TRADING STRATEGIES
TRADING & INVESTING TERMS
Fundamental Trading Strategies:
In a fundamental trading strategy, a Trader or Investor’s key focus is on the events that are occurring in the company he/she would be interested to invest in. Based on the events, investors predict the trend and make the buying and selling decision. This technique is usually used by long-term Investors. Traders who use fundamental strategy are more focused on the quantitative data and metrics of the company such as cash flow statements, balance sheets, return on equity, revenues, price to earning ratio (PE Ratio), price to book ratio etc.
Technical Trading Strategies:
In technical trading strategies, Traders try to predict the movement of the price using volume indicators, trend analysis, historical data, and statistical analysis. Traders would assess the difference between the real value of the asset and the market value by using various techniques such as behavioral economics, reading charts. Traders would predict what would happen based on the past information. There are two approaches to technical analysis – bottom-up and top-down approach. In the bottom-up approach, a trader focuses on individual stocks and securities. However, in the top-down approach, a trader first focuses on the overall economy, then the industry they want to invest in, and then the company if they are investing in stocks.
Difference between Fundamental and Technical Trading Strategies:
- Fundamental trading strategy contemplates the value of the organization in which the investor is investing. The technical strategy considers the price action that provides information about the supply and demand dynamics. Trading patterns usually repeat as traders react in the same way over and over again.
- The fundamental strategy focuses on the position of the company in the market and its competitors. In the fundamental analysis, traders are more focused on the financial statements and balance sheet of the company. However, the technical strategy consists of price charts, trends, and price patterns.
- Fundamental analysis is used for long-term investments however, technical analysis is used for short-term trading.
- The fundamental strategy focuses on both past and present data however, the technical analysis only considers past data.
What is Pinnacle Trading Strategy (Pinnacle Method)?
- The Pinnacle Method is a rule-based market timing strategy that quantifies real Supply and Demand in any and all markets and for any financial purpose. It then identifies significant Supply and Demand imbalances which is where price is most likely to turn. Buying and selling as close to the turn in price as possible offers the lowest risk, highest reward, and highest probability entry point into a trade of investment. The strategy was developed in the 1990’s by Market Specialists (who currently are part of Pinnacle Institute) on the trading floor of the Chicago Mercantile Exchange.
