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Author: Al Thomas Article source: http://www.mutualfundmagic.com/. Used with author's permission.
The fight continues to rage among traders who
use technical indicators and those who prefer
fundamental information to establish new
positions and to exit current positions.
The fundamentalist believe in knowing all the
facts about a company such as price earnings
ratios, sales growth, product margins,
management capabilities, cost of production,
cash flow, etc., etc. while the technicians
could care less about the latter and want to see
sector price trends and rank, the Relative
Strength Index, MACD (moving average convergence
divergence), stochastics, trend lines, chart
patterns and many more esoterically evolved
indicators.
Which method is the best?
There is no Holy Grail of trading and what
critics of either method forget that it is the
trader who adds the final nuance that results in
profit or loss. The more years a professional
investor has been working his plan the more
successful he usually becomes. The unsuccessful
ones have long since gone broke and are no
longer in the game.
It is somewhat difficult for me to give great
credence to fundamentalists as I am a technician
and have a very long profitable track record to
prove it; however, I do sometimes look at some
of fundamentals. It seems that the longer term
trader can do well with a fundamental approach
because the timing to buy or sell has a lag
time. He does not buy the bottom nor sell the
top, but who does?
The technical trader will ignore the
informational approach with the use of charts
and other indicators. Short term traders must be
technicians, especially day traders, as there
are no fundamentals upon which they can assess
their buys and sells.
Technical trading is based on the psychology
of the mass of traders that ride upon the hidden
values of the changing fundamentals. Charts and
other indicators tell the of the long term
health of a company, country or commodity as it
is shown in the price action. The fundamentalist
looks for the reason for a change to buy or sell
whereas the technician tries to find the change
in the price action to initiate buys and sells.
No matter what a fundamental trader's position
he must be very patient. He may have a position
on for years. During that same period there will
be waves of highs and lows during which he
remains constant in his position. The technician
may trade the same equity several times buying
the low of the wave and selling the high
(hopefully). In commodities it is astute
trading, but when it is done in stocks and funds
it is called timing.
A combination of technical and fundamental
methods can give the best results. For the
average guy occasional trader I can only caution
him to be very careful. Very few intermittent
traders ever make money.
A successful trading approach requires
commitment. It is a business the same as owning
a shoe store or trucking company. You must give
it your all.
Like any business you have to work at it. Al Thomas' book, "If It Doesn't Go Up, Don't Buy
It!" has helped thousands of people make money
and keep their profits with his simple 2-step
method. Read the first chapter at
http://www.mutualfundmagic.com
and discover why he's the man that Wall Street
does not want you to know.
Copyright 2005
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