Trend following, technical analysis and why price means everything

0:09Mike Toney-Hoffman:Welcome, Mike Toney-Hoffman from TrendSpider to Investing Experts. Really great to have you, Mike. Thanks for taking the time. Yeah, of course. Thank you so much for having me. It's great to be here. Yeah, I hope you're having a great day. The market has been incredible lately, so I think everybody out there is hopefully happy. It sure has. And I think a lot of people wanting to understand why it keeps looking so good, or I guess at this point, some people understanding already. As a brief preamble to this conversation, for those of you that have been listening to Gary Vaughn's conversations on investing experts, he's talked a lot about how he utilizes TrendSpider and Seeking Alpha to come up with his very prescient picks and how he uses his strategy in general.

0:55Mike Toney-Hoffman:So I thought it would be a great opportunity to get the evangelical Mike Tony Hoffman. One of his roles is evangelist at TrendSpider. So I thought a really good place to start would be your investing slash trading journey, how you arrived at TrendSpider, and what you use TrendSpider for, and also how that influences and affects your general investing strategy? Yeah. First of all, love Gary. That guy is awesome. I have him on the TrendSpider live show all the time. Super fun guy. But for me, I started off investing. Well, I went to school, got a business finance degree. I was always more so a fundamental investor.

1:44I actually started as a dividend investor. Before I even went to school for finance, I kind of got into the markets and just was like, you know, buying dividend stocks, just even a little bit of ETFs back then. To me, it just made sense. It was like, I just buy this thing and it pays me like every few months for not doing anything. Like to me, it just seemed like the ultimate passive, quote unquote, passive income hack. You buy it, you don't have to do anything and they just pay you a small portion of the business's profits. I was like, that sounds incredible you don't have to run a business you just buy into it you know it's not real estate where you're tracking down tenants and collecting rents it's just it seemed like a good thing to do and um yeah that's really how i got into investing but um yeah from there i got it obviously went to school for it i learned a lot about how companies are valued by people you know like discounted cash flow analysis and stuff like that um and that's where i kind of started taking a turn uh because i was like you know because everything when you go when i went into finance i was like everything isn't like like just because a company has good fundamentals doesn't mean the company's going to go up and i learned that you learn that quickly in the markets you know like everyone makes bad investments and so from there um i kind of got into more like trend following i i did trade options for a little bit when i was doing that like i would sell covered calls basic stuff like that.

3:10But then I was like, you know, price means everything. Like, and that's why I got into trend falling, because if the price is, you know, not going up anymore, like even if they're paying you a dividend, it doesn't necessarily matter. I learned, you know, sometimes price leads fundamentals, like often more times than not, it does. And even like the craziest fundamental investors, like they make bad calls, like nothing is black and white. And so to me, it just price made more sense.

3:37Mike Toney-Hoffman:I think a month ago, one of our headlines was fundamentals over everything. And that was a tech focused analyst talking about, I mean, that is a sector that is like most adhering to this conversation in terms of fundamentals don't seem to matter that much in the day to day. And how do you do that dance between price and fundamentals? So maybe if you would give us like a little bit of a deeper dive on how you've seen that trajectory in terms of price over fundamentals? Yeah, so I'll take it back. There's been a few times and I mean, I've been in the markets for about a decade now, about 10 years, and there's been several times in my past where I've missed some really big opportunities because of fundamentals.

4:19And when I say fundamentals, I guess I'm more talking about like more traditional like value investors, like Warren Buffett type, like looking for a low PE ratio, like solid company, stuff like that. And so the first one that comes to mind is Tesla. You know, back in 2020, 2019, everybody hated this our fundamentals fundamental investors hated this stock because you know they were burning money um it was very speculative you know they weren't paying to do like all that good stuff and it ended up being one of the best investments you could have possibly made for like several years back in like 2019 2020 um which you know and i wouldn't say fundamentals don't matter at all i think a good combination of fundamentals and technicals is kind of the move uh kind of what matters because when Tesla really started popping off is when their operating cash flow turned positive and it was aligning up very nicely on a chart.

5:13I've learned a lot of stuff from reading books from guys like Mark Minervini and William O 'Neill. Those guys are very much technical focused, specifically Minervini, but then William O 'Neill, I learned a lot from him because he was looking at, you know, future potential companies, like instead of a company is doing great right now, they're paying a good dividend, they're valued at a good price, they're looking for the stuff that's going to be, you know, traded at a good price in like three months from now, a year from now. And I think the market is very forward looking. So that kind of just stuck with me.

