Comment on Mr Consistent returning incredible returns

Madan commented on 28 Dec 2013, 11:40 AM


Thanks. I don’t do any kind of fundamental analysis for my trades. As i am a short term trader, FA is not even relevant to me. I don’t do technical analysis either. I follow only price.

There is always a debate on which is best – FA or TA.

Some people believe it’s a game of fundamentals. They’ll study the company reports, PE ratios, dividend yields, or wider economic factors such as the retail sales or crop reports. They aim to find a stock or commodity which is valued differently from what they believe is its true fundamental value. They’ll then enter expecting the fundamental factors to push price to their perceived ‘correct’ value.

Others believe it’s a game of technicals. They’ll use indicators, which are simply a derivative of price, in an attempt to predict future price movement. As price moves in a particular direction the indicators will follow, eventually triggering our novice trader into the market. There is rarely any thought as to what caused the initial price movement, or whether or not the context of the current market supports continued price movement.

In my opinion, neither is correct. Trading is not a game of fundamental or technical analysis. Trading is a game of understanding people and how they make decisions.

True, your competitor is not one individual. Rather, you trade against the collective market which is made up of millions of other traders and investors all making individual buy and sell decisions.

Price moves in response to the net order flow that results from all these individual buy and sell decisions. If the net order flow is bullish, price will rise. If the net order flow is bearish, price will fall. It’s as simple as that. The fundamentals don’t move price and in the same sense, technicals don’t move price. Order flow moves price.

Hope it helps.

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