Forget the Fundamentals?

I am writing this article on a 20 hour flight back to the States after spending a spectacular week in Singapore. I would first like to thank the staff at Online Trading Academy Singapore for their hospitality and also congratulate them on their work at the Asian Trader and Investor's Conference. I had a unique opportunity while in Singapore to be a guest on CNBC Asia's Cash Flow program. I was asked to weigh in on the technicals of the Asian markets as well as individual stocks (the video clips of the show should be available at www.tradingacademy.com soon). I was bombarded with emails from viewers from Australia to Tokyo.

At one point, the anchor of the show, Maura Fogerty, asked me to describe technical analysis which I did. She then asked an interesting question which got me thinking. She asked if technical analysis can be used by itself to analyze the markets. I answered that technical analysis could be used to analyze the markets and individual securities and that I was able to make accurate predictions of future prices on securities I know nothing about. The simple fact is that we do not trade currencies, futures, or companies. We trade people's perceptions of those securities and their emotions. Technical analysis gives us the ability to recognize predictable patterns in those behaviors and therefore minimize our risk and even create profits.

However, after the show, I was thinking about my own trading style. I am a technical trader but I also have a good understanding of the fundamentals of the markets and the economy if not the individual securities I trade. This understanding allows me to anticipate changing perceptions of the masses and how they may be directed to either accumulate or sell off certain positions. I realized that if I was to be a great trader, I cannot forget the fundamentals. The news in the financial arena is currently centered around a possible recession and even stagflation in the US economy. How many of us know what that truly means? More importantly, do you know what sectors or asset classes will have the most risk and therefore should be avoided? Do you know what sectors and asset classes will benefit from the slumping American economy?

I have been fortunate to have studied fundamental analysis and economic theory and it is something I inject into the classes I teach. Nearly all of Online Trading Academy's classes have a portion that focuses on analyzing the markets from a fundamental standpoint. If you do not have a strong background in how the economy works, I suggest you visit your local Online Trading Academy Center and learn. There is a rocky road ahead for the economy both in the US and the world. Let's face it, we live in a global economy and no country will be immune. Even the BRIC countries (Brazil, Russia, India, and China) are feeling the effect. China announced this week they will take measures to fight rampant inflation in their economy. Seems to be more than Big Ben is doing.

So as you plan for your assault on the markets and draw your squiggly lines all over your charts, don't forget to see how you can minimize your risk by understanding the fundamental factors that will drive the global economy. The money you save could be your own!