Re: Which one do you use? Technical or fundamental analysis
dallee said:
Seeing as this is sitting in the beginners' thread, can I ask what if for argument's sake we say that technical analysis provides the greater returns, but the investor is not confident/competent enough to use it and is happy with the returns from some solid research and a more conservative buy-and-hold strategy that produces good dividends but a slower capital growth. Isn't it better to be in the market in this capacity than not at all?
Would I, for example, be foolish to gear into some blue chip stocks, watch the market to the best of my ability, make a few mistakes along the way but hopefully come out on top in the end; or, if this is the limit of my current abilities, salary sacrifice into super with the knowledge someone else has the expertise to make it work? Although the second option doesn't sound as much fun.
Hello dallee,
The comment below may address some of the points raised in your question:
Realist said:
Wayne,
How would you suggest someone starts to get into trading then?
What should be the steps...
Books?
Seminars? (or save your money and stay away)
Set up a commsec account?
Free evaluations of Ezytrade or whatever it's called?
Buy a few shares magazines and study teh paper, internet etc.
Create a plan and backtest it?
Paper trade for a while?
Then trade with small amounts on what you perceive to be "certain" trades?
Learn from your success and mistakes?
Constantly improve your plan and methodology?
I don't know, I'm just guessing, is that about right?
Now this is actually quite a good question…
The answer to some extent is yes – but each answer really depends on the individual. It is actually quite difficult to learn effective trading methods since there is such a diversity of approaches and there are so many variables, both in materials/approaches/concepts/systems, not to mention the uniqueness of each individual.
Basically the idea is to study as much as you can with an open, but discerning mind. Trading is like obtaining a medical degree to become a neurosurgeon. There are 4 key aspects to it –
• Psychology, (e.g. Douglas’ “Trading in the Zone”)
• Analysis (fundamental/technical/other),
• Strategy (which market, which instrument, hedged or not, diversified etc…), and
• System (when to enter, when to exit, and all the rules for locating and executing market decisions - like trading plans).
This site is full of alternative approaches. Probably the best way for a new trader to start is cautiously look at the styles that seem emotionally the most attractive and comfortable, and start there. Especially start in areas you have some existing knowledge, and incrementally bolt on new concepts.
Sure, paper trading is a good idea initially, then very small positions since trading with real money is nothing like paper trading. In all trading approaches, looking back to examine the past history in markets is worthwhile to help to formulate approaches for the future. As you can see though from the diversity of approaches on this thread, let alone this site, that there are many roads to choose from, each with their virtues and drawbacks.
The key is to develop your own style that you understand and are comfortable with. Trade your own knowledge, and be prepared to accept that mistakes are part of doing business. It is the capacity to learn from these mistakes and grow and improve that separates the amateurs from the professionals.
Regards
Magdoran