5:53Because the second a company goes from, you know, they might be good in a year to like, all right, now they're good. The move has already gone. And so that's why I'm like, you know, price is the only way that you can possibly predict that. And fundamentals kind of confirm the story when it actually happens.

6:12Mike Toney-Hoffman:So maybe walk us through the metrics that you are focusing on and how you decide to buy something and when you decide to get out of it. Sure, sure. So for one, I use TrendSpider all the time. So I have several scanners that are sending me emails pretty much every single morning before the market opens. These scanners are actually directly from Markman or Venia. We built them based on these guys' strategies. So we have a canceling scanner, right? And this one is basically looking for EPS growth, annual earnings growth, basically just focusing on leaders, institutional ownership, and momentum. Momentum is one of the biggest things that I've learned.

6:55I've had a lot of people investing champions on the TrendSpider Live. I've had Tushar Shandi, the guy that made the Stochastic RSI, and all these guys, and Mark Minervini too. They're all an investor's business daily, like William O 'Neill's thing. They're all focusing on relative strength. And I think that's, if anyone had to take one thing away from what I'm looking for, it's relative strength and absolute strength. Similar but different. Relative strength is how a stock is doing compared to its sector or to the overall market. So basically, if a stock has a relative performance, we have the indicator on trend spiders called relative performance of like 95.

7:39and you're comparing it to like the S &P 500, it basically means it's outperforming 95 % of the S &P 500 or whatever basket of stocks you're comparing it to. And the ability to filter the entire thousands of stocks down from the market into just a basket of stocks that are outperforming everything that have strong relative strength is probably the most important thing that I look for. And so that's relative strength, right? And then I learned absolute strength a lot from Tushar Shandy. He has this chats indicator. This is Shandy absolute strength, absolute trend strength indicator. And instead of looking at a stock compared to an index or other stocks, you're looking at a stock compared to itself.

8:26And I took, so I have my own indicators now that I know I've back tested a lot. And my favorite absolute strength metric that I look at right now is one, rate of change. And then also an EMA slope, which is basically comparing where the EMA is now compared to it was X days ago. And then rate of change, if you don't know, is basically what X percent a stock went up compared to it was X days ago. And so I'm using specifically the 100-day rate of change. and I want it to be at least 30%. And then from there, I'm like, all right, the stock has strength. I look at the relative strength and that's basically how I filter down stocks that meet my criteria.

9:11And this is literally all ran through Transpider. Like I get lists of these stocks sent to me every single morning in my email. And then I used our Sidekick AI to rank them and basically do the fundamental research for me. I allocate, so I pick, it depends. So I generally have a portfolio and my trend-falling portfolio. I have a long-term investing portfolio and then a swing trading and then my trend-falling portfolio. I have a max number of stocks in there at any one time of 25 stocks. So it depends what's pulling up on my scanners, how I feel about the market that day. But basically, I run my scanner.

9:51I look at all the results and I give Sidekick my portfolio, which it has access to now. Now it's a recent update. And I say, Sidekick, look at my current allocations and then look at these scan results and then tell me what you think are the best ones. Rank them in order based on their potential to be future market leaders, their EPS growth, their revenue growth. Everything already meets my technical criteria thanks to this scan. So I'm mostly using Sidekick to confirm the fundamentals for me and then rank them in order. And then I do the manual work of going through each chart and picking out which ones look best to me.

10:31I just use basic stuff like the 9 EMA, the 21 EMA. I don't like to buy stuff too. Ideally, you buy it around the support, around the 9 21 EMA. And then I allocate basically a specific percent of my portfolio to each name. and then I set a trailing stop which is all built into my trend fighter indicator I have my momentum filters both in my indicator they literally just paint the candles green when it matches both of them or blue and it matches one of them and then once I get in I have a trailing stop built in which is a 20 trailing stop which you can modify of course or set it to wherever you want in EMA And then generally, when I follow my rules, I let it come back down and hit that trend and stop.

11:20And that's the only time I exit is when the trend breaks, essentially.

11:25Mike Toney-Hoffman:Before we hit record, you were telling me that you broke your strategy yesterday. And I love when people break their strategy because I think it's very educational for us to hear why and when you break your strategy. And I think helps us as investors formulate our own strategy in terms of, okay, we're smart. we've come up with this great strategy but we're not perfect and there's always room for uh flexibility absolutely yeah so um i don't know when this episode is coming out but i'm sure you guys will hear about it or have heard about it but like you know obviously all semiconductor stocks mostly have been just absolutely flying and um sidekick ai was screaming for me to buy Marvell stock.

