Mixing Fundamentals and Technical Trading

Discussions about the testing and simulation of mechanical trading systems using historical data and other methods. Trading Blox Customers should post Trading Blox specific questions in the Customer Support forum.
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bagherra
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Mixing Fundamentals and Technical Trading

Post by bagherra » Mon Apr 28, 2003 11:01 pm

Before the split at g.c., I seem to remember econometrics being a topic of interest on their website. It led me to wonder if economic markers could help a trend trader decide when to bet bigger.

To put this in context, I have long been a fan of Marty Zweig's simple system for staying ahead of the stock market in 'Winning on Wall Street', as well as Stephen Leeb's more complicated system explained in 'Market Timing for the Nineties'. While neither system was perfect, both beat buy and hold by a mile.

Does anyone have comments on the value of fundamentals to technical trend traders in stocks or futures?

dctag
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Post by dctag » Tue Apr 29, 2003 12:42 am

Bagherra I dont know if this belongs on this thread (MODERATOR: It didn't so it was split to this new topic) but I will give you my answer. I love fundamentals but at the same time I realize that price is the ultimate factor. The economy, a stock, or a commodity might have the best or the worst fundamentals on earth but if the price is going the opposite direction then it doesnt matter. Of course many mechanical ideas work with several fundamental indicators. What I mean is they can be backtested. If you have a fairly robust fundamental indicator then you might be able to incorporate it into your trading system. I personally dont trade mechanically myself but I am very systematic. I trade stocks and have found that most of the best trends also tend to have good fundamentals. So I create my lists based off of fundamentals and then trade them technically on an intermediate term basis. I research fundies and enter/exit/position size technically.

Either way it comes down to doing your work and being consistent. The best mechanical and the best discretionary traders while using different methods do the same thing every day. If you are a mechanical trend follower you need to believe in and follow your system and if you are a pure fundamental value investor you have to do the same. You find something that works and stick to it.

That was the long answer. The short one is if it fits your trading style personality and you find it adds to your system then do it. If not then dont.

Happy Trading
Last edited by dctag on Sat Jan 21, 2012 11:01 pm, edited 1 time in total.

Forum Mgmnt
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Post by Forum Mgmnt » Mon May 05, 2003 2:24 am

I've always believed that fundamentals work. I successful traders who trade based on fundamentals. This is much more true in the stock market than in futures.

It's pretty hard to know enough to fundamentally price crude oil or wheat, today's poor harvest in the midwest U.S. might be offest by a bumper crop in the Ukraine. One individual can probably trade fundamentals in one or two markets tops. Only the very best, perhaps top two or three people in the world, would make money this way. Perhaps more in the currencies.

With stocks, I know several people who are very good at trading using fundamentals. One guy I have lunch with fairly regularly, manages over $1 billion and has a good track record. His approach is mainly fundamentals with a technical timing overlay.

At g.c., we recently initiated a partnership with a researcher who has a simulation/testing approach to fundamentals and has actively managed money using those approaches. I can't go into specifics now, but there will be more information on the g.c. site in the future.

This trader/researcher has studied market effects based on fundamental data and has demonstrated the significant repeatable value of certain fundamental events and conditions. He uses a scientific method to determine the value of particular pieces of fundamental data using simulations with a strong statistical basis. He also has the best historical fundamentals database we have seen.

We will be combining these ideas with our stock trading as a way of narrowing down our trading portfolios. I have no doubt that we can improve our risk-adjusted returns using this data and adding technical entries and exits with money management.

Interestingly, the best fundamental indicators seem to be warning signs for potential problems that flag candidates for shorting. For example, one of the indicators showed very dangerous indications for Enron and Dynegy ahead of the drop in their stock price.

We'll see how it turns out when we get the databases hooked up and the combined testing online.

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