Friday, December 31, 2010

The TRADER TRIANGLE of 2011: FA • TA • MA $STUDY $ELEVEN


FA = FUNDAMENTAL ANALYSIS

1) The ECONOMY
2) The INDUSTRY
3) The COMPANY

Trading and investing based on the "FUNDIES" of a business or market ... earnings, financial statements, balance sheets, competitive advantages, new products, management, forward guidance, inventories, interest rates and state of the economy.  You'll hear words like "VALUE" and "GROWTH" used to describe the opportunity.  Stocks (companies) are judged by their dividend, growth rate, cash flow, and P/E ratio in the fundamental asylum.  With FA you can use broad generalizations and big thinking ... this is where you develop your THEME!

TA = TECHNICAL ANALYSIS

1) CHART
2) PRICE
3) VOLUME

Technical Analysis uses past market data to predict future price movement.  Here we look for PATTERNS and TRENDS ... inspired CHART-WORK.  The tools of the trade are moving averages, technical indicators, lines of support and resistance, channels, familiar patters, i.e., cup-and-handle, double-top, double-bottom, flags, coils, pennants, and candle analysis.  Trading rules are outlined by Stochastics, MACD, RSI, Bollinger bands, divergences, retracements, breakouts and breakdowns.  What is an Elliot Wave? and Who is Fibonacci? ... stocks go up, down and sideways ... TA is the key to knowing which way and when.  


MA = MENTAL ANALYSIS

1) PREPARATION
2) MINDSET
3) ACTION

The MENTAL side of this game can be the toughest.  Taking a loss feels like shit.  "The day of THE TRADE you may feel a slight sting.  That's PRIDE fuckin' with you. FUCK PRIDE.  Pride only hurts, it never helps." ~ Mar-SELL-us Wallace.  The FACT is, "we" must take losses, and many of them.  LEARN to accept and embrace THE LOSER.  Selling is easy, you click "sell" and you're out of the position.  Don't let your WILL to WIN keep you from managing risk.  All you have is your P&L.  Your % gains tell the story, not your EGO.  Confidence is KEY, arrogance is a LOCK.  Your PLAN should control your emotions.  What are your profit and loss targets?  When will you enter or exit the trade?  Market or limit order?  Is this your best use of capital?  Are there other opportunities that make more sense given the situation?  How much of your portfolio are you willing to risk on this idea?  Is the fundamental side of the trade sound?  How about the technical side?  Why are you buying THIS stock?!?! ... When will you know if the trade is a success or failure?  ... before you buy or sell ... DEFINE YOUR EDGE! 


p.s.  Welcome to TWENTY ELEVEN ... the year of FATAMA! 

1 comment:

beactive said...

I like the three acronyms which is what I practice with my trading. Fighting the mental part is the hardest.

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