12:08It had an alert or like a, you know, it showed up in my scanner in mid-May. And I eventually, you know, had some trailing stops hit. So I added some open space in my portfolio. And so I took a position in Marvell. And then, you know, just like yesterday or two days ago, NVIDIA CEO Jensen Huang was basically calling it the next trillion dollar company. I I think it's at about at 250 billion right now. And that cents Marvell up, I think it was 44 % in a single day, just the other day. And, you know, normally I would wait, like obviously my trailing stock moved up X percent, which would be great.

12:50But I'm just sitting here, you know, looking at the chart literally right now. Like, it's just absolutely insane. Like, yes, like normally I like to hold things, let them break their trend before they come back down. and maybe i'll regret selling into strength but um i did go ahead and sell into strength on marvell because when a 250 billion dollar company moves 40 plus percent in a single day um i think at some point you know we're all human like we have to kind of like understand the limitations of falling back tests like to a t and i don't know i think it's just a part of trading where it's like you see some things and you're like this just isn't right and i feel like it's just the the risk of not taking this off for me outweighs the the risk of leaving it stay staying on and i didn't sell it completely i sold about a little bit over half my position to be fair just so i have something in there um to continue that but but yeah i mean sometimes you know i drew like the fib retracement it it's hitting like the 2.618 and it rejected it to a t i sold it in the overnight session i was like you know what this is going to stress me out because i'm just like super confident it's going to it's going to give back a lot of those gains and so i was like you know what i'm breaking the strategy right here um it's not the end of the world um and you know you can compare it to like your strategy like i can go back to my back test and see like you know my my average winner is like x percent uh and kind of base it off that but either way it's just sometimes things just just seem right and yeah we're not computers we're not computers and even

14:37Mike Toney-Hoffman:the computers ps are not infallible they too are fallible exactly uh actually looking at marvel makes me understand more why gary uses trend spider and seeking alpha because looking and And also hearing you talk about momentum and how it figures into your strategy also made me think of our quant system. So I took a look and it's on hold. And Marvell has A, A pluses on every metric except for valuation, which is a failing grade, which makes it hold, not a buy. So it's interesting to kind of like compare and contrast and see where you get to. I wanted to ask, you know, I've been at Seeking Alpha almost two decades, which is insanity.

15:17Mike Toney-Hoffman:But I remember when I first started at Seeking Alpha, technical analysis was definitely not widely understood. It was definitely poo-pooed by a lot of people. I've seen a really big change in that regard, you know, over the years. I think a lot more people understand the advantage of using technical analysis. What would you say? Like, are people, do you still find that people don't understand it enough or poo-poo it? Or what would you say about technical analysis to our audience? Yeah. Yeah. No, I agree. Well, I mean, I haven't been – I'm still pretty young, so I haven't been around the markets as long as – Oh, that's nice.

15:57Mike Toney-Hoffman:I'm still pretty young too, man. I wasn't even talking about you. Some of the guys I talk to have been into the markets, you know. Like they're always just calling me the young buck, you know, like all my lives. Like I have this guy, Robert, on. He was a financial advisor for like 20 years. So I always just love talking to these guys and seeing like their experience, like two sharp Shandy. He was a trend fall in the nineties. Like I was like, I was not even born. And so I was like, um, yeah, but technical analysis. Um, I agree. I mean, charts themselves didn't even, you know, really become fully commoditized until pretty recently.

16:33Like that's something we say at trendspiders. Um, like our, we have, we offer a lot of stuff and of course we offer charts, but that's not like the main thing. Like everybody offers charts. You can go to get charts for free anywhere now. And that's been like a relatively recent thing. You know, the original like technical analysis guys, like some guy that comes to mind is like Darvis, I believe it's Nicholas Darvis. He would literally and Jesse Livermore, like these guys, when they started trading, they were literally just looking at numbers on a like on a on a on a newspaper or like putting up numbers like ticker tapes or whatever.

17:07And they learned technical analysis just from like looking at numbers. And so it's really changed a lot. And the fact that we have, you know, charts now, we can code custom indicators with AI is insane. But just to like the average, I guess, investor, you know, there's a lot of levels to finance and trading and stuff. But I'd say like to the average investor, I think most people have a decent idea of technicals at this point. From what I've seen, I talk to a lot of people all the time, like beginner traders, like people that have been in the markets forever. I think everybody at least has a general idea of the basics of technicals, but not fully there.

17:45You can tell like a lot of most people, they don't have like a deep understanding. Like you'll see people like reference like moving average crossovers, which is great. I mean, it's a great thing to look at. It's something I still look at all the time. But getting down deep into technicals, specifically what I was talking about earlier, is relative strength and absolute strength. I don't think people understand that nearly enough. And I think that's one of the biggest gaps that is in there in technical analysis. A lot of people know the basics. Like when a lot of people think about technical analysis, they can think about trend lines and stuff like that.

