交易手册：基本面交易的愚昧

Source: The folly of trading fundamentals

So, who uses fundamental information when trading? It only can benefit investors, who hold positions for months at a time. Although you often hear traders on television mention fundamentals when they place trades lasting for a few days, they do not realize that they erroneously believe that the fundamentals improve their profitability.

The fundamentals do not help traders make money, but traders often mention them because of tradition on Wall Street. They are afraid that their peers might respect them less for being purely technical traders.

Never be ashamed to be a day trader

To me, this is foolish, just as it is foolish to be ashamed to be a day trader. When people ask me what I do for a living, I look at them straight in the eye and tell them I am a day trader, and my confident stare dares them to say something disrespectful.

Technical trading was disparaged for generations and is slowly being accepted as a very profitable way to trade. Most High Frequency Trading (HFT) firms use technical information exclusively, and many are making fortunes.

This has gone a long way in making the Street and the public accept the proposition that technical trading can be profitable long term. However, HFT trading is done by computers, and there is still resistance to the idea that many traders can trade profitably manually using technicals alone.

Most traders get out within a few days

The reality is that almost all profitable traders who hold their positions for only a few days or less are making their decisions entirely based on price action, even though most do not realize it. They want to be seen as mainstream members of the Street, where all of the firms are still dominated by a fundamental mindset, and feel compelled to find a fundamental reason to support their trade.

Over time, this tendency will disappear and traders will feel free to admit to themselves and to their friends that they are getting rich from price action trading alone, and that fundamentals do not improve their profitability at all.

I am a day trader and am out of most trades within 15 minutes to an hour, and this means that fundamentals are totally useless for me. Fundamentals ultimately control the direction of any market over the course of months to years, but their impact on markets is far less clear than what the public believes.

Fundamentals are useless to a trader

I strongly agree with Nobel Prize laureate, Bob Shiller, who says, “The whole idea that the stock market reflects fundamentals is, I think, wrong. It really reflects psychology. The aggregate stock market reflects psychology more than fundamentals.”

If JPM is a better bank than a competitor, it is worth relatively more. In simplest terms, its stock will usually have a higher price per dollar of earnings. However, if the overall economy is falling apart, its P/E ratio will fall, meaning that its price will fall, even if its earnings are good.

So, what should its price be? No one ever knows, but investors will likely pay more per dollar of earnings than they would for a bank of lesser quality. That is pretty much the extent of the impact of fundamentals, other than an occasional news event.

The fundamentals have nothing to do with the actual price of anything, only with the relative price, and even then, their effect is too non-specific to be of any value to a trader, who will hold a position for minutes to a few days.

Price action is more reliable

I think that traders should never pay any attention to the fundamentals or the news because neither can fully be understood, whereas the price action is undeniable. That is, to traders who know how to read it. If more dollars want to buy, the price will increase and anyone can see it on the chart. It does not matter if the fundamentals, news, or experts on TV say it should go down. BUY!!!

This question comes up regularly, and my simplest answer is that I trade currency futures and Forex foreign exchange markets entirely on the basis of price action and have no interest in the fundamentals.

Trader or investor?

This is a good place to discuss the difference between a trader and an investor. A trader is looking for fast money. If he is a day trader, he is looking to exit within minutes to a few hours. If he is trading daily charts, he is looking to get out in a day to a week or so.

How to trade as an investor? An investor is much more inclined to pay attention to fundamentals and is planning on holding a position for many months or even years. For example, he might buy GOOG because he thinks it has great management and a strong balance sheet.

Fundamentals ultimately control the direction of any market, but their effect is over the course of months, not days. Although you will hear traders talk about fundamentals, once you learn how to trade, you might come to agree with me that they are not important to a trader.

News can have a brief effect

There is an occasional news item that can move the market for a few days, but almost all moves less than a week in duration are based on price action. The market is constantly racing to support or resistance, where the market either breaks out or reverses. I believe that this is the concept that almost all profitable traders use to make their money, and you will probably agree as you learn more about how to trade online.

