Ask a Broker
By Richard Ilczyszyn ISSUE 812 | December 2009
Q: As a day trader, what’s more important, fundamental or technical analysis?
A: Lind Plus Senior Market Strategist Richard Ilczyszyn answers.
Both fundamental and technical analysis have merit. Which method you use to trade depends mainly on your time horizon.
A day trader is more likely to use technical analysis because it’s quick to help spot potential trades as they are triggered. It doesn’t matter to you as a day trader if the market is going up or down, or what the long-term outlook is. You are just looking for opportunities—today. Technical analysis can help you find trade opportunities as they unfold, as well as locate entry and exit points to minimize your risk as much as possible while increasing your chances of success.
To see how technical analysis can help you spot opportunities, the candlestick chart below shows a snapshot of the E-mini S&P 500 futures on the morning of November 11, 2009. The bottom of the chart shows the Moving Average Convergence/Divergence (MACD) and there is a cross at about 8:45 a.m. CT, representing a buy signal. Then about 9:30 a.m., we see a sell signal fire. You could’ve come into the market that morning, not knowing what the news of the day was, and just trade based on price. Your judgment wouldn’t be clouded by anything else but what you see unfolding on the chart, in real time.
A long-term investor is more likely to use fundamental analysis, because it gives a clearer picture of long-term market potential. For example, maybe I think gold is going to go up, because the dollar will weaken due to stimulus money hitting the market and low interest rates. Those are fundamental factors, supported by news and analysis you have studied. If you are dollar bearish, perhaps as a long-term investor, you’d then buy commodities.
However, you can often have the right idea about a trend based on fundamentals, but your timing may be off when it comes to placing trades. If you aren’t careful, you can get face some sharp losses and/or get stopped out of positions amid market volatility, even though the market may eventually move the way you expected it to.
For that reason, I recommend a technical approach if you are not a long-term investor. The chart is simply a reflection of all the fundamentals that are already priced in—it’s a public record of buying and selling at specific prices at specific points in time. I really do think a picture is worth a thousand words.
That’s not to say day traders should always ignore fundamentals completely. When you have fundamental factors supporting what you see on the charts, that’s when I feel you’ll have your best chance of success.
This is just a brief overview of the topic. I encourage you to contact me with any specific questions you have, or about the markets in general.
Richard Ilczyszyn is a Senior Market Strategist with Lind Plus, Lind-Waldock’s broker-assisted division. He can be reached at 800-605-0095 or via email at rilczyszyn@lind-waldock.com. Follow Richard on Twitter at www.twitter.com/LWRIlczyszyn.
Kristina Zurla Landgraf is editor of Lind eWire. She can be reached at editor@lind-waldock.com.
Futures trading involves substantial risk of loss and is not suitable for all investors.
Past performance is not necessarily indicative of future trading results. Trading advice is based on information taken from trade and statistical services and other sources which Lind-Waldock believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder.
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