Page 51 - Trading #101 Course – Part One: Trading Basics

TRADING #101 COURSE – PART ONE: TRADING BASICS /2017-10-06

Combining Fundamental and Technical Signals
in Your Trading Rules

Up until recently, in the past 15 years or so, most analysis was fundamental simply
because high- powered computers and technical analysis software were not readily
available to a clear majority of individuals. Now, the playing field has been leveled and
even the individual investor or retail trader has high- end tools.

These analysis tools, your computer and financial analysis software, enable you to
number crunch enormous amounts of data in a very quick short amount of time. So, you
can sort through mountains of fundamental data, technical data, or a combination of the
two, and come up with the highest- probability trades.
This is more reason to acquaint yourself with both types of analysis and combine them
for a powerful result.

Technical Analysis Signals

Technical analysis is a method of evaluating financial instruments by analyzing statistics
generated by market activity, such as price and volume. The technical analyst is looking
for patterns that occur in the current market that may be like previous historical patterns.
This analysis is designed to identify high- probability set ups based on patterns that may
have resulted in a profitable outcome in the past.

Of course, the standard disclaimer on every technical analysis product is that “past
performance does not guarantee future results”, since the profitable outcome that may
have been achieved in the past does not guarantee that a profitable outcome will be
achieved in the future. The future is always an unknown quantity.

Hence, the job of the technical trader is to estimate probabilities of certain outcomes,
and then enter the trades with the highest probabilities for success. Learning to
accurately determine these probabilities can take years of experience to master.

One advantage of pure technical analysis over fundamental analysis is that the nature
of the signal is based solely on reality and not on opinion or interpretation. Plus, the
price and volume figures coming from the exchange cannot be altered or distorted by
creative accounting. Until recent times, this did not seem like a huge factor, but with the
misdeeds of companies such as Enron and the like, it is now a consideration.
Since, like Enron, other companies can distort their reporting of earnings, debt, assets,
liabilities, and such, fundamental analysis is flawed to the degree that you can’t always
believe what you hear, or what you read in your annual report.

With technical analysis, there can be delays in data delivery, that can distort the reality
of the data, but this factor will only affect day traders for the most part. And, by selecting
high-end data providers, this delay in data can be reduced dramatically.

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