Fundamental vs. Technical

Re: Fundamental vs Technical

I think fundamental research/analysis is useless for trading. And these are my reasons why:

1)Everybody who thinks that its important for trading/investing should ask themselves: Does knowing what a company does make it more likely that the share price will go up?
Why?

2)Actually ill go one step further and say that fundamental analysis is harmful for trading. Why?
Because when you have spent much time doing research, you are introducing biases and ego into your trading. And as such, if you think that the company is a good one, there is a good chance you will hold it longer than you should. Why? Because when we sell at a loss, its like admitting you are wrong, and nobody likes to do that. But trading isnt about being right or wrong, its about profitability.

People think that the companies they know more about, they will hold it for longer term? What makes you think that the company will go up for a long time just because you think its a solid long-termer? I mean, seriously.

People think they are taking on more risk when they invest in companies in which they have no idea what the fundamentals are. Such people need to have a greater understanding of RISK, and they need to quantify and manage their risk. Buy and hold is the most high risk strategy that I know.

People think that because they have researched a company, they have a "solid" investment and can sleep well at night. Well sleeping at night has to do with your psychology and NOTHING to do with your profitability.

The 3 most important indicators in trading are:
1. Price
2. Price
3. Price.
(and yes, i got this from a book LOL)

Now, everyones thinking, wait a minute, I've been doing fundamental research for the last few years, and I've been doing very well. Thats well and good but remember when you are in a bullmarket and you have 80% of the mining sector going up, its pretty hard to not make money, whether you used TA or FA, randomly picked 3 letter codes, heads or tails, ini-miney-miney-mo, throw darts, odds are, you wouldve come out tops. Dont be fooled by randomness.

Now those who have been around for years and years and doing well on fundamentals (or any other method), then you have a TRACK RECORD which you can look back on with confidence.

But to those (like me) who have just started to trade in the last few years of bullmarket, then Hmmmm, something to think about.

Re: Fundamental vs Technical

The portrayal of what constitutes fundamental analysis described in the first post in the thread is way off the mark and demonstrates very little real understanding of what fundamental investing is about. Similarly the description of contrarian is also wide of the mark.

Applying a combination of both to trading is not difficult and doesn't have to be contradictory. For example you might decide a stock is providing a technical based entry signal but choose not to enter because the fundamentals aren't sound. Vice versa a stock might have a strong fundamental based entry signal but you might choose not to enter until technical criteria are also satisfied.

Similarly exits can be determined by both fundamental and technical criteria or a combination of both. There's no rocket science about it.

Can you decide what to have for dinner based on a combination of nutrition and taste? Can you choose a girlfriend based on a combination of looks and personality? Then you can choose a stock based on a combination of fundamentals and technical.

Re: Fundamental vs Technical

Nizar - in relation to your comments about fundamentals - succesful fundamental based investing can only occur if objective criteria are used for entries and exits. Otherwise as you say an emotional attachment to a stock can form as someone 'gets to know it'. Its also important to note that fundamental based investing involves both entry and exit criteria. There are some people on this board the espouse a 'fundamentals' based approach that seems to involve buying on some loose and subjective fundamental criteria and then holding forever. This is not a sound fundamentals based strategy. Constant re-assessment of the fundamentals is required both based on price changes and on new information released to the market. A stock can be fundamentally a good buy at one price and a bad buy (and thus a sell) at another price. Fundamentals do not operate independantly from price.

Re: Fundamental vs Technical

I think there is a third factor at work.... sentiment.

When sentiment is hot you can throw standard fa and ta out the window. When the crowd is foaming at the mouth (or sh!ting itself) all rules amount to nought. Just buy (or just sell)

It can be observed most effectively by charts (but charts are not absolutely necessary) but I think this is a study by itself.

One branch of sentiment study is contrarian theory. Most effective, but invoked way to early by most (it is now too well known). I even have a contrarian-contrarian theory (as a trend continuation signal) for when folks call bottoms and tops too soon. lol

Just something else to think about. How else can one explain some of the moves we see.

Re: Fundamental vs Technical

cuttlefish said:

Nizar - in relation to your comments about fundamentals - succesful fundamental based investing can only occur if objective criteria are used for entries and exits. Otherwise as you say an emotional attachment to a stock can form as someone 'gets to know it'. Its also important to note that fundamental based investing involves both entry and exit criteria. There are some people on this board the espouse a 'fundamentals' based approach that seems to involve buying on some loose and subjective fundamental criteria and then holding forever. This is not a sound fundamentals based strategy. Constant re-assessment of the fundamentals is required both based on price changes and on new information released to the market. A stock can be fundamentally a good buy at one price and a bad buy (and thus a sell) at another price. Fundamentals do not operate independantly from price.

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This is quite correct. A true fundamentalist has entry and exit criteria's just like a Trader. I have to admit though using technical analysis for the past year as part of my arsenal has dramatically improved my timing of investments.
I don't think fundamental and technical analysis should be viewed as mutually exclusive entities. I think the two approaches compliment one another perfectly. Moreover as wayne said above nobody can underestimate the power of sentiment, how else do you explain the dramatic rise in the prices of penny dreadfuls.

