The Myth Of Searching Stocks Using Fundamentals And Enter Them Using Technicals.

A lot of traders/investors nod their head in agreement when someone say that you filter stocks using fundamentals and enter/exit using technicals.

I bet you also agree with this one.

Let’s take a step back and analyze the statement more.

“Filter stocks using Fundamentals.”

Okay stop right there. Take a deep breath. Hmmmm…. what happens when you filter stocks using fundamentals?

You remove almost half of the stocks sa list ng PSE. I bet more than half pa nga.

Filtering stocks using fundamentals eliminates basura or penny stocks. All that is left sau are more or less bluechip stocks or first liners.

When you use Technical Analysis, you enter and exit stocks using indicators which are mostly derived from the price. Isa sa strength ng TA is being able to trade basura or penny stocks.

Entering a stock using Fundamentals removed that strength. Let’s say you filter stocks using fundamentals.

You found a stock na may good earnings this year. Siyempre dahil good earnings niya low yung P/E ratio niya. Tawagin natin ang stock na si stock ABC. May good management team behind yung company ni stock ABC. May magandang earnings. May magagandang projects. Lahat ng financial ratios niya screams undervalued siya.

Napili mo si stock ABC. Now hahanap ka ng good entry. Let’s say MA200 ang gagamitin mo as your technical indicator for entry or exit. Entry mo is pag break ng MA200 as resistance. Exit mo is pagbreak ng MA200 as support. Example lang ito ha. You can use whatever strategy or technical indicator na sa tingin mo nagsusupplement sa FA.

So ayon. May FA as filter ka na may TA as entry at exit ka pa. Perfect diba?

Now let us put some sense on what you did. You searched for a stock na undervalued with good fundamentals. Naghanap ka ng stock na may good management team. Naghanap ka ng stock na maraming projects. Nung nakita mo na siya ang decision making mo sa pagpasok ay pagbreak ng MA200 as resistance which was the average price for 200 days. Meaning papasok ka lang kapag above na ang price sa average price in 200 days. So bibili ka kapag ang price ay above na sa lahat ng naging closing price sa loob ng 200 days. Those prices were results of different buyers and sellers. Those buyers and sellers buy and sell stocks for different reasons. May iba dun bumili lang dahil trip nila. May iba dun nagbenta lang dahil kailangan nila pera. So on and so forth.

You searched for a stock na undervalued pero eh base mo ang pag entry mo sa past decisions ng iba’t ibang tao. Does that make sense?