Dave, Author at Dave Matias

Picture of Chicken and the Egg that explains the technical vs fundamental analysis situation.

Of course the chicken first, the species first, then the egg…

How the heck, this relates to trading? – You may ask.

I’ll answer it with the counter question; Which comes first, Fundamental analysis or Technical?

Wow, wow, hold on now Dave… what do you mean by “…which comes first?”

Ok, let me rephrase the question; when trading the markets, which one you, as a trader, mostly pay attention to: the charts, or the fundamentals? Yeah, this is definitely a loaded question.

If you ask any Technician the very same question, he or she may answer that everything already has been discounted in the price, thus looking for the clues anywhere else, but the charts, is a waste of time and effort.

Now, the Fundamental analyst, on the other hand, will give you a completely different answer.

Here is Ralph Seger’s quote “One way to end up with $1 million is to start with $2 million and use technical analysis.”

I don’t completely agree, with Mr. Seger, nevertheless he has his point.

But before I tell you why I disagree, let’s take a look at some of the differences between fundamental and technical analysis.

Let’s take a look at this table:

technical vs fundamental analysis pictorial graph

Source: DailyFx.com

As we can see, Technical Analysis centers around examining a chart information.

There are lots of means of achieving this; some traders using just plain charts and raw price action,

others are employing indicators or complex mathematical systems to place their trades in the present according to price movements of history.

Fundamental Analysis, on the other hand, studies the factors to forecast future price movements.

It is the study of what’s going on in the world (macro-trading) economically, politically and financially speaking.

This particular analysis tends to concentrate on how macroeconomic components such as employment, inflation, interest rates affect whatever we plan to trade.

Monitors with charts, representing technical vs fundamental analysis topic.

Which Is Better?

For many years, fundamental analysis had been considered as the only highly regarded method for medium and long term trading among Institutional traders. Which, has changed recently with the introduction of high-speed processing.

Computer modeling and technical studies became much easier and more widely available. Nowadays, numerous large investment companies use black box trading and high frequency trading, to determine their directional entry and exit areas.

Because of this many of the largest market participants are generating their trading decisions from computer algorithms. The truth of the matter, it is estimated that algorithmic speculation represents from 70 and up to 80 percent of the total volume on exchanges these days.

Whether you like it, or not, the markets have changed and nowadays your trades are moving on technical reasons as much as fundamental ones. In my opinion, the best approach to trading should involve the combination of both.

Also, read: If You think, you can beat these guys at their own Game…think twice!

Conclusion

The fundamental analysis is considered to be more logical, practical part of trading in which you are looking at Global macro-events as well as everyday economic micro-events.

Technical analysis, on the other hand, can tell us a lot about the psychological mood of the market by analyzing past data to forecast future movements.

In a nutshell,

Technicals help to see what has happened, and Fundamentals help shape future price movements.

What Helps You More in Your Trading?

Please share your opinion, and let us know…

Below is the transcript from Jason’s speech. I couldn’t describe your trading competition, better than, he did.

This cuts deep into the reality of who you’re up against when trading the markets…

This is the bitter truth:

“…there is a whole day of that; they lunch at their desk, they work from 6 o’clock in the morning till the markets close at 4 o’clock, and then they go into their training.

Then they go through their back-testing. They go through their entire day and look at every trade they took, every execution. They write reports about what they did right, and what they did wrong; what they need to make improvements on.

Then they go into a training session where they get evaluated by one of their mentors, one of the coaches on the trade-floor, and he talks to them about what’s going on.

I mean, that’s the type of guy you’re up against!

The guy who gets up at 5-am in the morning, to ride the freaking subway down the New York city to be in the chair at 6 o’clock in the morning so he can trade for 12 freaking hours, then turns around and does back-testing until 8 o’clock at night, then he hops back on a subway goes back out of the city, catches couple of hours of sleep, turns around, comes back and does it the next day.

That’s the guy you’re competing against.

That’s the guy who’s going to eat your lunch every single day, ‘cause he exists in every city, he exists in every market.

It is how they pay their bills. It is how their mortgage gets paid. It is how their kids go to school…”

– Jason Stapleton

Before dabbling into Forex trading, or any other market for that matter, please ask yourself, if you are committed enough?

Are you ready to go against these guys and gals, your trading competition, and battle them every single day?

Please read: Chicken or the Egg situation…

Also, ask yourself the following questions:

– Are you knowledgeable enough?

– Do you have the right tools?

– Do you have the right information?

These are the questions that needed to be answered, before venturing into the “shiny” world of Trading & Speculations.

Bottom line:

Know your competition.
Get educated on the subject.
Start acting as a professional.

What Do You Think?

Can we beat this guys…

Can we win at their own Game…

Please leave a comment below, and let us know.