T2W Trading Community

What are your thoughts on trading using ‘fundamental analysis’?
When people look at the ‘fundamentals’ do they look at numbers for the last 12 months or projections for the next 12 months? Most people tell me they look at the next 12 month projections. Well, projection is another work for guess. Trading on someone else’s guesses in not a great strategy.

When companies report earnings are they GAPP, or some other system determined by each company?  Do sales include just end user sales or product in the channel? I know companies that engage in ‘channel stuffing’ when times get tough. Then there enough cases of outright fraud to keep the SEC busy check their website. In many cases it is difficult for the individual investor to know exactly what the ‘fundamentals’ represent or to be able to compare them between companies.

There is also the problem of ‘street expectations’. The reaction to earnings news may be driven more by what the ‘street’ expected, rather than the actual numbers. Who sets expectations? There are even web sites that report ‘whisper numbers’.
There are constantly a number of cases where stocks with ‘great fundamentals’ are punished, and ones with poor fundamentals or even ones with no fundamentals that go on a tear. ‘Fundamentals’ clearly are not the only thing that has a bearing on the stock price, and in many cases it is unclear that they have much of a bearing at all on the current stock price.

Stock prices are driven by supply and demand. Demand shows up on the charts and cannot be hidden or manipulated. I trade the charts. Period.

What is your trading day like? (What time do you start trading, what preparation do?)
Every evening I first review the current market conditions. Is the market in an uptrend, downtrend, or trading range? Where are the key support and resistance levels? What would cause me to be interested in Longs or shorts? What do the market conditions tell me about position sizing and exit strategies? After analyzing the market I run a dozen well tested scans which typically show me 15-20 interesting setups. I enter these setups into an alerts screen which will beep the next day if a trigger point is approached. When this process is completed I am ready for the next trading day. If you are interested in my analysis of the current market conditions and the setups I am currently watching send a request to interview@daisydogger.com.

During the trading day I usually avoid trading during the first 20 minutes unless something triggers on outstanding volume. When I get a trigger I bring up the chart to verify the pattern then check the volume and estimate what the volume will be for the current session. If the market, stock pattern and volume pattern all signal go then I enter the trade. Immediately after entering a trade I enter two orders in ‘order cancels order’ format. The first order is an initial protective stop loss just under the low of the setup pattern. The second order is a limit order placed just under a price target. Price targets are different depending on the pattern and the market conditions.

After the first three hours of trading I work on other things until after the market is closed and I can download the data for my stock data base and start the process again.

What do you consider are the most important elements in becoming a successful trader?
When I meet traders I am often asked what the key to successful trading is. I have found through 20 years of market experience that there are three keys to successful trading. Making money in the market involves knowing what to trade, when to trade, and an ability to vary your trading style to match the current market conditions. Trading the same way all the time, or using the wrong set up's, can just churn your account and give you a lot of practice at taking draw down’s.

Successful traders are students of the market, not listeners to financial TV shows. Successful traders have invested time in carefully testing systems in different market conditions and know which one to use in the current market.