Article Trading with Fundamentals

RUDEBOY

Experienced member
1,157 6
Lion, good point! But do you think that TA traders can ride the FA? I personally think it happens as a matter of fact? Good trading! RB.
 

LION63

Established member
746 33
Rudeboy,

You are totally right that technical traders can and do ride on the back of fundamental traders, some are so adept at it that it almost becomes a free ride. That is because they do a lot of homework and are quite aware of fundamental analysis, the difference between them and the purely fundamental traders is that they use charts to determine their entry and exit points.

tipuagha,

That is a great way to make your first post, the contents were very enlightening to all on these boards. Keep it up, you are on a distinguished path.
 

Rhody Trader

Senior member
2,620 264
RUDEBOY said:
Charts are only formed by FA! What is the alternative? There is not any!
Charts are not formed by FA. Charts are formed by plotting price over time. Full stop.

Perhaps you mean price movement. Even still we are not at FA. Price movement is created by the coming together between buyers and sellers at mutually agreeable points.

What decides what price point is agreeable to a given trader/investor? For some it is FA. For others it's TA. For still others it's emotion. And for yet another group is the result of business decisions (hedging, etc.)
 

roguetrader

Senior member
2,062 49
Oh well, I have to say I find it rather amusing, perhaps confusing, I'm not sure, that so much hostility exists between the followers of FA and TA. I feel rather unworthy to comment on this thread since I am devoid of any feeling, positive or negative towards FA. To me it is simply another approach and one which I chose not to follow. The only thing I would say,and it is in defence of FA, is that the concepts and methodologies employed in Fundamental analysis are sound and solid enough to stand in their own right and it debases it somewhat to involve it in a slanging match with another method.
Still each to their own.
 

SOCRATES

Veteren member
4,966 134
LION63 said:
Socrates,

You are right that some shares are left behind in roaring bull markets despite their good fundamentals, but as you know, there are other criteria for avoiding these shares. It might well be that the company does not have real growth potential and just delivers a steady stream of earnings. Betas and variances should show the correlation between a company's shares and the underlying market. Obviously if I choose to buy a utility in a bull market I should know that at best they will chug along at a snail's pace.

If the stock is over valued on a fundamental basis then the trader simply shorts the stock and provided the homework is done properly, the rewards often tend to outweigh those of a long position.

Your point that the effects of inflation on stocks should not be reason for trading is very valid and would be a silly reason for anyone to trade/invest. In effect, they are actually losing money in real terms.

An unhealthy stock (dog) is very trade able and in many cases the best. When a trader discovers or locates one of these it is fairly easy to sell and make a decent return. Conversely, such shares will be over sold and at or near the bottom they represent very good value (in some cases) as recovery plays. By the time the average chart points all this out, the good fundamental trader is already in the trade making money.
Hello Sir, and thank you for your reply. Actually your viewpoint on a patently unhealthy stock( a dog) is a very interesting one and I am going to think deeply about what you point out about this in order to properly give it the attention that this idea merits. It may be one of those that slips the net. I am going to constructively put my attention on this idea and will come back to you as soon as I have arrived at some sort of properly firmed up conclusion.
Many thanks again.
 

LION63

Established member
746 33
Socrates,

I look forward to hearing the conclusions that you come up with as they can only add to my limited knowledge and improve the bottom line.

Regards.
 

chump

Senior member
2,212 274
You could take the view that FA is the WHAT component of analysis (that is what is the anticipated fair value for this can of beans) and TA is the WHEN component that will see when this anticipated fair value is realised...if it is actually realised at all ..and there is the crux of course it is all simply conditional no what type of analysis you use.
 

SOCRATES

Veteren member
4,966 134
chump said:
You could take the view that FA is the WHAT component of analysis (that is what is the anticipated fair value for this can of beans) and TA is the WHEN component that will see when this anticipated fair value is realised...if it is actually realised at all ..and there is the crux of course it is all simply conditional no what type of analysis you use.
Good morning Sir,

actually you are making a very valid point here. I will concede that attention devoted to the Net Present Value or Intrinsic Value and the Anticipated Fair Value of a stock or an instrument ought not to be neglected, not only for the intellectual excercise that it yields in its own right, but also for verification that the instrument under fundamental scrutiny is healthy.

