Tag: technical analysis

Why scalp as a trader?

What is a scalper in trading terms? To scalp, back when traders were on the floor and before digitization, meant taking advantage of the slightest market movements—on the trading floor, scalping involved quickly moving from the bid to the offer, capturing a small price change, and then closing the trade.

For the present-day retail trader, scalping or flow trading has evolved. However, my view of scalping still focuses on capturing small price movements, which can vary depending on market volatility. Why do I now scalp? Most traders lose money, so I prefer to avoid following the crowd.

Scalping is a skill. It takes many hours of screen time, too. Ultimately, scalping is about ensuring I enter the right market for current market conditions and trade the market itself rather than just my perception. Gary Norden once said, “Trading is not about predicting; it is a matter of weighing up outcomes and risks.” “Markets do not operate solely on a price versus time basis; they operate trade by trade”.

Since most retail traders look for patterns and employ technical analysis and support/resistance levels, avoiding following their approach is essential. Trading is primarily about evaluating risk and reward. It often involves more than just predicting market direction.

Unwavering conviction in setting price levels and targets is not a fundamental aspect of trading. As per the quote from the movie Dune, “The mysteries of life aren’t a problem to solve but a reality to experience; we must move with the flow of the process, join it, and flow with it.” This quote was referenced during a scene in the movie when a sandstorm engulfed the ‘dragoncopter’.

Posted on by Day Trader 0

Do fundamental and technical analysis mix?

Of my fifteen years of trading, the first ten years spent on reading fundamentals. I don’t regret this one bit. Fundamentals are what drive the price of a stock over the more extended period, and I do mean more extended 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 stock do not mix well with technical analysis over the shorter period. One confuses the other, and that is never a good basis for a successful trade.

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Is the medium-term market prediction a coin toss?

There is 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 short-term media comments and panic!

We all favour one method or another. I’ve tried all, 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, based on technical analysis, and it is how I manage the slow trader fund. I also prefer the very long stuff (30-years plus) based primarily on fundamentals with the buy timing helped by technical analysis.

Everything in between, I leave the coin tosses.

Posted on by Day Trader 0