Is fundamental analysis better than technical?

Feel free to call me out if I'm misinformed, but it seems that most of the more successful investors/traders are fundamental analysis type people? which one has been proven over time to generate more money, the trader or the investor?

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Comments (95)

Apr 23, 2013 - 1:52am

At the end of their careers, who made more, the trader of the investor?

"Hold on a sec...you mean they made all this money without doing IB --> PE --> HBS --> PE --> God? How is this possible?!?!?!!??" - TheKing
Apr 23, 2013 - 1:52am

*or

"Hold on a sec...you mean they made all this money without doing IB --> PE --> HBS --> PE --> God? How is this possible?!?!?!!??" - TheKing
Apr 23, 2013 - 1:59am

Dickenscharles, for the sort of advice you're looking for, I think you'd be better off reading some books rather than asking questions on a forum. There's just no way to give a clear answer in this format.

Try The Intelligent Investor, by Benjamin Graham with the commentary by Jason Zweig. It contains two things you may find useful: one is a book about investing by one of the first rigorous fundamental analysts (at least, the first one who is widely known), and a commentary by a financial journalist that connects the lessons from the book to events in the history of the stock market, such as the dot-com crash. The original book is a classic, while the commentary already feels dated, but both will make the basics of investing more clear to you.

Apr 23, 2013 - 6:46am

I am amazed this question has come up. Technical analysis in and of itself does not make sense. The only power it has is to identify where other muppets may try and trade the stock so there may be small pockets of resistance which survive until the size players (who are 100% fundamental analysis) drive over them.

If your goal is to pip $300/$400 on a good day, you may be able to play these 'technicals' as nothing more than self fulfilling but anyone who uses them in the realm of professional investing (beyond coming up with arbitrary entry points to build a fundamental position) doesn't deserve to earn the money they are being payed.

I get hit with a good 10 - 15 emails a day from brokers shifting technical levels because they want to get face time with me but have nothing better to write and sometimes these levels are correct, sometimes they are not correct. Sometimes (more often than not) brokers will give 'bands of resistance/support' so they are more likely to be correct but this defeats the whole point.

I have trawled through a tonne of research regarding back testing technical indicators and have never found a detailed, unbiased conclusion that any specific strategy works and if you have 30 different technical indicators to choose from, you can confirm any technical hypothesis by conveniently ignoring the techs that tell you what you don't want to hear.

By looking at volume and price you can sometimes determine where large buyers may be sitting but these buyers may be wrong in the end or may be over-run by even bigger sellers.

If I were you, I would spend my time trawling through company reports and broker research in order to understand a holistic approach to investing and instead of technicals, concentrate on macro indicators.

TL;DR Technicals are god awful

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Apr 23, 2013 - 9:18am

technical analysis = astrology

''You can fool some of the people all of the time, and those are the ones you need to concentrate on.'' — President George W. Bush 0.5 bb
Apr 23, 2013 - 9:46am

For those of you bashing technical analysis---I'd love to hear your personal stories as to why it doesn't work. I've seen a number of traders (in the commodities and fx space) who trade on ONLY technicals and consistently beat the market. I've also seen technical traders fail as I have with fundamental traders. My favorite type of trader is the one that rolls out of bed 30 minutes before the bell, listens to his IPOD on the train in the morning, updates his fantasy team pre-open, and then walks into the pit or up to his screen and prints money during the day.

I'm not arguing this is the proper way to prepare for a day in the market but it goes to the point I am trying to make. Trading is 100% about feel and whatever structure or system trader's create to explain their trading strategy or whatever data or charts they use to justify decisions are all part of a general "feel" for the market. Some traders develop feel through fundamentals, others charts, others can walk into a pit and smell the market.

***This does not apply to black box systems or algo-trading

Apr 23, 2013 - 11:13am

CornTrader:
For those of you bashing technical analysis---I'd love to hear your personal stories as to why it doesn't work. I've seen a number of traders (in the commodities and fx space) who trade on ONLY technicals and consistently beat the market. I've also seen technical traders fail as I have with fundamental traders. My favorite type of trader is the one that rolls out of bed 30 minutes before the bell, listens to his IPOD on the train in the morning, updates his fantasy team pre-open, and then walks into the pit or up to his screen and prints money during the day.

I'm not arguing this is the proper way to prepare for a day in the market but it goes to the point I am trying to make. Trading is 100% about feel and whatever structure or system trader's create to explain their trading strategy or whatever data or charts they use to justify decisions are all part of a general "feel" for the market. Some traders develop feel through fundamentals, others charts, others can walk into a pit and smell the market.

***This does not apply to black box systems or algo-trading

You're talking about trading in the pits which isn't solely based on technical trading. You have and know customer orders, resting bids/ offers, speed of execution, different flow not seen by other participants are all things that lead to asynchronous information which can give you an edge.

These 'feel' traders are becoming less and less profitable in general or have already died when expectation finally caught up with them. But trust me I'm not saying that technicals don't provide any value though.