One more point about fundamentals. They are far less clear than what the pundits on television would like you to believe. The movement on the chart tells you how to trade. It tells you whether more money sees the news as bullish or bearish, and this is much more important than the analysis by either a bull or bear on TV. The market is usually extremely well-balanced between buyers and sellers, resulting in almost constant confusion, and therefore a very small edge for even the best traders.

Perfect trades cannot exist

Have you ever waited for that perfect trade? If you did, you are probably still waiting because what you soon discover is that no setup is quite good enough. There is an institutional buyer and an institutional seller at every tick on every chart. One side believes the market if going up and the other thinks it will go down.

Except during the 10% of the time when the market is breaking out strongly, the market is very balanced between the bulls and the bears. When CNBC puts on that bullish analyst, it is easy to conclude that the market has to go up. Well, a bear sold to that bull, and he is probably every bit as smart as the bull, yet you only get to hear one side. You have to remember that there is always an opposite side, and that is why there is a market. Both sides need each other to achieve their goals of either buying or selling.

Fundamentals are complex

Also, the fundamentals are far more complex than what television portrays, and most institutions know them before they make the news. They are already factored into the current price and you are deluded if you think that you or any pundit on TV can predict the movement over the next few days because of some profound insight into the fundamentals. If it is important, the institutions have already entered and you are entering late. They are already placing trades based on tomorrows news!

Also, if the Yen currency futures or Forex is falling, it is too simplistic to say that it is because of Japan printing money. That might be a big part of the reason, at least initially, but many institutional traders around the world are placing trades based on many other fundamental reasons that are impossible for you to ever know.

Saudi Arabia might own a lot of Yen, but now thinks that the US economy is becoming strong. They might sell their Yen to buy American stocks. A bank in Europe might sell much of the Yen it might be holding because it has to pay a huge fine to the government, and the fine has to be paid in Euros. Many of the new shorts are simply momentum traders who are selling because the trend is down, and they have no interest in the reason why the Yen is falling. I believe that worrying about fundamentals is not how to trade.

Nobody believes that traders make money from fundamentals

In 2012, CNBC had a television show called Money in Motion and it dealt with Forex foreign exchange online trading. They discussed every trade in terms of both the fundamentals and technical analysis (the price action), but only placed trades in the direction of the trend and almost always at support or resistance. Most of the trades were pullback entries with a reward of about twice the risk.

In my Brooks Trading Course videos, I discuss the mathematics of why most traders should only take trades where the reward it at least twice the risk, so regardless of the fundamentals, they were recommending reasonable price action trades and mathematically sound trade management.

These television traders would make some professorial comment about their profound understanding of the fundamentals, but it was total nonsense. What they argued was similar to what traders say when they trade with lots of indicators.

For example, a trader might say, “There is a stochastics divergence and therefore I am buying.” Strong trends have an endless stream of divergences and profitable traders would never bet on a reversal based on an indicator alone. In fact, I believe that all profitable traders trade mostly, if not exclusively, based on price action, even though many argue that they are also basing their decisions additionally on fundamentals or indicators.

If you listen carefully to what they are saying, they invariably tell you that they will not take the trade unless the price action supports what they are doing, and every trade is in the direction of the trend, and based on support or resistance. They then force their discussion of the fundamentals to fit what they are going to do regardless of the fundamentals, and their trading is really based entirely on the price action.

This means that the fundamentals are entirely irrelevant to what they are doing. The same is true of indicators. Successful traders will only trade if the price action makes sense, regardless of what indicators or fundamentals show.

Are the Forex markets special in some way, like so many ads for Forex brokerage accounts make it appear? Not at all. Simply look at the three charts in the previous section and ask yourself if can tell which is the EURUSD. I am certain that you cannot, and therefore you will see that the price action in all markets is the same.

I mention in the course that I believe that charts are genetically based since each is simply a representation of human behavior. If you become skilled at reading what the charts are telling you, you will have an edge, which you need to trade profitably. I do not believe that fundamentals give a trader any edge at all.

Thank you for reading my How To Trade Price Action manual.

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