18:24But to me, that's not really even – I don't use trend lines at all. at least like horizontal levels but trend lines um to me like that's a just a telltale that somebody is uh probably very new and technical analysis which is not bad you know it's you got to learn um and i'm not saying it's a bad strategy per se but there's a lot more like actual numbers that you can do you can back test based on relative strength you can back test based on you know moving average crossovers even um but you know stuff like trend lines it's kind of just like that's where like why what deterred me away from learning technical analysis back in the day i was like what is like there's no way this you can't back test this like and it just didn't make sense to me at first but once you like really like start studying technical analysis like relative strength and um and actually back testing how things move after the signals come about i think that's when And like most people like realize like this isn't just like what do they call technical analysis, like black magic or whatever it is.

19:27Fairy dust, you know.

19:28Mike Toney-Hoffman:Has your knowledge of technical analysis deepened to the point that you've altered your strategy? Like is it from using Trendspider? Is it from talking to people on your live show? Like how has it developed over the course of your of your time? Oh, yeah, a ton. I mean, honestly, like I wouldn't be half the trader I was now if it wasn't for my time here at TrendSpider. Like, like for one, it's the people here. Like everybody that works at TrendSpider is, you know, super into the markets. Like we can all have conversations about like we have like team meetings and we'll just all the time just get talk about our trades.

20:08And just like we're just constantly talking about the markets. And these guys are super smart. these guys are building trading bots these guys are building bots for like futures and just trading all these different strategies you know we got everybody we got people that are you know investors we got people that trade mean reversion like they're buying the dips we got people that trade momentum like me we got people that is just being exposed to all these different kinds of people on the team every day and of course building indicators for the platform to like show people has taught me an insane amount.

20:44And then, yeah, and on top of that, my live streams. I've learned so much. Like I was saying, like Tushar Shandy has been an excellent mentor for me. Like he'll come on the live stream all the time. And I've learned a ton about his custom indicators that he built. I've had Matt Caruso on, who has one of his own custom indicators on the platform as well, which is basically just another relative strength indicator. It's like the CARS indicator. It's like adaptive relative strength where he compares, you know, a stock to its sector and stuff like that. And then, yeah, just the combination of all that, listening to podcasts with these guys in them, really just brought me to start backtesting, you know, using the platform to build my own strategies.

21:35and without trendspotter without working here without doing these live shows i i can for sure say that i would be and even with sidekick like i've i've literally sat there with sidekick ai for hours at a time using the karen method to pick apart my back test until it was like you know what mike i think you're doing fine like i usually ask this at the end but i feel like it's a good time

21:59Mike Toney-Hoffman:to ask it. I've started asking people if they have a motto when it comes to investing or life. Do you have one? A motto, a motto, a motto. Honestly, I wouldn't say I have a motto, but I guess my motto would be just keep learning. You got to, I mean, trading is just constantly being proven wrong by the market. I guess my only thing I would have to say to people is just stay humble understand that the market is going to change that what's working now is not going to work maybe i had some guy on my podcast name is robert from pi trade i believe but um he was saying um what he called the the range of possible outcomes you always have to be looking for anything and anything to have anything and everything to happen to your trade no one was expecting the market probably to go in this insane rally from the bottom like spy has basically had like 10 red days in like the last six months it feels like um so you just got to really be prepared for anything i guess it is what i would say the only constant is change yeah absolutely do you look at all on the macro side of things i try to stay away from a lot of things that don't fit my strategy like i'm i i wouldn't say i focus a lot on macro now like obviously i keep up with what is going on in the world but uh from what i've seen like it's for me personally it's it suits me best to kind of ignore anything that doesn't specifically matter to my strategy and just focus on if my strategy is working which stocks are performing right now and kind of ignore or everything else.

