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When Fundamental Analysis Fails

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Old 22-06-2016, 20:09
Join Date: Mar 2014
Posts: 979
Default When Fundamental Analysis Fails

“Everyone is following the economy, but I’m following the market.” – Joe Granville

There are those who invest successfully using only fundamental figures, and there those who successfully trade using only technical analysis. There are those who combine the two types of analyses and make money.

Nevertheless, I can see that many investors believe so much in fundamental analysis that they refuse to smooth their orders when caught on the wrong side of the market direction, because the fundamentals support the wrong side. I’m not saying that fundamental analysis doesn’t work; it works, but it isn’t a Golden Goose trading method, for there are investors/traders who lose heavily despite the fact that they position their orders according to the fundamentals that are affecting the instruments they’re interested in.

When fundamental analysis fails, what do you do? What you can do to survive and become victorious requires that you look beyond fundamental analysis. Further articles will shed more light on this.

No type of analysis is perfect: therefore it’s risk control that can make one survive the vagaries of the markets. Fundamentals or no fundamentals, you need to know what really works in the market. Joe Granville of blessed memory is quoted as saying that he followed the market when everybody followed the economy. Joe, who focused on the market, was a highly respected and successful trading expert.

One profitable itinerant speculator once declared that the only thing that we need in order to make money in the market is to understand how the market works. That’s a fact. Most veteran traders acknowledge this fact. The knowledge of how the market works is what would make you a profitable trader.

For example, there are a few stages of investors’ attitudes in a bear market. Investors may be overconfident and greedy, thinking that the price is too cheap and could turn in their favor anytime. At this time, most bears are ecstatic about pushing the price further south, but investors would keep on buying. Then there would be a stage of lack of dread and conservation, which makes investors to become sober and cautious because the market keeps on plunging. The falling price makes some investors angry and shameful. Then there would be another stage of total apathy and frustration when the market has become extremely oversold and it’s really ready to shift gears and start a new long-term bullish bias, that’s when investors would lose confidence in the market and stay out altogether (or leave their positions for the worst that could happen). The timing of the masses would continue to be wrong.

Many traders are making money in the markets in spite economic problems in developed countries. Sometimes, it’s not uncommon to see the market going up when negative data is being released. Sometimes, you’ll see a market plunging despite good figures that are being published. It just depends, if a bad figure that’s just been released is the most encouraging among similar figures released in the past several months or years, it might have a positive impact in the market rather than a negative one.

This article is ended with the quote below:

“Most traders fail because they think they know more than the markets… I say humility because to me every time I caught myself saying ”oh this market has to be a buy because it can’t go any lower” really is a statement of ego, which is another way of pretending you know more than the market.” – John Person

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