Applying Market Structure to Trading Analysis
There are endless ways of thinking about the financial markets; for the sole purpose of this article I would like to focus in on only two, specifically regarding technical (trading) vs fundamental analysis (investing).
Technical Vs. Fundamental Analysis
Investing
Many investors focus on longer term ROI (return on investment) and are not as active in the management of their position(s). By having a more hands-off approach, many of the day to day emotions are alleviated or at least reduced. This is due to the removal of the “noise/volatility” that each instrument produces, even down to a microscopic level. While the type of analysis is based on the individual or entity’s personal approach, commonly there is a good bit of fundamental analysis involved. So instead of looking at technical indicators and/or price action, there may be more economic, financial and quantitative determinations to base the investment decisions on, and measure its intrinsic value.
Trading
In most aspects of “trading”, there is far more technical analysis involved on a more frequent basis. By taking this approach, you are subjecting yourself to more “noise” and technical information that is not as simple as doing mathematical calculations. It may require a more visual concept in conjunction with specific price and time, based on your technical indicators. Being more visual means a different way of thinking; it’s like combining creative thinking with analytical thinking. Interesting combination right!
Why Does This Matter?
Out of the two financial approaches above, trading commonly has a more active approach and along with that comes more decision making. The more decisions one must make, the more opportunities evolve for emotional reactions and potential mistakes.
Simplifying the Decision-Making Process
In Conclusion
I genuinely hope that by watching the video above, it can provide a “way of thinking” that can assist you in simplifying the “volatility” in the financial markets. The goal is to have a “rule based” way to approach trading and reduce the emotional decisions, that must be made, to a minimum.
Comments