Technical and Fundamental Analysis

Now that you have an idea of the capital involved in beginning to trade and the different types of markets available to you, the next step is to identify a strategy to trade with. There are countless strategies available to the beginning trader. Many of these basic strategies can be found readily and for free online. However, it is important to realize any strategy that is widely accepted among the trading community is most likely being overused. Large retail and institutional traders are able to manipulate the markets against the beginning trader using these basic strategies. Because of this, many new traders will find simple strategies that appear to be profitable but once they begin trading live they will find that the strategy actually nets a loss. This is because of market manipulation. This is not to discourage the beginning trader from trying these strategies, however, because every strategy works differently and some may work for others and not for you. There are essentially two different schools of trading and thus strategy creation. The first is a fundamental approach. Fundamental traders are very concerned with the outcome of news events and the health of the global economy. These traders analyze microeconomic and macroeconomic trends to find trade entries with the hope that their analysis of the economy will be correct. These traders often take fewer trades and many take trades which are left open for extended periods of time. The second school of trading is technical analysis. Technical traders are mainly concerned with analyzing data and market information in the form of quantifiable measures. The most common form of data analyzation is by using charts, but these traders also use other quantifiable measures such as indicator values and other market predicting values. The life of a technical trader is often portrayed as the stereotypical image of a “stock trader” who surrounds himself with fancy charts and high frequency numbers which change tens of thousands of times per day. While there are traders who trade like this, most technical traders do their chart analysis and then sit back to watch their trades play out throughout the day. Technical traders usually take shorter time frame trades and seek greater returns in less time. It is possible to trade using both fundamental and technical analysis and in fact, the most successful traders understand both very well. The fundamentals of the market are important for the technical trader to understand because it helps them identify large trends. Conversely, understanding the technical side of the markets is important for the fundamental trader because it helps them understand short term movements in the market which may significantly impact their portfolios. It is important to understand both sides but experiment with one or the other to begin with and become an expert in one at a time.

CFTC Required Rule 4.41:

Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.

Hypothetical Performance Disclaimer: 

Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.