However, and additional to this, and from the point of interest from the point of view of technical analysis a chart showing price and volume will indicate the status of an instrument that is said to be "in play".

I am willing to expand on this.

In darksiding terms, an instrument is said to be "in play" when it is actively being traded. The key clue is whether the instrument has professional participation in it or not, and if there is professional participation, then to what extent and with what regularity, you see.

Any instrument that lacks consistent professional participation is suspect, and is to be avoided, in preference to an instrument that has.

This professional participation as you know appears as volume.

For professional participation to be present the volume has to be consistent and preferably substantial.

This presence is not continuous, alternating with periods in which, for different reasons the volume is either not so great or even minimal, it does not materially matter, because the point of initial interest is whether the instrument is capable of attracting professional interest in the first instance. This is the single most important factor to initially consider.

Now, as I ventured to explain in a previous post on this thread, and we will attack the question from a slightly different angle in order to properly profile the matter. An instrument that is not healthy is not going to be traded consistently, This is because ot three major ultimate or extreme risks, being the risk of (a) delisting (b) suspension (d) illiquidity.

Any instrument which is at risk of any of these three major dangers is going to be avoided by the proffessional interest in it and that proffessional interest is going to rapidly evaporate and migrate to another instrument that fulfils the criteria required as a consequence of proffessional requirement.

As an instrument, aside from its three fundamental values as listed above, is actively traded, this trading activity in the instrument has a profile. By this I mean that the instrument will have a following. The proportional percentile distribution of this following in terms of professional interest versus public interest is what determines the character of price behaviour in it.

An instrument that is healthy will consistently attract a professional following, that will actively trade in it continuously or nearly continuously. This professional following is visible and detectable by virtue of the volumetric impact it engenders. This volumetric impact affects the price, naturally, but what is more important is that by its very presence underwrites whether the instrument is in play or not, you see.

Now let us take this up one notch.

In consequence of what I explain above, the fundamental considerations utilised in stock selection are not altogether invalildated, but they are to some extent eclipsed. This is because skilful reading of the chart, meaning gaining the "footprint" of the behaviour and likely behaviour of the instrument is able to clearly reveal phases of accumulation and distribution in it, which are professioally instigated and executed, with military precision.

Each instrument has its own footprint. Each footprint is distinctive. This is because the professional interest in it specific. The specificity of proffessional interest is what gives the footprint its character. Thus character change implies change in proffessional interest. Change in proffessional interest occurs for a reason. It does not matter what that reason may or may not be, but the shift in emphasis is the clue.

This sudden shift in emphasis is immediately revealed in the price action. This price action is recorded on a chart. The volume attributable to this action (or the absence of it) is also shown. Together, they indicate to the skilled observer what is the most likely probable outcome, and all of this in real time, as and when the action is developing.

Kind Regards,
 
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chump

Senior member
2,212 274
Socrates,
I believe there is a way to use FA and TA and I call it PA...psychological analysis which blends what I think the two activist grups will do and yes I would consider institutional activity to be important.....best way I can describe it is to show this thread that I started ages ago when I was first trying to make the transition to this shorter term arena...found it...here it is..by the way I have moved on a bit ;) ...I don't need the lines all over the chart anymore ;)

http://www.trade2win.com/boards/showthread.php?t=8848
 

LION63

Established member
746 33
Socrates,

Great post (40) and this further explains the need for stock selection in trading. As you have stated, it is pointless trading in stocks that lack professional interest/participation (penny shares, small caps etc.) due to the fact that they would lack volume; tend to show extreme volatility and have wide spreads.

However, would you agree that whilst you have said that an unhealthy stock will not attract a lot of activity due to the perception of too much risk - delisting, suspension & illiquidity; this is not always the case? There are quite a few instances when the volume actually soars due to the reasons you have given. The fear factor leads to the professionals running for the exits at almost any price. The bargain hunters pile in looking for perceived value. Short term traders see this as a chance to smash and grab. Finally, comes the group that feel it is similar to the high street sales and that they are getting shares on the basis of "buy 1 get 3 free".

