Technical, Fundamental, Or Quantitative Trader – What Style Suits You?
Two traders can get the same strategy. One can make a killing while the other loses everything.
How? Because becoming profitable requires an edge and a trader who can execute the approach objectively. So start with the question – “How can I make sure I follow the strategy I find?”
The easy answer is your approach to the market must suit your personality! This means that you shouldn’t be trading in a way that you hate or a way that does not naturally make sense to you.
Otherwise, you will be fighting an uphill battle trying to force something that does not work for YOU. You must understand there IS a profitable way for you to trade, but just because somebody else makes money with a certain approach does not make it right for YOU.
There are 3 main techniques that traders use to study the market:
- Technical analysis.
- Fundamental analysis.
- Quantitative analysis.
We will get into what these are soon. I am also going to list the personality traits that are suited to each method. Based on this, you can determine the best technique, or combination of techniques, for YOU.
Technical analysis suits you if
- You are a visual learner.
- You operate better with a structure and set of rules.
- You require a certain amount of objectivity.
- You want to be able to execute an approach on any timeframe.
Technical analysis is not for you if
- You don’t want to spend time or don’t have time to analyze the charts. Drawing in levels, trendlines, swing points, etc. can be time-consuming.
- You hate operating within a confined structure because you cannot express your opinion or knowledge.
- You cannot separate your emotions from the information the market provides. For example, if price breaks through a support level you used to buy and you leave the trade open in hope, TA is not for you.
Fundamental analysis suits you if
- You prefer understanding the underlying reasons why something is happening in the market.
- You enjoy reading and studying.
- You have an understanding or would like to expand your knowledge of economics.
- You want to always be in control of the final decision when trading.
Fundamental analysis is not for you if
- You cannot control your emotions and judgments.
- You want to be a scalper or swing trader because fundamentals take a while to unfold.
- You are not passionate about economics and finance because fundamental analysis requires hard work and understanding to be profitable.
Involves analyzing the market using mathematical and statistical models.
Example – A noticeable drop in trading volume after a rally could lead to a reversal. A quantitative strategy would consider the price movement during the rally, the timeframe, and the decrease in volume. If specific values are met, then a trade is triggered.
Quantitative analysis suits you if
- You enjoy working with computers and math.
- You already are or would like to become a programmer.
- You want to be a scalper or high-frequency trader. Algorithms can execute trades way faster than humans.
- You want the highest level of objectivity when trading. Everything in QA is based on mathematics and stats, so there is no room for emotional errors.
Quantitative analysis is not for you if
- You are terrible with technology because computers do the majority of the heavy lifting.
- You are not familiar with programming or have no interest in learning it.
- You are bad at math.
- You want to express your opinions in the market.
- You want to make the final decision. Algorithms execute quantitative strategies.
Which of the above explanations describes you best? If you don’t have an answer, go back and read over each style again.
Now you have your starting point, reverse engineer your strategy around what works for your personality and circumstances.
If you have been struggling to make a profit from trading, you have probably neglected the question in the title of this article. I hope this helped to bridge the gap between the TRADER and the TRADING. And if it did, please share with someone you think needs to hear this.
Onto the strategy we go…
Trading Styles FAQ
Involves analyzing visual patterns on a chart and making trades based on this.
Involves studying a region’s economic and financial performance and making trade decisions using this.
Involves analyzing the market using mathematical and statistical models and trading using this data.