23:41So honestly, you know, of course I follow it. Sidekick will always be like, oh, this is happening. This is happening. And I take it into like kind of accounts. But for the most part, honestly, no, like, like, I feel like, I don't know, I'm sure maybe you will get this and some of the people out there listening will get this. But I wouldn't say my goal is to be but I strive to be like Mark Minervini on that one interview where people like, he was asked like what does this company do he's like uh like he kind of froze up I was like I don't know it's like I that's how locked into a strategy you have to be like if it doesn't matter to your strategy like you should I think you shouldn't pay attention to it no I hear that I think especially on podcasts it comes across as somewhat surprising because we're in a reality

24:28Mike Toney-Hoffman:where we're looking at clips all the time and it's always like a soundbite and it's this and it always has to be so when somebody's like I'm not actually sure what that company does like it it makes you doubt the veracity of everything else that they're saying but actually i would say it's the exact opposite if you're disciplined enough to put on blinders and be profitable and make alpha like you're doing fine yeah no yeah that is literally my favorite mean because of exactly that like it's basically the definition to me of like if you know you know like yeah everyone hating on that just doesn't understand um that everybody has their own path in the market you know what i mean like like if it doesn't matter to you then it shouldn't matter like you're looking for stocks and nice uptrends breaking out high relative strength like um you know you can just look at you don't have to like know exactly what the company like you can see like their revenue is growing their eps is growing they're trending they have great relative strength and um you know you take the risk you take a small little risk on this one bet um in in like a week like you You end up taking so many trades where it's like, does it really matter?

25:37This trade is either going to go up or it's going to go down. The price is the only thing that matters. And I'm either going to get stopped out for a small loss or I'm going to manage the trade and make some money. I know a lot of people that definitely nail down into a specific sector. I know a lot of people that are specifically semiconductor experts. That's like their bread and butter is a semiconductor sector. And honestly, that's paid off. And I guess it's really just, you know, following what is the next big thing like that. I think that's like the most important thing in investing is like you got to be figuring out what is the next big thing and capitalizing on that.

26:13Like before semiconductors, like maybe maybe at the same time it was crypto. Like if you're always just focusing on what is, you know, seems legit, seems like to be the next big thing, like crypto, for example, like super new market. anybody that was in crypto like 2018 and before got absolutely crazy rich off crypto and then you're seeing the same thing uh happen in semiconductors right now and so i would say like if you're gonna focus on one thing just make sure you manage your risk because obviously it's not gonna last nothing never seems to last like you know everything like i wouldn't say i'd say like semis are a bubble but like you know the internet was a thing and then it kind of popped And then you just got to be able to manage your risk when that next big thing is over.

26:57And you're always, like I was saying about like change, you're always constantly having to look at what is the next big thing.

27:04Mike Toney-Hoffman:Are you spending a certain amount of time on what to get into and what to get out of? Like, how do you allocate that? It's mostly what to get in. Because once I'm in, it's mostly just a trailing stop. Like literally once I get into a stock, I set up an alert on TrendSpider on my indicator. and then that's basically it manages the position for me of course I'll go through and manually look at some charts and sometimes cut some things early but that's usually it's mostly just spending my most of my time on what to get in because after that I kind of just hold it until the trend breaks I'm I wouldn't call like I'm not a swing trader where I buy things and then like I'll hold it for like one two three days I'm a swing trader well buy something and I will hold that stock and for as long as it possibly continues to go up as long as it continues trending and the momentum continues to be there i just closed out a trade yesterday that held for about a year and um you know it was a decent trade i think it was like a 40 winner which you know isn't great considering marvel just went up 40 in the two days uh in this market at least but But something I learned from, you know, Minervini and a guy ahead of my life, a U.S.

28:23investing champion, Matt Caruso, is stuck with me for a lot. Like I'm a swing trader and also a position trader, depending on what the trade does. Because if you look in like my trading journal that I keep a trading journal, you can see all my losers are cut within under a month. like generally like a week or two weeks and that's because when you're trading breakouts and you're trading momentum things tend to fail very very quickly and so i'm a swing trader until the trade proves itself and then all of a sudden i become a position trader and it's like i'm not selling this until it in until it proves itself that it's not in a trend anymore and that could be months it's normally months i think my average holding time is like three to six months so any

29:10Mike Toney-Hoffman:other stocks that you would use as examples to kind of showcase your strategy or showcase something about the market oh another good one um that isn't relating to semiconductors or memory like i did have some good trades on sandisk and micron um you know earlier like about a year ago like when they started trending but um when gold was popping off gold and silver um i did have a decent trade in a gold and silver mining company called cde um and that was kind of an interesting one because gold and silver are more commodities but you know i traded it with the stock cde right and it's because it met of course met my my criteria appeared on my scanner so i hopped into it but it's kind of a classic example of like the um the quote unquote next big thing like it was back when everyone was like inflation is still like not the greatest but everyone back then uh when gold and silver were ellen i forget exactly when it was it was within the last year or so but everyone was like you know gold and silver are going to be the thing because inflation and you know you catch the trend early you get in and then eventually got out you know that silver and gold rallied for quite a while um and they're still like hanging in there pretty good But yeah, I guess that's another solid example of a trade I've taken within the last year.