I am fairly new to technical analysis and have started investing in 2020.
I maintain 2 types of portfolios - one for long term based on fundamental analysis and the other for which I have started recently is short term momentum gains using RSI, MACD and 200 EMA.
As per my initial analysis, this TA method seems simplistic and too good to be true -
RSI < 30 AND MACD crossing signal AND price < 200 EMA being a buy signal in a sound stock should give easy 2-3% in couple of weeks.
I do not want to limit myself of any myopic views of my own and would want to know what I could be missing and which topics should I learn further.
However, this could be an isolated event. My findings could be very naive and they are based on a research experience of just few weekends!
Would like to know if anything further refinement would be needed here. Thanks
Nothing is absolute in the market, in the sense that, as there are a lot of things that make the price move both ways, we need to understand the confluence of such things and look at charts from many angles. One such angle is increasing the time frame. What seems like a resistance on day chart might not be one when you change the time frame to week.
This is because you are in a bull market.
Anything you buy will eventually go up.
There are some humorous quotes etc on this - “In bull market everybody’s an expert”
But this will work if you can keep your position size in check, money management under control, and satisfied with 18-20% pa cagr.
But in reality, you will soon find out derivatives. You will start dabbling in options, you will apply same strategy in trading , scalping , intraday etc.
And in this way you will eventually loose everything.
(hypothetical scenario)
So yes you strategy is too simplistic and will not work unless you have experience.