4XTrader
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I actually disagree with people that say it's either/or. Both of them have their pluses and minuses.
For example, in fundamental analysis, all the fundamentals can tell you that prices should be going up/down, but don't tell you when to get they will. For example, gold had been trading lower for years and when gold prices dipped below $310 per oz. in the late 90's, the fundamentals were tell you to buy. At the time, it cost $310/oz. to bring and oz. of gold to market (mining, refining, etc.), the demand for gold was outpacing supply by 2500 metric tons per year for several years in a row, so the fundamentals were signaling a "buy", but gold kept trending down for several more years.
In technical analysis, all the technicals are doing is telling you what "could" happen. That's were a lot of technicians get tripped up. They think a signal from a technical indicator is an indication that something "WILL" happen and that is just not true. For example, during the rally in the Dow from June 2006 till just recently, there were many technical signals saying that the indices should decline, but they didn't they keep going up.
What most people fail to see is that trading is just really "probabilities" and that's what technical analysis is, you're trying to figure out what is the "probability" that prices will reverse/rise/decline, etc.
I personally am a techno-fundamental trader, that, I use both. I use fundamentals to gauge the long term perspective and I use technicals to time my entry/exit.
I'll give you two examples:
1) From 1980, gold had been in a brutal bear market and had been trending lower for years. By the late 90's the fundamentals were screaming that gold was a buy (from what I stated above). In 1998 gold made a bottom around $250/oz. It rallied to around $325 and then slumped again and made a "double bottom" at $250/oz in 2000. A double bottom is a technical indicator. So, at this point, both the fundamentals and technicals were signaling the same "buy" signal. As you know, gold is now trading in the $670/oz range, up 168%.
2) In 1998, when the Russian debt default occurred, the Dow plunged 558 points (I forget what the actual price level was). The Dow then rallied over the next several weeks and then fell again to the same level when the 558 point drop occurred. Now, I knew that was a "buy" signal. The fundamentals were still saying the market should be rallying. The technicals were showing 2 things: a) again there was a double bottom in place and b) the MACD (moving average convergence/divergence) was showing that momentum was to the upside. The rest is history, the Dow rallied and never looked back.
What you must realize is that technical analysis is not conducive to your trading style. You're a long term trader. For a short term trader, technicals are more suited to that type of trading. To say one is bad or good is erroneous if taken out of the context of the trading style it suited for.
For example, if you're the kind of person that's the outdoorsy type that love to go hiking, canoeing, offroading, etc., the kind of vehicle that would be suited for you is an SUV or a rugged pickup truck. That doesn't make a sedan a bad car, it's just not the right type of vehicle for what you do. If you're a parent with a spouse and 3 kids, a minivan is more suited to your needs, while a 2 door sports car is not. Doesn't mean the sports car is bad, it's just not what would fit with your lifestyle.
The same things apply to technical analysis. I've seen arguments where one person is bashing technical analysis or fundamental analysis. I personally have an 88% accuracy rate using technical analysis, but I am smart enough to know that trading is just probabilities and that technicals are only a way of gauging what the probabilities are.
So, you are correct in that for what YOU'RE doing that technical analysis is not right for you, but doesn't mean it's bad for everyone. A swing trader would get clobbered using fundamental analysis, but that doesn't mean fundamentals are bad.
I've used technical analysis to call market turn points to within 1 tick. Does that mean technical analysis is the "be all end all"? No. It's just a tool and nothing more. Hey, a jack hammer can get a lot of concrete broken up for a construction project, but you wouldn't use it to hang a picture.
What you must realize is that you must place both fundamental analysis and technical analysis within the context of which trading style it's best suited for - fundamentals are wonderful for long term and technicals are suited for short term. |
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