Penny stock investing
Episode #37: “People Have This Time-Frame Confusion That I Think Does a Huge Amount of Damage”
Guest: John Bollinger. John is the president and founder of Bollinger Capital Management. An avid researcher, he has developed a number of widely used investment tools and analytical techniques. His Bollinger Bands® and related tools have been integrated into most of the analytical software and charting platforms currently in use. He is known to the public for his many years of market analysis and commentary on television — first on Financial News Network, where he was the Chief Market Analyst — and subsequently on CNBC. He is the recipient of the Technical Securities Analysts Association of San Francisco Lifetime Award for Outstanding Achievement in Technical Analysis and the 2005 Market Technicians Association Annual Award for Outstanding Contribution to the Field of Technical Analysis.
Date Recorded: 1/26/16
Topics: In Episode 37, we welcome John Bollinger, creator of Bollinger Bands, one of the most widely-used analytical tools in investing.
As John is also a market historian, Meb start by asking him about his historical influences – those individuals who helped shape John’s perspectives on the markets and trading. John gives us his thoughts, identifying who he believes is one of the most important figures in technical analysis. This leads to an often-forgotten takeaway – that many of the most effective market concepts have been around for a long time. Some very profitable strategies that still work today were being explored 100 years ago.
Meb redirects, asking John about his background. It turns out, John was in the film business as a cameraman. But by a few twists of fate, he ended up in front of the camera, providing technical commentary on markets for a fledgling financial broadcast network.
This leads into a discussion of John’s famous “Bollinger Bands.” He gives us an overview of the tool, and how he came to establish it. In essence, Bollinger Bands can help investors identify relative market bottoms and tops, helping find direction for profitable trades.
Meb then asks if John’s thinking on Bollinger Bands have changed since the early days. John tells us that the core concept stands the test of time, though he has added some extra indicators.
Next, Meb asks about combining two types of analysis – technical and fundamental – something John calls “rational analysis.” For many people, you fall into one camp or the other. But John was able to find overlap between them. He tells us how, and even ropes in two additional types of analysis to include – quantitative and behavioral. He thinks combing all four works better than using any single one. Meb asks how you actually use them all together, to which John gives us his thoughts.
Meb then asks which sector John is currently identifying as a good source of potential trading profits – but he immediately discounts the validity of his own question. You’ll want to hear why. This leads into a great takeaway – using the right charts for entry/exit in a trade. Specifically, a trader may use a short-term chart to initiate a position, but then not move to a medium-term chart to help him navigate how long to hold the position. Instead, he keeps looking at the short-term chart, which obviously will oscillate, and potentially scare the investor out of the trade. John says “People have this time frame confusion that I think does a huge amount of damage.”
Meb then asks about trade management. John says the most neglected issue is position sizing. People need to know how much capital to commit to their strategy, and there is a mathematical “optimal” answer. In essence, the problem is “betting too large.”
This leads John to reference the trading concept of “regret” – the percentage of time you’re in a drawdown. Turns out it’s about 80% or 90% of the time you’re invested. The only times you’re not in a drawdown are when you’re setting new highs, and that’s pretty rare. But most investors hate drawdowns and just don’t do well with this reality (part of the reason why investing is so hard for most of us).
There’s far more in the episode, including the most influential books John has read, Bitcoin, currencies, how to trade volatility, and John’s most memorable trades (good and bad). What were they? Find out in Episode 37.
Episode Sponsor: Global Financial Data
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Links from the Episode:
Transcript of Episode 37:
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