Stock trading systems can be long or short term and technically or fundamentally based. Fundamental analysis looks at a company’s financial health, while technical analysis gauges market opinion. All systems are compared to the “buy and hold” approach, which few outperform.
Stock trading systems can be grouped into long term or short term and technically or fundamentally based. Various technical approaches can be applied in the long or short term. Fundamental analysis looks at the financial health of a company, the sector of the economy in which the company is located, and the product line to estimate the future prospects of that company. Technical analysis looks at price activity in the market to try to gauge the market’s opinion of the company. All trading systems are compared to the benchmark “buy and hold” system.
Fundamental systems approach the stock market as a long-term investment where the strengths of companies with good products and good management will outweigh the others, but it may take several years for the market to fully recognize the value. Analysts in these systems often rely on company-by-company analysis, and are interested in the product itself and forecast whether the product has a future.
If the product has a strong future, the analyst will want to interview management. Seeks to assess managerial attitudes and approaches to making and marketing the product line. Financial analysis is very important. Each jurisdiction has different requirements for public corporations, but the markets the analyst is most interested in will have transparency laws that make audited statements of income and expenses available for public corporations.
Short-term stock trading systems are completely technical. Popular approaches include pattern recognition, volatility expansion, either as measured by range expansion or the Volatility Index (VIX), call option ratios, and varied ratios of volume increase, decrease, advance of stocks, stock declines and daily reports of new highs. Trend lines and Japanese candlesticks are often incorporated into short-term approaches. Cycle analysis appears in the long and short term market timing work.
Long-term stock trading systems that are technical in nature include econometric models, interest rate models, models based solely on price, and models based on the internals of the stock market. All of these models focus on timing the overall rise and fall of the market. Unlike fundamentalists who argue that market timing is impossible, market technicians point to studies that they say show market timing is quite profitable.
Long-term technical analysis uses many of the same techniques used in short-term analysis, but uses daily or weekly chart bars instead of five-minute bars. Market insiders, including rising volume, falling volume, new highs, advancing problems, and decreasing problems are applied more frequently in long-term securities trading systems than in long-term securities trading systems. systems in the short term.
The standard against which all stock trading systems are compared is “buy and hold”. This refers to choosing a trading index and calculating the percentage of gain or loss that occurs during a holding period. All other stock trading systems compare to that result, and few perform better, especially net of management fees.
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