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Chapter 1. Trend Following > Fundamental v. Technical: What Kind of Trader Are ...

Fundamental v. Technical: What Kind of Trader Are You?

There are two basic theories of trading. The first theory is fundamental analysis, the study of external factors that affect the supply and demand of a particular market. Fundamental analysis pays attention to factors like weather, government policies, domestic and foreign political and economic events, price-earnings ratios, and balance sheets. By monitoring supply and demand factors, or “fundamentals” for a particular market, it is supposedly possible to predict a change in market conditions before that change has been reflected in the price of the market.

Whenever we get a period of poor performance, most investors conclude something must be fixed. They ask if the markets have changed. But trend-following presupposes change.

John W. Henry[7]


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