Fundamentals drive the market and that’s true today just as it was true when trading first began.
So what about the technicals, should we just push them aside and forget about them? I think not. The technicals help in timing the fundamentals. More importantly the technicals point to when you should exit a position when a market turns.
I had an interesting comment come across my desk yesterday from my video on Crocs (CROX). I would like to share this gentleman’s comments with you.
I paid $995 a year for a monthly investment newsletter for the past 2 1/2 years. They guy who publishes the newsletter is a "stockpicker" and is well known. He's got a great documented record for the last 20 years, but I can attest his portfolio really stinks when you look at it in the most recent 2 or 3 year window.
CROX was one of his darling stocks and he correctly identified it as a buy a while ago. At one point we saw 200% gains in the stock, but he did not advise us to sell it. One of his reasons was for keeping it was "low P/E, and superior fundamentals" and also he doesn't want us to have to take short-term capital gains tax. We are now in a 60% loss. I joined MarketClub and now use both the newsletter and MarketClub's "Trade Triangles" to filter my trades. I wish I had been a MarketClub subscriber back in November so I could have sold this pig CROX. I'd much rather pay 35% short-term capital gains tax on a 200% or even a 100% gain than take a loss!!
You can read this gentleman’s comment here.
This is what I have to say about taxes. Like everyone else I hate paying taxes, but I would rather pay taxes on profits, than pay the market with a big loss.
Okay, let’s move on and away from taxes.
Getting the trend right is what’s important in trading. We've said this many times before that they don't ring a bell at the top or bottom of the market. Often times the fundamentals look the most bullish at the top and the most bearish at the bottom market. When a market pulls back, fundamentalists see this as another great buying opportunity and sometimes they are right. However, some of these buying opportunities can turn into disasters when a market makes a major turn. Witness the disasters in Enron, WorldCom, Crocs and a host of other companies that basically turned south and cost investors billions.
When you look at the markets through technical eyes, you can quickly spot changes in direction that aren't obvious in fundamental terms. Fundamentalists, much to the detriment of the general public, tend to get married to their analysis and positions and feel obligated to defend their viewpoint at all costs. That’s what happened in the case above. The newsletter writer could not admit to himself that the market had changed and was going down.
Only when you approach the market with a technical, market proven game plan are you going to be successful. If you haven't watched the Crocs (CROX) video yet, make that your first goal today. You can watch the video on Crocs (CROX) here.
I also recommend that you take a look at our Q1 results which proved to be very successful. The results reflect a disciplined, diversified and filtered technical approached to the markets. This same approach can be used in stocks, futures, foreign exchange, and precious metals.
There are going to be many good trading opportunities this year. I would go so far to say that there will be many great trading opportunities this year. I hope you enjoy both videos and learn that you cannot rely on the fundamentals alone to get you out of the market. Only the technicals can help you time your exit from a position in the market.
Every success in life and in trading,
4 thoughts on “Fundamentals vs technicals, which approach is right for you?”
They don't call 'em funnymentals for nuthin'.
I can see you have a great sense of humor.
Here's my take on Fundementals vs. Technicals. As a trader, I want the "purest" measure or valuation of a stock's price. That can ONLY be achieved, in my opinion, by following technical analysis. The market determines a fair price for a stock NOT the fundementals. We all know that fundementals come from data compiled by people. Haven't we seen enough people manipulate "fundementals"? Give me technical analysis...or give me death!!! Happy trading Kurt
Ditto on your comments.
Fundamentals vs Technicals: What happens if everyone starts using Technicals? Adam, if everyone starts using technicals as a method of trading, won't everyone more or less be jumping on board or off board a given stock or commodity at the same time? If that happens, then we will we get massive moves up or down when a signal gets triggered. We'll be back where we started; the insiders are the only ones going to make money because us non-professional traders are going to miss most of the big move. Is this possible?
Ed, I doubt that it will ever happen. You can lead a horse to water .... you know the rest.
As humans we have an infinite capacity to screw things up no matter how it is presented.
Hello Adam, Great article and videos. However, how are you managing the "Wash Sale Rule" imposed by the IRS? Your videos recommend that we can trade the same securities or futures or whatever over and over again. But IRS will not allow one to take the loss if the same security is purchased within 31 days. How are you managing this? You may say that this is a question for tax experts, but the trading plan and goals should incorporate this serious rule. Thus, my question is how are YOU managing this Wash Sale rule? Does this not apply to big Corporations like INO.com? Any suggestions/guide lines that the small investor like myself can use would be greatly appreciated. Regards, Jay.
Great question. I trade and leave all the tax challenges to my accountant. I never worry about taxes. I worry about losses.
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