Custom Search

The Purely Fundamental Trader

This type of trader is a rarer breed than the purely technical trader. Why is this so? The simple fact is that fundamentals are much more difficult to understand and to find than are technicals. Frequently, only a few insiders who are able to act on their knowledge well before the majority of traders have the news know the fundamental changes and conditions that precede or cause major market moves.

Furthermore, once a trader has the relevant fundamentals, they must be interpreted. Interpretation of fundamentals varies from one individual to the next. A given set of statistics might mean one thing to one trader but an entirely different thing to another trader. All too often the interpretation of fundamentals is a function of one's position. A fundamental trader with a long position will, therefore, be more apt to interpret a bearish report as bullish, while a fundamental trader with a short position will be more apt to interpret a bullish report as bearish. "Talking one's position," as this is called, is not unique to fundamental traders, but it is more common, since fundamentals are subject to considerably more interpretation than are technicals.

The benefits of being a purely fundamental trader are as follows:

ж You will always have a reason or justification for your trade.

ж Your trades will always make sense.

ж If your analysis of the fundamentals is correct, then you'll catch the major moves.

ж When the fundamentals change, you will be able to change your position.

Of course, all of the above are predicated on the availability of fundamental information and on its correct interpretation once it has become available.

The Techno-Fundamental Trader

This group of market participants is larger than either the pure technician or the pure fundamentalist groups. As its name indicates, those who follow this method either knowingly or by accident tend to combine technical timing and trend factors with fundamentals. Hence, when the fundamentals are bullish, the trader would be on the lookout for technical indicators that correlate with the fundamentals in order to fine-tune market entry. The justification for this approach (and it's a reasonable justification) is that markets do not always respond to fundamental changes immediately. At times there is a delay in the amount of time it takes for the fundamentals to sink in or to be assimilated by traders. Hence, timing in the form of technical signals will help the fundamental trader fine-tune entry. Theoretically, when both methods are in conjunction, the odds of success will be greater. The benefits of being a techno-fundamental trader are as follows:

ж Timing will ideally complement fundamentals, causing them to work better.

ж Timing and fundamentals together comprise the best of both methods in trading.

ж Trades can be justified and understood on two different levels.

ж Your trading will be responsive to world events, as well as to technical signals.