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ruled by internal relationships, to some degree or another. What is the underlying reason that a market will enter into a multiyear bear phase? Why has gold, for example, slowly drifted down for the past decade? What is the underlying reason that markets trend? The underlying reason is that supply and demand are not balanced. One force is more powerful than the other, and consequently the price will trend. |
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Why does a market trend up? For several reasons: The supply decreased and the demand increased. The demand decreased slower than the supply decreased. The supply increased, but the demand increased faster. The supply remained fixed, and the demand increased. |
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Why does a market trend down? For the exact opposite reasons it trends up. Why does a market go sideways? Because the supply meets the demand so that it is perfectly balanced. What does the price represent? In all cases the price represents the level where demand meets supply, and becomes a number. As a trader, your responsibility is to use every tool and piece of information available to profit from the movement of prices. Technical analysis gives a trader valuable information, fundamentals give a trader valuable news. It is critical to understand that both demand the profitable trader to think! |
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Often different markets are interrelated. This is easily observed while simultaneously looking at different charts. For example, recently there has been a correlation between the Japanese yen and the price of crude oil. In a purely technical sense this correlation is easily understood. That is, if yen goes up, then crude is going to rally. However, the trader who actually understands the fundamental reasons this is taking place is in a position to catch the break in the continuity of thought, possibly before a pure technical trader. When you are trading a market, every bit of understanding that you can apply to that market will help give you an edge. |
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Is it harder to create a methodology that incorporates fundamentals? Of course! Do novice traders thoroughly understand both? Of course not, because that would take too much work! The amount of knowledge you can bring to bear on any market will be partially dependent upon the extent that you can incorporate fundamentals into your methodology. As you gain experience, your level of general knowledge will also increase, allowing you to incorporate more knowledge into your methodology. |
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When a market begins to move in a particular direction, it does so for a technical and/or fundamental reason. Paradoxically when a market has a valid fundamental reason to change direction, it will often initially ignore that fundamental. In other words, if there is a rip-roaring bull market, technical analysis will tell you that the market is in a solid up trend. However, |
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