Re: Fundamental vs Technical

nizar said:

2)Actually ill go one step further and say that fundamental analysis is harmful for trading. Why?
Because when you have spent much time doing research, you are introducing biases and ego into your trading. And as such, if you think that the company is a good one, there is a good chance you will hold it longer than you should. Why? Because when we sell at a loss, its like admitting you are wrong, and nobody likes to do that. But trading isnt about being right or wrong, its about profitability.

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On day trading, hell sometimes I would be lucky to tell you the full name of the company im trading let alone what its last ann was! So long as it going up with healthy volumes I will attempt to trade it. I find this sometimes far more clinical if my mind isnt clouded by fundamental pots of gold.

Re: Fundamental vs Technical

cuttlefish said:

Nizar - in relation to your comments about fundamentals - succesful fundamental based investing can only occur if objective criteria are used for entries and exits. Otherwise as you say an emotional attachment to a stock can form as someone 'gets to know it'. Its also important to note that fundamental based investing involves both entry and exit criteria. There are some people on this board the espouse a 'fundamentals' based approach that seems to involve buying on some loose and subjective fundamental criteria and then holding forever. This is not a sound fundamentals based strategy. Constant re-assessment of the fundamentals is required both based on price changes and on new information released to the market. A stock can be fundamentally a good buy at one price and a bad buy (and thus a sell) at another price. Fundamentals do not operate independantly from price.

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Very true, Good comments here.

Also something id like to add is that it really doesnt matter if you pick your stocks based on fundamentals AS LONG AS your exits and money management is sound.

Re: Fundamental vs Technical

Captain_Chaza said:

"Fundamental v Technical "

I wrote this article nearly a decade ago
I can't see that anything has changed since

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I agree its still as full of false assumptions and grade school platitiudes now as it was then.

Re: Fundamental vs Technical

F/A verse T/A Oh God guys don’t get sucked into this argument / discussion with a one sided opinion do that in the market you all should know what the result is likely to be.

I know people who employed both methods and have created real wealth from the market using either, go find those that can not those that talk about it.

Tech/a has pretty much answered the question wish I could be as succinct besides I think it’s the wrong question anyway. If you find those that are successful (success is creating wealth) using FA it will bear little resemblance to the method described.

A couple of points I have noticed over the years is

I know a number of people who have used FA for 20 to 40 years and still engaged in the market I don’t know any who use TA for that length of period and still doing so, I think its to do with the burden psychology wearing the TA’s down. I am not saying no one is I just haven’t met them.
Also I think the failure rate (my opinion only) is far greater in the TA ranks than the FA’s

I use TA to trade markets my own belief is that a combination of both is optimal but in the end its more to do with the practitioner than the method…………


Focus

Re: Fundamental vs Technical

Cuttlefish

You've said what I would have wanted to, and undoubtedly much better.

Thank you.

Re: Fundamental vs Technical

IFocus said:

I know a number of people who have used FA for 20 to 40 years and still engaged in the market I don’t know any who use TA for that length of period and still doing so, I think its to do with the burden psychology wearing the TA’s down. I am not saying no one is I just haven’t met them.

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That's probably because with FA you can fool yourself for longer that your analysis is adding value when it most likely isn't. Most traders/investors that I am aware of simply do not compare their results with random entry. This is essential in my view to determine whether your analysis is adding value, subtracting value or is simply value neutral.

You can make money with FA, TA, darts, whatever - it isn't the analysis that makes the bulk of the money for successful traders/investors.

Re: Fundamental vs Technical

Focus.

You bring up some interesting and valuable points that I think are worth expanding.

40 Years ago Technical Analysis consisted of Hand Drawn Charts and Data was available from a tickker if you were in the financial industry OR you could hand plot from Weekly publication of open/close pricing.

20 Years ago pretty much the same but you had a crude calculator.

TODAY We have

Computers that sit on our desk with as much power as computers which took up whole buildings 20 yrs ago.

Data suppliers both Fundamental and Technical by the 100s data is packed/sifted/sorted and presented in forms un dreamt of even 10 yrs ago.

Software which can analyse just about anything. a constant flow of new software with more powerful capabilities is being released almost weekly.Analysing powr NEVER seen before.

Participants ever increasing as the world of technology makes ALL forms of analysis seem a sinch.1000s flock to technology for the EASY answer.They EXPECT coputers to give the CORRECT analysis EVERYTIME. So why are there not more traders becoming successful.
Well on a numbers basis there probably are. On a % basis relative to participants there are probably LESS.

WHY well its my view that most participants ahve no idea HOW their software and indeed their analysis is best apllied. I see both technical analysis AND fundamental analysis being used in ways that prove to be fatal,right from the get go. Participants simply have no idea what it is that they should be doing.

