Rule #1 Finance Blog

With Investor Phil Town

InvestED: Ep. 165 – ETFs, Technical Indicators & MACD

This week we’ll talk Nobel Prize winners, ETFs, and Danielle attempts to direct me toward finishing our discussion on technical indicators. In this episode, we will focus on the technical indicators, the MACD and Stochastic, and tell you a little bit about what type of investors use which indicators.

Disclaimer: These indicators DON’T work for everyone. They WILL burn you if they’re not used correctly so listen to this episode carefully. They MAY help if you’re stuck in a 401k or if you don’t have a long time before retirement.

In Episode 165 You’ll Learn:

  1. ETFs
    • What is an ETF?
      • ETF stands for Exchange Traded Fund and is comparable to an index fund, where the owner has diversification of a mutual fund, but the flexibility of trading individual stocks. It is typically less expensive, as it avoids the paying of fund manager fees.
      • ETFs aren’t the best for everyone – ETFs require time and attention and are often unnecessarily diverse.
      • The most diversified fund you can obtain without paying fund manager fees.
  2. Technical Indicators
    • Technical Indicators are tools used by traders to predict market trends.
    • Why are we talking about it?
      • Because a lot of people do use them to enter and exit the market, although most value investors including Buffett and Munger do not. It is good to know what other people are doing – which is why it’s useful.
      • Take this as general knowledge to add to your basic investment resources – it is something good to understand and be aware of.
      • Technical trading is buying a stock based on solely the stock – not any other factors.
      • Value investing takes the whole company (not just the stock) into account.
  3. MACD
    • What is the MACD?
      • The MACD, or the Moving Average Convergence Divergence, is a Technical Indicator focused on the momentum of the trend. It is calculated by subtracting the 26-day exponential moving average from the 12 day exponential moving average.
      • Otherwise referred to as the “Psychological Indicator” of the market.
      • Useful when trading as one who moves in and out of the market.
  4. Stochastic Indicator
    • What is the Stochastic Indicator?
      • The Stochastic Indicator is another momentum-based indicator similar to the MACD, however, this indicator tracks the overselling and overbuying of stocks.
      • The Stochastic is particularly useful for small, independent traders while the market is up – this is not a great tool for those in the Rule #1 mindset.

Show Notes:

  • Danielle & Phil’s New York Times Best Selling Book Invested
  • Phil Recommends:
    • Jason Zweig “Your Money and Your Brain: How the Science of Neuroeconomics Can Help Make You Rich”

On the InvestED podcast, Phil and his daughter Danielle shine a light on the successful investing strategies that gurus like Warren Buffett have used for 80 years. Listen in for a great stock market education on basics, learn how to invest on your own, and follow along with real-time examples and investing tips from week to week.