Slow Trader

Tag: fundamental analysis

  • Do fundamental and technical analysis mix?

    Of my fifteen years of trading the first ten years were spent on reading fundamentals. I don’t regret this one bit. Fundamentals are what drive the price of a stock over the longer period; and I do mean longer period. Fundamentals to me are great if we’re talking more than 20 years, and I prefer 30 years plus.

    However, for clarity over the near term (presumably from my thought above, near term is anything less than 20 years) technical traders hold the key. That is a bold statement as every magazine or commercial pundit tells us its fundamentals all the way.

    Can we combine both technical and fundamental? Yes, of course, and some traders report to be doing this successfully. To some degree, I do this with the Slow Trader Fund when I trade from daily charts. In this case I will take commodity trades when the COT report is in agreement with the trade. However, the fundamentals of a stock do not mix well with technical analysis over the shorter period. One simply confuses the other, and that is never a good basis for a successful trade.

  • Is the medium-term market prediction a coin toss?

    There are any number of ways to tell us what the market is going to do next.

    1. We could consider market cycles. This is a big favourite of Larry Williams. And within reasonable tolerances he does seem to get it right.
    2. We could use fundamentals. Which is looking at the books to determine a companies economic well-being.
    3. We could use technical analysis. Which doesn’t care one bit about the ‘value’ of a company but uses charts to show predictable patterns.
    4. We could listen to the, more often than not, short-term media comments, and panic!

    We all favour one method or another. I’ve tried all of them, but I do stay well away these days from number 4.

    The current probability of the market going significantly up or down, over the medium term, is 50/50. That is the same as betting on a coin toss. I wouldn’t do it.

    (….okay, I do take trades that have no better than a 40/60 probability of success. But that is because the reward to risk is so good. And if we consistently play the 40/60 rules correctly, and let them run, when we catch one…. voilà.)

    As a trading style, I favour the very short-term stuff, it’s based on technical analysis, and it is how I manage the slow trader fund. I also favour the very long stuff (30-years plus) based primarily on fundamentals with the buy timing helped by technical analysis.

    Everything in between, I leave to the coin tosses.