I'll give a simarly.
I'll give you a Jumbo Jet.
I'll load it with data.
I'll tell you where it's going.
I'll tell you where it's been.
I'll give you a 500 page book on how to fly it.
I'll place the most sophisticated Computers and software known in it.
I'll give you 100 hrs training on the software and a support number.
I'll even let you attend a seminar presented by a pilot on how he flew from destination to destination.
Now go fly the JUMBO. Either by instrument (Technical) or Manual (Fundamental.) or BOTH.

Most will fail to even get off the ground.
Some will get to the destination a few times but crash other times---some fatally.
Some who are experienced pilots will succeed.
Others who are always upgrading,questioning,applying and refining will be like test pilots,relishing advancements in every new model of jumbo manufactured.

Re: Fundamental vs Technical

The way I see these things seem to be different to most of the comments here. Fundamentalists, and that is the way I trade, can operate on their own judgement. I take into consideration all that I can find out about the particular industry the object company is involved in. I then find out as much as I can about the company itself and if possible the people involved. I also like to know someone involved in the company if possible. I look at the future earnings potential. I make the judgement.
Technical traders, on the other hand, rely on the ability to judge the reactions of other traders to influence the market and profit from the mistakes of others.

Re: Fundamental vs Technical

nioka said:

The way I see these things seem to be different to most of the comments here. Fundamentalists, and that is the way I trade, can operate on their own judgement. I take into consideration all that I can find out about the particular industry the object company is involved in. I then find out as much as I can about the company itself and if possible the people involved. I also like to know someone involved in the company if possible. I look at the future earnings potential. I make the judgement.
Technical traders, on the other hand, rely on the ability to judge the reactions of other traders to influence the market and profit from the mistakes of others.

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All very good.

But at the end of the day are you the real expert and do you have enough money to make the market?

If you only want to buy x$ of stock and not the whole company
maybe the stock can be bought for less or at a better time..

TA can be about all sorts of things
Here is an older view..

The "Method" takes for granted:

....That those who know more about it than the observer cannot conceal their future intentions regarding it. Their plans will be revealed in time by the stock's subsequent action. Victor De Villiers, "The Point and Figure Method of Anticipating Stock Price Movements", Published 1933, pg 8

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I want the whole company I make the bottoms and the tops.
I want a few shares.. Maybe the trend is then important to consider
and Do I want to bet that I am the real expert against the trend against the bigger pocket books?
Double or nothing????

Or having done whatever analysis..
wait to hitch the ride when They have started going My way..

Then those with the more Knowledge and bigger pocket books
work for Me and Not Me for them.

motorway

Re: Fundamental vs Technical

Capt ::bowser:

You have certainly navigated into dangerous waters coming to this site.

Nothing would be known of your history of daring and successful exploits @ IC.

The landlubbers will let loose the cannons from their high hills of theory on your trusty vessel.
Whilst they dare not enter more than ankle deep into the the stormy seas of S/T Trading.

Theory of seamanship you'll find heaps of it here.
(the landlubbers call it application, but never come up with any examples of it). Just babble.



A hearty salute from your loyal crew memberirate:
Coyotte

Re: Fundamental vs Technical

Technicains Beware,

When the markets turn sour, which inevitably they will, all the good money will find a warm home in strong fundamentals and all the technical money will be lost.

Take heed.

Re: Fundamental vs Technical

motorway said:

All very good.

But at the end of the day are you the real expert and do you have enough money to make the market?

If you only want to buy x$ of stock and not the whole company
maybe the stock can be bought for less or at a better time..

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Good points but I have found that if you examine the fundamentals as I have suggested then price has been factored in, a few cents here or there doesn't usually make much difference here or there. Time in the market is a much more important factor. It is important to update your opinion of the fundamentals on a regular basis.
It sure would help to have enough money to make the market but history records many bankrupts who tried.

Re: Fundamental vs Technical

PALERIDER said:

Technicains Beware,

When the markets turn sour, which inevitably they will, all the good money will find a warm home in strong fundamentals and all the technical money will be lost.

Take heed.

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hahaha.............another misguided and fallacious statement from what appears to be just another biggoted and shortsighted fundie. Reality will show that money will most likely be lost on both sides.

The smarter, more skilled and experienced players on both sides will be the real gainers.

Cheers.

Re: Fundamental vs Technical

PALERIDER said:

Technicains Beware,

When the markets turn sour, which inevitably they will, all the good money will find a warm home in strong fundamentals and all the technical money will be lost.

Take heed.

Click to expand...

When the markets turn sour, which inevitably they will, all the good money will find a warm home in strong fundamentals

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And in Up or Down markets Those real fundamentals will be found in stocks that on appropriate time frames have the strongest technicals because MONEY will flow to them on a relative basis...

and all the technical money will be lost.

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Technical of Fundamental... it is the smarter money that will make money relative to the dumber money.

All the good money is flowing

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Exactly Right... That is why it is worthwhile to look at those actual flows..
as much at least as imaginary ones ..

motorway

Re: Fundamental vs Technical

Old Fundamental parable,

Tis the young leafy sappling that was the quickest to grow which will bend, buckle and break in the first summer storm.

For now, my roots spread deep and wide to hold me in good stead to stand the tests of time and bear fruit forever whenever I please.

The storm is coming.