My Attempt At Technical Analysis

I've been waiting for over a month or so to see how this stock turned out, before I wrote a blog post about it. A while ago, I decided to try my hand at trading on some basic technical analysis. I had read about support and resistance and printed off a few stock charts. After drawing support and resistance lines on the charts, I decided to try and trade IMG.TO (IAMGOLD Corporation) to see if I could make some capital gains based on my chart. The following is a screenshot of IMG.TO over the past six months from the time of this writing, as well as my support and resistance lines drawn in. I've also marked where I bought (blue arrow) and sold (red arrow) the stock.

My figuring at the time point where the blue arrow is, was that this stock price had been bouncing off its resistance for a while now (the middle green line), and was coming up again for another try. I read that if a price breaks its resistance, that level will often become the new support level for the price, and the price will shoot upwards. I figured that if I were lucky and hopped on board right when it broke resistance, it might shoot up. If I were even luckier, it might shoot up past its longer-term resistance (top green line) and who knows how much higher. Obviously I had some unhealthy expectations for this stock.

So I bought the stock at the blue arrow on the chart. I bought twice as much as I meant to, because first I placed a limit order. Since I wasn't patient enough for the price to hit my limit order, I canceled the order and placed a market order. Then the price reached my limit order (which I thought I had canceled), and I mistakenly bought twice the number of shares that I had meant to. I suppose that counts as another one of my mistakes to post about on this blog. In any case, I held on to see what would happen.

Unrelated to stock trading, it turned out that I needed the money I was trading with. For reasons why, see my post about investing while unemployed. The price dipped a little, and when it went back to where I had bought it, I figured I would stop while I was at break-even (including commission fees), and sell the shares, since I needed the money. I've made some mistakes in investing so far, but I know not to trade with money I can't afford to lose. So I sold the shares at the red arrow.

I still paid attention to the stock, to see if it turned out that I was right with my basic technical analysis predication based on support and resistance. As of December 6th, the stock has gone down quite a bit (as you can see from the chart) compared to where I bought shares. Through pure luck of pulling out when I did, I missed out on the big plunge. Had I held on, I probably would have fallen for the same mistake I had suffered once already.

I've decided not to trade on the basis of technical analysis from now on for two reasons: it's not an exact science, and it does not fit with my dividend growth investing strategy. I've heard statistics saying that a significant percentage of day traders lose money overall, and their trading is largely based on technical analysis. I haven't labeled this post as a mistake or a success, as it was neither. It was simply another step in my journey of learning about investing in the stock market, and I've shared the results in this blog post.

Mistake #3: Ignoring Quarterly Reports

While toying around with short-term investments in the stock market, on two occasions I failed to take notice of when a company's quarterly report comes out. Quarterly reports can be a major factor in the stock's price. If investors don't like what they see (lower than expected earnings, for example), they will sell their shares, driving the price down.

This happened to me while investing in Rogers Communications Inc. Their past quarter wasn't so good because of all the other smaller, low-cost wireless providers just getting started with their ad campaigns. Rogers lost some market share to companies like Mobilicity and Wind Mobile, despite Rogers launching their own Chatr brand. Rogers' loss in market share may only be temporary, or it could be lasting. However, at this point in time, a significant number of shareholders of RCI.B decided that it was time to sell. The stock went down nearly 8% the day the quarterly report was released, and continued to fall over the next few days. Since I was only a short-term investor, I decided to sell my shares, as all my gains from the past month or two were now back down to zero.

Ignoring the quarterly report actually happened to me a second time. I was trying a short-term investment in IAMGold Corp. based on some basic technical analysis. The stock reached a high point, and I decided to sell my shares. The next day, the quarterly report came out saying that earnings were less than expected this quarter. The stock's volume spiked as everyone sold off, making the price drop over 4% in one day. Had I waited just a day longer, I would have suffered that same loss.

My lesson learned from these experiences is to pay attention to the fundamentals of a company you are invested in, whether it's for the short term or the long term.

Update: A good tool to stay on top of important dates with regard to your investments is Google Finance portfolios. If you add all your stocks to a portfolio, its summary page has an "Upcoming Events" section that lets you know when earnings reports, quarterly reports, etc. are due to be released.

Mistake #2: Investing While Unemployed

During the summer, I was able to save some money from working at a full-time co-op job for school. When the fall came and it was time to go back to school and pay tuition, I was hoping that my student loan would be able to cover me for the term, until I went back to a full-time co-op position. I decided not to take a part-time job, and try to focus on school work instead.

My mistake was that I've had to dip into my stock account savings to survive until I am employed again. What's worse is that I made a few too many trades during the months being unemployed, because I was trying to re-allocate my assets in a more short-term way. On top of that, I've had to sell some stocks before they've had the time to appreciate in value a little. I think I've managed to stay around the break-even point, but I don't think I'll be investing again until at least next summer, when I'm caught up on bills, saved some tuition money, etc. and have some extra money that I can put away in my stock account again.