There are two basic ideologies that I’ve found for trading and investing in markets. They are very distinct from one another. While many people attempt to mix the two, I have found in my personal experience that there is no possible way for me to mix the two and stay profitable. I’ll explain in detail.
The two basic ideologies or theories for trading and investing are called “Fundamental” or “Technical”. Fundamental trading relies on many peripherals that help to declare the value of the asset being traded. A person may look at sales, profits, values of the company, etc. I know there are many ways to value a company. But I have chosen to never trade by the fundamental system. Therefore I don’t know a lot of the ways that fundamentalists value their investment asset. You will need to ask them personally.
Technical trading is where I have landed hard over the last 2 decades. I have learned how to value an asset by it’s technical chart. In order to do this, I must admit that the “Giants” of the market know more than I know. They have decided the price that they are willing to pay. And this price shows up in the charts. Some call it “Price Action”.
When trading with hard technical data, I am able to go back and history and find the actual success rate of a trading style, an algo-rhythm, a trading robot, an indicator or a system of trading with hard rules. I can identify historically that a certain trading system is 30% successful, or 90% successful. This long term historical data gives me great confidence in trading a certain system over and over again. It gives me faith in the trading style and rules that I follow.
When I try to add fundamentals or trade fundamentally, I enter what I call the “grey zone” where many things happen that don’t make sense. A company might get a bad report. The CEO was caught with his hand in the cookie jar. The company is racked with a huge lawsuit. And fundamentally that could be very bad for investment price. But so many times, the stock prices goes up, up, up.
I remember the Russia/Ukraine war. All of the little guys started shorting the stock market because fundamentally this was going to be a bloodbath. Then the SPX shot straight up in the air and stopped out all of the shorts who got their butts handed to them on a platter. The market didn’t react to their fundamental ideas. And while they were buying to exit their short positions, I was buying to enter because my technical system saw that the giants were buying this market up, up, up. Time and time again, I have seen the technical trading system blow away the fundamentalists.
I remember when Bitcoin hit $20,000. The fundamentalists all said “BUY” at $20,000 because Bitcoin IS worth $1 Million. But technically, I began telling my students to get out at $17,000 + because the technicals said that the price was most likely planning to drop back to a deep wholesale level.
While the fundamentalists declared Bitcoin’s value at $1 Million, we were picking it up for $4,000 – $5,000 per coin as the price dropped out. Again, I watched the fundamentalists lose big time when the technical players won big time.
I am not necessarily qualified to say whether there is a good fundamental strategy that works sustainably. But I am qualified to know that technical trading systems deliver long term win/loss/success ratios that keep traders and investors safe, increasing and winning.
I am confident that attempting to mix the two styles is a death blow to your financial account. Why? You can try to reconcile in your mind why you should wait for Bitcoin to drop to $4,000 (technically). And on the other hand, you believe that Bitcoin is really fundamentally worth $1 Million Dollars. So do you hold BTC at $20k, or sell it? This provides great conflict in your mind and decision making capacity. It also wreaks havoc with your trading emotions. It’s poisonous and lethal in my humble opinion.
I have developed 5 signature trades that range in long term success of 78% – 90% win ratio. I know that every 100 trades I take, 78 or more will be successful long term, sustainably over multiple years of trading. I can live with this. It might not be the best system out there, but it’s one that I have great faith in.
I would love to hear your take on this topic below. I would love to hear from any winning fundamentalist to get a larger perspective. I am only speaking from my 20+ year experience. But that experience is limited on the fundamentalist side.
If you are ready to take the collegiate level challenge to become a technical Master Trader, click HERE to join me in the training room.
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Check out my article titled, “Market Trading As A Secondary Stream Of Income” HERE.
Check out my article titled, “Why Market Trading Taxes Your Emotions” HERE.
Disclosure/Disclaimer: Remember that Dr. Daniel Daves is not a licensed investment adviser, and everything that he posts is for educational purposes only. There is no intend to convince you to buy or sell anything in any market. Our full disclosure is located HERE.