Under these circumstances, the professional interest will dry up but traders will/should make money provided they know what they are doing and have set criteria. It would not matter that they rely on charts for their entry/exit points.
 

SOCRATES

Veteren member
4,966 134
chump said:
Socrates,
I believe there is a way to use FA and TA and I call it PA...psychological analysis which blends what I think the two activist grups will do and yes I would consider institutional activity to be important.....best way I can describe it is to show this thread that I started ages ago when I was first trying to make the transition to this shorter term arena...found it...here it is..by the way I have moved on a bit ;) ...I don't need the lines all over the chart anymore ;)

http://www.trade2win.com/boards/showthread.php?t=8848
Hello Sir, Am I correct in assuming that what you really mean is Analytical Blending rather than psychological analysis ? I thnk in practical reality it would be very difficult to carry out a psychological analysis in the purest sense because probably to do it effectively would require a kind of continuous poll mechanism to monitor sentiment. But you see, I do not look to sentiment, nor do I watch the news, or listen to what the pundits say. I don't even read newspapers at all during the week. I treat myself to the Sunday Times on weekends and that is all. I refuse to be contaminated by the majority popular opinion, because in my view, it is nearly always wrong.

Having said this, what really interests me is the professional posture, which is what I follow.
This is because the public is not empowered to push prices up or down. The public is led, the public does not lead. Therefore from my viewpoint public opinion is not something I pay attention to at all, but instead consider proffessional activity to be the beacon.

With regard to all the lines
, you know, we all have to start somewhere. It is more a matter of evolvement and trading maturity rather than convenience. I do not use any indicators whatsoever. I just read the development of price against volume as these unfold, bar by bar at a mechanical level, I read the tape at a proactive level, and I read the price inference at an intuitivve level, the intent at what you could say is a futurological level, and that is the Analytical Blending that is the basis for my work.
 

chump

Senior member
2,212 274
Analytical blending...psychological analysis ...not sure the terminology is that important...the concept is though...if you know what the competition uses toolwise to make decisions then you can analyse looking for their actions and intentions ..actions and intentions have a psychological basis hence my terminology ..thanks for your input

LOL...footnote...I get the papers online .read them and discount most of the information that is not factually verifiable ..I don't listen to news either ;) ..but , LOL I actually buy the Sunday Times ,because on Sunday I don't manage my time ...LOL life's ironies
 

SOCRATES

Veteren member
4,966 134
LION63 said:
Socrates,

Great post (40) and this further explains the need for stock selection in trading. As you have stated, it is pointless trading in stocks that lack professional interest/participation (penny shares, small caps etc.) due to the fact that they would lack volume; tend to show extreme volatility and have wide spreads.

However, would you agree that whilst you have said that an unhealthy stock will not attract a lot of activity due to the perception of too much risk - delisting, suspension & illiquidity; this is not always the case? There are quite a few instances when the volume actually soars due to the reasons you have given. The fear factor leads to the professionals running for the exits at almost any price. The bargain hunters pile in looking for perceived value. Short term traders see this as a chance to smash and grab. Finally, comes the group that feel it is similar to the high street sales and that they are getting shares on the basis of "buy 1 get 3 free".

Under these circumstances, the professional interest will dry up but traders will/should make money provided they know what they are doing and have set criteria. It would not matter that they rely on charts for their entry/exit points.
I would agree with you that it is pointless to mess around with penny stocks, because they can prove to be very dangerous for the reasons you so aptly describe.

The problem that I have under consideration at the moment with regard to your second paragraph, is that although I do not disagree with it in principle as I said to you I need to put my undivided attention on this matter to give it the focus it deserves. This is because in my experience there is a line that divides stocks which are not completely sunk but are still floating but with difficulty, against those that appear to be still floating but are well and truly submerged and waterlogged, rendering refloating impractical. I need some time to properly consider these ideas you present and will let you have my views in due course, I promise.
 
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