.

I have been watching the charts of Asian Paints and holding my position because technically the stock is in a strong uptrend.

But now, it seems the technical charts are weakening. Lets look at the chart shown below. (You can click on the image to enlarge it.)



Clearly, it has fallen below 20 day SMA, and then below 50 day SMA, and now just got a bounce from 100 day SMA ( not shown in the figure ). But chances are that the 20 day High SMA will be a tough resistance to break through. and that the stock will fall again to touch 200 day SMA from where it will probably get a strong bounce.

So, as an investor, I can probably use this technical insight to encash part of my holdings and wait to buy it back around 200 days SMA. For example, if I am holding 50 shares of Asian Paints, this might be a good time to sell 10 shares ( 20%) and use the cash when the market undergoes a severe correction which it will somewhere down the road.

That is all for now ..... Cheers


If you have any comments please write to me at stockmarket.methods.in.madness@gmail.com

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Disclaimer: The above analysis is just that - my analysis. If you choose to trade on the basis of this analysis, you will be solely responsible for the outcome of the trade - profit or loss. Please keep in mind that trading and in particular day trading is not for the novice and there is significant risk of loss of capital in trading
P.S. It feels good to write in the blog again after a long time