Apr 23, 2013 - 10:09am

I can smell the monkey shlt I threw at you bra

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Apr 23, 2013 - 11:35am

@wilder a small part of my experience is based on trading in the pit and your certainly right about the "feel" traders in the pit. Those guys are a dying breed. My point on feel was clouded in my op. Great traders get comfortable with a system whether that be the method redrut suggests or a technical approach and develop feel based on that system. I agree with @redrut that you can't pay attention to 30 charts sent from 10 different analysts. I do believe that if you are trading one particular product and you have a series of charts and indicators that you like to look at---it is possible to develop feel around those indicators and be a succesful trader based solely on technicals.

I am now done arguing this because I don't really care, never used technicals when I did trade, and have since transitioned to a sales desk. I've seen what I've seen Redrut your monkey shit smells like strawberries.

Apr 23, 2013 - 6:28pm

Paul Tudor Jones had a good interview where he mentioned how half the money he's made. The other half is from fundamentals. He said how when he was starting out, there was a lot of volatility in the markets and not enough information to make sense of it all. Fundamental analysis wasn't as practical back then and so he said a lot of traders from his generation make money using technicals. Then, when data was available, and finance began to catch the eye of academics, people naturally felt a need to explain what was happening and fundamentals became more and more mainstream. However, there isn't always an explanation and factors are constantly changing, so a lot of fundamental analysis is just junk as well.

There are studies on how fundamental analysis is just as poor as technicals. the market is basically efficient so you really need to know your shit to get anywhere. The recent ER post mentioned how a good chunk of the job is just sales.

Apr 24, 2013 - 4:14am

couchy amazed you can see fundamental analysis as poor as technicals, can you send me the study link. Furthermore, a lot of ER is adjusting WACC's to be on the right side of your corporate access and it's really the buy side or untainted research that would be of most value

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Jun 5, 2013 - 8:59pm

bump

"Hold on a sec...you mean they made all this money without doing IB --> PE --> HBS --> PE --> God? How is this possible?!?!?!!??" - TheKing
Jun 5, 2013 - 9:00pm

Technical vs. Fundamental Analysis (Originally Posted: 01/31/2011)

Is there room (time) for fundamental analysis in trading? Are most day traders becoming chartists? Are traders gravitating to a hybrid approach to stock picking which includes both ratio analysis and chart reading. As things become so fast paced, I wonder how many traders are simply and purely gambling. A Random Walk Down Wall Street teaches us that there is no charting technique that can consistently deliver abnormal returns. Fooled by Randomness teaches us that betting for or against a longshot can result in fool's gold or catastrophe. Yet you still see the old legends that have been charting for decades, and making damn good money at it. What role does temperament and psychology play is timing the market? Your thoughts?

Jun 5, 2013 - 9:21pm

Fundamental vs Technical Analysis (which is better?) (Originally Posted: 09/26/2016)

I know there is not a concrete answer to which type of analysis is better. But which would you defend? Do you find that one is better for certain types of industries and/or companies than others? Obviously technical is not really possible for companies in the emerging stages, but other than that, which route do you take to conduct analysis?

Jun 5, 2013 - 9:24pm

Both will come into play - depending on time horizon, both are usually used together.

differenct fundamentals for different energy products: NG vs Crude etc.

For energy, Macro events and indicators (payroll #'s, central bank decisions, political disruption) play more into price movements than pure supply/demand numbers (such as doe, api, etc). and currency movements will affect the WTI-Brent spread as well.

When dealing with spreads such as crack spreads - supply/demand indicators and technicals can come into play moreso than macro events.

Also, some traders like different technicals -- I know that candles, and bollinger bands are used by some for crude oil moreso than Fib retracements and the others.

Jun 5, 2013 - 9:26pm

Thanks for the input guys I really appreciate it. I go to school in Texas and I'm hoping to get an internship in energy trading next summer.

Are there any resources in particular (books/websites/etc) that would be useful to learn more about becoming a successful energy trader?

Jun 5, 2013 - 9:29pm

Also, some traders like different technicals -- I know that candles, and bollinger bands are used by some for crude oil moreso than Fib retracements and the others.

Oh you know this? Really? Please reread what you wrote and realize how stupid it sounds!

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
Jun 5, 2013 - 9:30pm

please explain why you would say that- different traders like different technicals for different products
whats wrong with that statement?

why is it so neccesary to be a dousche on here. Either help or don't, make a statement or correct one...it goes to show the true nerds - because if you were in normal social situations with normal people and were condescending like this, someone would open you up.

Jun 5, 2013 - 9:31pm

Oh you again...

Because it just sounds ridiculous the way you are saying it as if the norm for energy traders is a certain set of technicals vs another. The real answer is it varies a lot. I am becoming increasingly annoyed with people that spout off like they know everything. I am not even going to pretend i know which technicals an energy trader uses because I dont know.

Unless you work in the area then neither do you.

You do not have thick skin you need to get off wall street asap. You obviously dont work on a desk because if you had you would know the short fuses that traders have and will easily rip into others.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
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Jun 5, 2013 - 9:32pm

Anyways...

