Education is the word of the day, and since TraderPlanet is all about educating traders and investors, the word fits in perfectly. Speaking of education and TraderPlanet, it occurs to me that one of the debates in the trading/investing world is which approach works better for successful trading – technical or fundamental analysis? Well, I think Jim Wyckoff (futures trader) sums it up nicely in TraderPlanet’s Synergistic Trading newsletter …
Those who have read my features know I base the vast majority of my trading decisions on technical indicators and chart analysis — and also on market psychology. However, I do not ignore certain fundamentals that could impact the markets I’m trading. Neither should you.
And those who have been reading me know that I have suggested exactly the same thing, a mixture of technical and fundamental analysis is the best way to go. Actually, I think most professional traders would agree. The only debate within the group is about degree – how much of one versus the other. In Wyckoff’s case, he prefers more technical analysis, but he does rely on fundamental analysis in one key area – the basics. Check out this excerpt from his article.
You should know in what increments your market trades, the contract size, if it’s physically deliverable, cash settled or both, and when first-notice day and last trading day occur. This information is all free and available on the websites of the exchanges on which the markets trade. For example, if you trade U.S. T-bonds, you should know that prices trade in 32nds of a point, based on a yield of 6%. You don’t have to become an expert on yields, deliveries or notices, but you should be aware of the concepts. Reading about what the exchanges have to say about their markets is a great way to start out learning fundamentals.
What he is simply saying is that learning the fundamentals, or basics, of your trading market will improve your chances of trading success. What I said on Friday was, “before you invest a single dime into trading, learn the context of markets that trade.” An important part of the context is the fundamentals.
Some time back, I found myself in the unenviable position of being broke. A friend of mine who is a professional wood worker came over to my house one day to see how I was doing. We chatted for a while and when he was leaving, he asked me if I wanted to work with him in his shop. He told me he would teach me how to make cabinets. I accepted. I enjoyed working with wood and I thought I would be doing some fun stuff with my hands.
Well, after some time of just sanding and cleaning up his cabinetry work, I asked him when I could start building some cabinets. He then told me his story of taking a pottery class from a successful Japanese potter. In short, he too wanted to create pottery, but it seemed to him that he was spending too much time simply making clay. Day after day, he would just make the clay for the class, so he asked the same question – “when can I start making pottery?” His teacher responded, “Before you can create with clay, you must master making the clay.”
This bit of Eastern thinking works here because it is what both Jim and I are saying to those who want to master trading – learn and master the fundamentals of the market you want to trade, as it is the basics that form the context of the markets you want to trade.
Trade in the day; invest in your life …
