THE IMPORTANCE OF TECHNICAL ANALYSIS: “WHY I BECAME A CHARTERED MARKET TECHNICIAN”

16 Dec THE IMPORTANCE OF TECHNICAL ANALYSIS: “WHY I BECAME A CHARTERED MARKET TECHNICIAN”

“Letters. You need letters.” That’s what my dad, Carlos Sera said. “You need letters after your name.”

I started working with my father straight out of college. Well, truthfully, I started working with him in high school, when he paid me $500 to write and run a bunch of programs on his computer.

Wait, now that I think about it, he has been showing me stock and commodity charts as far back as I can remember. He would move a paper horizontally across the big computer screen and ask, “Where do you think this is going to go? Is it going up or down from here?” Then he would move the paper one bar or time frame over and ask again:

“Is it going up from here or down from here?”

As soon as I answered, he would continue to move it and repeat the question until we got to the end of the chart. I can still remember those words, “How about now, and now, and how about now?” He would also show me how prices moved through time, and kept using a ruler to show me trend channels, support and resistance. And for once, I was relieved to see a ruler used for something constructive. Catholic School can do that to you.

I can even remember looking up prices in the Washington Post and smudging pages with my clumsy fingers. Yes, this is when stocks still traded in 1/8th increments, and people still used physical paper to garner information. So, I guess you could say I’ve always been interested in technical analysis.

That cumulative experience in my younger years was my foyer into investments and managing money. In retrospect, there was never any doubt as to what I would do to earn a living; it would be trading and managing money and nothing else. (I’d like to think that studying Engineering in college helped my learning; but maybe I should have stuck with finance. Who knows.)

But when I finished school, my father insisted I earn some letters after my name. He had some strong opinions about what those letters should be. Calling some designations, “A Book, A Beer and A Weekend Designation,” he insisted I work towards something that many in our industry consider to be more worthwhile. As an example, Certified Financial Planner is one many people are familiar with, but not one he recommended for me.

BECOMING A CHARTERED MARKET TECHNICIAN

He recommended I pursue the Chartered Market Technician designation. When I was finished with that, he then insisted that I earn a Chartered Financial Analystdesignation, as well. But that’s on the indefinite backburner since their focus is fundamental analysis, and I don’t see the point of it at this time. (Sorry, dad.) I am interested in technical analysis; I am a technician and a trader.

For me, I’ve always been interested in what makes markets or securities move in one way or another. The older I get, the more I realize emotions like fear and greed are inextricably interwoven with the particular markets or securities people trade. Their behavior repeats, and I try to use it to create trades with a high chance of success. Because of this, I’m interested in creating behavior-driven portfolios so people don’t screw themselves over when times get tough.

In addition to creating behavior-driven portfolios, I’m also interested in trading volatility derivatives. It’s the best game in town. Master that and you can create a ton of wealth relatively quickly. That’s why I trade it. For people who are looking to build wealth, you can mirror every trade I make.

EVIDENCE-BASED TECHNICAL ANALYSIS

But Volatility (^VIX) doesn’t trade on fundamental analysis. ^VIX is purely technical, and that’s why I love it. Now, I’m about to get a little technical on you. You see, the guiding principle behind Sera Capital is Evidence Based Technical Analysis or EBTA. Since we have two types of clients, we focus on the two types of things that matter to them. For our high net worth clients, we focus on strategies designed to mitigate tail risks without compromising tail reward. For our “we want the biggest rate of return possible” clients, we trade volatility.

We believe this because it’s how people think. They either have money they want to preserve and still grow intelligently, or they want spectacular returns and realize those returns come with higher risk. It’s rare we take on clients who are looking to build wealth. Well, my father certainly doesn’t. I have a few wealth-building clients, and they mirror my inverse volatility portfolio.

Wait, there’s one calling now. Hold on…

BUILD WEALTH VS. PRESERVE WEALTH

….okay, I’m back.

Now, where was I? The majority of our clientele are high net worth families looking to preserve their wealth and then later create income from their investments. While it’s nice to help friends out here or there, wealth building isn’t our core competency. There is such a thing as a small client.

For someone building wealth, it’s best to dollar cost average into an all equity index fund until the day where you say, “DANG! That’s a lot of money!” That’s when you call us – when you want to preserve your wealth. We can build wealth, and we have methods and systems in place that can do that pretty well, like trading volatility.

And as you can see, this blog post is much worse than when I sat down at my laptop earlier. I was on a roll. Now what? This whole post is ruined. I’m never answering the phone again.

Moral of the story, do not take calls from clients once you’ve sat down to write, even if they are your friends and are going through a terrible breakup, because they can distract you from what you’re working on.

It’s best to focus on what you do best and what we do best is manage money for high net worth people looking to preserve their wealth and building wealth through trading volatility derivatives. To do that, we use Technical Analysis. That is why I decided to become a Chartered Market Technician, to better serve our clients. Maybe someone reading this can relate and will want to become one too.

If you want to see the CMT curriculum of Spring 2012 – what I was studied to become a Chartered Market Technician – check out our page on the Best Technical Analysis Books.

Carl Sera
cesera@seracapital.com

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