Is Fundamental Trading Better Than the Intuitive Trader? 

 

Traders tend to fall into one of two main camps, the fundamental facts and figures crew and the intuitive one. Obviously within that there are many shades of grey and there is no one correct way to trade yourself to success.

What you need to do is work out what your preference is and then trade in a way that matches your personality as then you are not constantly fighting yourself but working with your strengths. What does this mean for the trader who is driven by facts and figures?

In this case, they need to define their rules and the absolute numbers that will lead them to make their decision as to what to trade, when and at what volume. Their lives are driven by reviewing the data, running statistical analysis, reading reports, and backtesting. If you recognize this in yourself, then the best thing you can do is establish a routine and style that works with it as that way you are putting yourself in the best position to make a profit.

An example of how this is put into practice is Ben, a trader who trades his own hedge fund. His entire focus is the facts and figures of a stock and as a consequence he is extremely methodical. He says that science and mathematics are his interest and this has led him to trading in a style that operates on statistical analysis and backtesting.

Ben admits that most of his day, every day is spent backtesting strategies and indicators which he uses to identify whether the historical performance has any profitable signals. The majority come to nothing but every so often he hits a treasure chest of opportunities when an indicator works. But is this approach the best option? What are the pitfalls of being so linear and focusing on such a methodical and quantitative approach?

Ben identifies that for himself, one of the major issue is that he cannot multi-task and therefore could potentially be missing opportunities while remaining so focused. He also then finds it hard to close out a losing trade as he keeps seeking numbers that will tell him a different story or indicate that the stock is going to turn around.

In his book “Investor Therapy” Dr. Richard Geist looked at data-driven traders and identified their standard issues and blocks to trading. Whilst Ben is a successful trader who uses his strengths to his advantage, many are unable to and effectively prevent their own success.

An example would be that whilst they will spot small details that the more intuitive traders miss, they tend to get so caught up in the details that they can’t see the wood for the trees. Details are great but may actually be completely irrelevant for the purposes of initiating a trade but retaining the big picture is essential for noting such things as new product announcements, competitor details and industry results.

So everyone has their own style and strengths but like everything in life there needs to be an acknowledgement that sometimes a strength can turn into a weakness. Being data driven works for Ben and could work for you to lead you to a treasure test of opportunity.

However, the risk is getting so caught up in the details that you miss the bigger picture and an even great opportunity. Stay true to yourself first and working within your comfort zone will enable you to focus better and be more inclined to put in all the required time and effort which will pay off in the end.

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