Fundamental and Technical analysis are really 2 different styles of trading. The problem arises when people who are day trading think they can use fundamentals to help them in their swings or scalps. When fundamental traders get shaken out by the intraday volatility, not realizing that, for their longer term outlook based on their fundamental analysis, the intraday zigs and zags is only noise.
If you are scalping the ES and you make decisions based on funadmentals, news, economic outlook. You are definitely royally discombobulated. I’m being nice. As funny as it may seem, you can go to just about any chat room and see people commenting on the news, the government, the earnings, ect ect on why their scalp failed them. The fact of the matter is, the people who are trading daily, are trying to be day traders, scalpers. They just don’t know that the basis of their thinking is flawed. The scope of their analysis, should be more technical rather than fundamental. Many of these so called investor are looking for a quick buck. A get rich quick scheme.
Fundamental Analysis:
You will consider the financial reports of the company. You look for long term profit projections. You will consider its leadership and you would like to invest not for quick gains but for longer term profits. Fundamental analysts like “investments”. You generally want to buy something up. Talk to any layperson. Ask them about what they think investing is and they will talk to you about the fundamentals. And who would they like to be? They would like to be like Warren Buffet. Your judgement is based on the company’s track record, its financial, its management, its potential to grow.
Vocabulary of a Fundamental Trader:
What’s the news?
Earnings should be positive today.
You must have balls of steel to take a position at the open.
The acquisition of xyx corp should cause their stock to split!
This is a strong balance sheet in their quarterly report.
Technical Analysis
Technical Analysis, requires you to consider the charts to help you identify the trends and the momentum. You want to identify the levels of support and resistance. For the day trader, they like volatility. They want high volume trading days. They want quick returns. Your judgement is based on where the market will move technically, bracketed by the levels that will delimit the extent of the accumulation or distribution.
Vocabulary of a Technical Trader:
Go UP!!! Weeeeeeeeeee!! Go DOWN!! Weeeee!!!
The trend is your friend!
The hns should work out on this divergence.
As you can see, there is a distinct difference between the two schools of thought. The ineffective day traders, are those who can’t distinguish where to draw the line when making their decisions about their trades. We can point the blame to many people that influence their thinking: the news, their brokers, their guru’s. Inevitably the blame is to the person who placed uneducated barriers that will hinder their ability to make sound decisions by accepting “expert” opinions.
The Happy Medium
Really as an “investor”, you should not only consider the fundamentals, but you should supplement your decisions with technical analysis. But this is from the aspect of being an investor. You are looking at longer term viability of a company.
Being a swinger, a day trader or scalper. You are more empowered by learning how the market moves and you consider the fundamentals as rubish. Now consider what really happens in a market setting, when news is about to break. If the Market Makers want the stock, the market to sell, they will make you buy it up. Why? It doesn’t make sense or dollars for that matter, for them to sell their positions when the stock is already weak, like you as newb trader would. They would rather sell when the market is going up. So what do they do? Make a distribution pattern and sell heavy at the top.
To make the stock or market to go up. They will make you sell, so they can get out of their short positions at the lows and start buying at the lows. Why? Because it is more profitable for them to do that than when the market has already popped. Buy low right?!! So they set up accumulation.
Are these setups indistinguishable?
If you can read charts. Hell no. If you can’t. Go to the casino.