Back to the topic, @marcellus thanks for the recommendation on the EIA website. I've been reading through that and it's really good. Where can I find Monty's list of books? I looked on his profile and threads but had trouble finding it

Jun 5, 2013 - 9:35pm

Electricity Markets: Pricing, Structures and Economics
Energy Trading and Investing
Liar's Poker
Moneyball
Monkey Business
The King of Oil
The New New Thing
The Smartest Guys in The Room
Trading Commodities and Financial Futures: A Step by Step Guide to Mastering the Markets, 3rd
Trading Natural Gas
Understanding Today's Electricity Business
Understanding Today's Natural Gas Business

pass the SB's now

if anyone is in Houston I could toss you most of these as they are sitting on my shelf

Jun 5, 2013 - 9:48pm

http://www.amazon.com/Traders-First-Book-Commodities-Introduction/dp/01…

So far, I think it gives a decent overview of futures and the commodities market, in general; however, my background is in equity research (with a focus on ag and metals) so I have zero trading experience. For me so far this is a perfect primer: it's easy to read, very dumbed down, and the breadth is wide. It's exactly what I wanted so that I could get a better grasp on the markets that so largely affect the equities I cover.

Amazon reviews are largely positive and it costs $3 for the Kindle copy.

Considering I may want to go into commodities trading in the future I feel this book is giving me a sense of the risks of doing so (the author is very honest about the pitfalls of commodities).

Jun 5, 2013 - 9:50pm

In case of this kind of Trading, I say Technical and fundamental should be use at the same time. Instances may occur that your fundamentals will or can further make your technical reliable enough.

Jun 5, 2013 - 9:52pm

Trading Commodities and Financial Futures: A Step by Step Guide to Mastering the Markets, 3rd

How is that book for someone about to enter commodities trading? I want to learn the basics of the mechanics of commodities futures and maybe some fundamental aspects as well but across commodity classes not just oil and natural gas.

Jun 5, 2013 - 9:55pm

Fundamental Investors: What technicals (if any) do you use? (Originally Posted: 03/28/2013)

Doug Kass wrote that "A combination of mostly fundamental and a dose of technical input is usually a recipe for investment success."

So just curious, what technicals do you fundamental investors use? I myself have looked at basic DMA and some MACD.

Has technical analysis helped you time things noticably better?

Jun 5, 2013 - 9:57pm

http://markets.ft.com/screener/predefinedscreens.asp

Also check out the magic formula investing method of Greenblatt. Ranking of companies by earnings yield and return on invested capital.

“...all truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.” - Schopenhauer
Jun 5, 2013 - 9:59pm

In that case, you should look in to the magic formula investing method specifically. He discussed in his book "the little book that beats the market" the timing for entering positions, and when to exit (he doesnt hold for more than a year, and recommends a rotating selection of stocks based off of his criteria) and given that his method is quantitative, it should be relevant. Also, in general, the value investors would recommend getting in to a stock when its 30-50% below what they consider to be "intrinsic value" or whatever.

“...all truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.” - Schopenhauer
Jun 5, 2013 - 10:02pm

MACD confirmation, stochastics, RSI, ATR

Disclaimer for the Kids: Any forward-looking statements are solely for informational purposes and cannot be taken as investment advice. Consult your moms before deciding where to invest.
Jun 5, 2013 - 10:03pm

I know Mike Burry supposedly used technicals to time his entries. Only hard and fast rule of his I know though is "Sell on new lows."

Array
Jun 5, 2013 - 10:08pm

Why not just blend fundamentals and technicals? (Originally Posted: 05/29/2013)

People bash TA & claim that it's a self fulfilling prophecy, but it obviously works to an extent, right? What are opinions on this? Besides that, what fundamentals (if any) do traders use, and what technicals (if any) do investors use?

"Hold on a sec...you mean they made all this money without doing IB --> PE --> HBS --> PE --> God? How is this possible?!?!?!!??" - TheKing
Jun 5, 2013 - 10:12pm

How Good Is Fundamental Analysis? (Originally Posted: 04/01/2007)

I know most of us have read "A Random Walk Down Wall Street", but I thought this excerpt might kickstart a discussion. Enjoy...

In the beginning was a statistician. He wore a white, starched shirt and threadbare blue suit. He quietly put on his green eyeshade, sat down at his desk, and recorded meticulously the historical financial information about the companies he followed. The result: writer's cramp. But then a metamorphosis began to set in. He rose from his desk, bought blue button-down shirts and gray flannel suits, threw away his eyeshade, and began to make field trips to visit the companies that previously he had known only as a collection of financial statistics. His title now became security analyst.

As time went on, his salary and perks attracted the attention of his female cohorts and they too donned suits. And just about anybody who was anybody was now flying first class and talking money, money, money. The bright newcomers entering the job market during the 1990s laughed at the old fogey forty-year-olds and disdained their ways. The new generation was hip and suits were out and Gucci shoes and Armani slacks were in. They were so incredibly brilliant and knowledgeable tthat portfolio managers relied on their recommendations and Wall Street firms used them increasingly to cultivate investment banking clients. They were more than security analysts. They were equity research stars. Some, however, unkindly whispered that they were investment banking whores.

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