Trading Balance: The Best of Both Worlds

[Future 10]

How many traders rely strictly on technicals in your intraday trading? Many veteran traders like Linda Raschke has mentioned that good traders need to have a balance of both technical and fundamental trading. In this thread, I hope to expand the fundamental side of trading for intraday trading.

 

How many of you read the papers everyday to gain a macro view on the global economy? There is a correlation between various markets. For example, the Nikkei tends to follow the US Markets. Therefore US Market news tend to be a leading indicator for the Nikkei action the following day. It is quite ironic due to the fact that Tokyo/Osaka standard time is approx 12 hours ahead of NY time. Yet investors and traders glue their eyes on the S&P, Dow as if they are afraid to make a decision without knowing what is going on in the US. I am sure Aussie traders or Germany traders have some input on market correlations.

 

Secondly, how good are you at analyzing sectors? Are you aware of interest sensitive sectors? Sectors that ppl flock to when banks/securities sectors are flat or down? The stock market is a giant arena full of hopes and dreams for many investors. Why do US stocks have alot of high flyers? Do you really think it is possible that these companies gain millions of dollars in capital overnight? These are the hopes and dream stocks. Watch for these when all other stocks lag. These are what I like to call pure speculation stocks.

 

Let's take a look at yesterdays action (July 10, 2007). A trader well informed of fundamental news especially with the subprime mortgage panic... would of known that any long setups would of been extremely risky. How many intraday traders actually went long? Did you profit from them? The easy money was on the short side.

 

For intraday index traders, it is extremely important to be well informed of fundamental news behind various sectors, stocks, commodities, currency, etc.. All of these have an impact on index futures. Stocks like Microsoft, Intel, Apple, etc... have a tremendous impact in the minds of traders globally. A rise in Intel can cause global tech sectors to lift. Where tech stocks are weighted heavily in the minds of traders in markets like Tokyo and Singapore... this news can lift the indexes. Hence you want to be focusing on long setups.

 

Please feel free to add your inputs. I am no fundamental expert by any means but hopefully this thread can help traders gain a macro of view of trading because intraday trading can easily get one absorbed too much in tick by tick action. Happy trading.

[Dogpile 10]

Hi Future,

 

I was a professional fundamental guy for many years. Good fundamental anlysis works very well over the long-run. Bad fundamental analysis fails miserably. The problem and the benefit with fundamental analysis is the fact that it takes a long time to figure out if you are really right or wrong. This is a benefit because of the the long-term upslope of the market. This is a problem because how do you control losses when something goes against you.

 

Trying to use fundamental information to explain the short-term swings is useless. People that do this are making it up. The market will very often do the opposite of what the fundamental news implies. Other times, it will go in the direction of the fundamental news of the day. Anyone who tries to trade short-term on fundamentals is sure to lose. My short-term trading is 100% technical at this point. All of my trades were on the short-side yesterday and it had absolutely nothing to do with thinking about subprime mortgages.

 

Think about all the major things that can happen that are simply unrelated to anything you can predict. 'Shocks' like natural disasters, political problems, wars, terrorism etc... what the hell do you do when these 'shock' events happen, your portfolio just got nailed, the market is plunging and you fear another big gap down the next day? Well, understanding short-term technical structure gives you a risk-controlled gameplan for any situation -- though many times that simply means sitting out.

 

BTW, I am very familiar with Linda Rashke and she would definitely consider herself 100% technical.

 

One note: I found 'Market Profile' to be a very interesting combination: it is technical in nature but does help you find where the market is finding 'value' -- a fundamental concept.

[brownsfan019 17]

My view is simple - if you are a technical trader, there's no need for the fundie's to mess with your mind. Reason being that there were good long opportunities on Tuesday that produced profit. I think people forget that you can in fact make money in a downtrend going long and vice versa - mainly due to what I call the 'micro-trends' of the day. Rarely is it a straight shot up or down.

 

So I am going to disagree future as a futures daytrader myself. I really don't care why the markets are moving, just as long as they are. I understand your idea as I used to sell those ideas and theories but in practical daytrading, I don't see how useful fundie's are. In other words, if I am going for 2-4 pts on the ES per trade, I don't believe the overall fundie is going to get me there before a possible stop out.

 

Now, swing trading and buy/hold is a different story.

[Future 10]

Thank you very much for your comments. I would have to disagree regarding this as I personally know of many traders that trade strictly off news, sectors analysis, etc.. which are all fundamental based. What I realized throughout the course of my career is that trading is not limited to but just one style. I used to be 100% technically oriented. I cared less about news as I truly believed everything can be seen in volume and price action. However, after spending time with fundamental based short term traders it was mind blowing. Now, they are mainly stock traders that have deep pockets and are able to diversify their positions throughout various sectors. But one thing is in common. They are able to understand the rotation of money, relative sector strenght extremely well. Hearing them talk is like reading next weeks newspaper. Simply amazing.

 

I am by no means criticizing 100% technical traders. But I have to state that understanding how top Tier stocks are behaving, the flow of money, etc... can really help give short term trader an edge. I think it is important to understand what the big money is. Of course this can be seen in volume. But these hedge fund type guys are holding such a big position that they need to constantly re-adjust their portfolio several times a day. And alot of their decisions is based on fundamentals.

 

Using 100% fundamentals is a sure way for me to lose intraday. This I admit because I am no expert. But having a balance in my opinion is an advantage for any trader. Please feel free to disagree.. or agree :p