This is a guest post from the Intelligent Speculator.
Generally traders are put into 2 general categories; fundamental or technical traders. Today’s post presents a third type which is a mix of the two but mainly based on intuition.
Now keep in mind that these are very broad categories; you can trade using fundamentals or technical charts in an infinite number of ways really. But let’s go ahead and define the 3 main trading categories:
These folks have been around for decades and there are many different ways to define them but I would say that in general these are traders that use stock charts to trade. Why? Because these traders rely on factors such as momentum, patterns, moving averages, etc.
Just take a look at this latest post from Blain and you will know that this is pretty much the basis for StockTradingTogo’s recommendations. Their basic premise is that all assets move based on offer and demand more than anything else. They would not even care to look at which stock or commodity they are trading; they only require the trading data to decide if they want to buy or sell.
High frequency trading has been making the news quite a bit in recent months which use mostly technical factors. Are there more buyers than sellers active seeking the stock? Maybe that means the stock has a 55% chance of moving higher. If that’s the case, trade enough volume and you are almost guaranteed profits. There are many different ways to do implement this technique but technical trading is probably the most important right now simply because of the huge volume that it is associated with.
While you would never see a technical trader looking through financial statements, fundamental traders spend their days looking through research. It might be research about the economy, a specific sector or a company. But it could also be SEC filings, financial results, etc. There are many possibilities but the end goal is simple. Look at dozens or even hundreds of companies in order to find those that look the most undervalued.
The king of fundamental investing is Warren Buffet, the CEO of Berkshire Hathaway. Such traders usually will spend entire days trying to figure out why a company’s stock has not increased more. Is it because the company will come out with bad results or is the whole crowd missing something important. Investors are always on the lookout for the next Microsoft.
While this category of investing is maybe not as famous, I would say that many traders fall here. Speaking for myself, I do look at charts a bit, and even more into company fundamentals, but the biggest factor for me remains my general feeling, momentum not only in the individual stock but in the company itself. I will look at numbers and find specific opportunities but I also develop a general feel for many of these companies. This is what Adam Guren, one of those top 3 traders had to say about his investment style:
“Your browser may not support display of this image. “I’m not a technician and I really don’t study charts. That’s not to say I won’t look at them to see where things are. At the same time, I’m not a big fundamental guy based on the nature of how long I hold a position. I mean, I do understand the fundamentals of each stock and what people generally expect, but for the most part I rely heavily on intuition and the feel I have for a stock based on watching it for so long. After watching the same 50-100 names, you start to easily understand how they trade and what moves them. It’s pattern recognition.”
I think that is a fairly accurate description of this category and of what I personally aspire to trade on. Of course, there are many traps involved in such a method, some of which I will discuss in the following weeks…
And how about you, what is your investment style?
About the Author
The Intelligent Speculator blog – to learn about the author, read his recent post describing his approach to investing. His posts are very insightful and cover mostly technology companies. A good way to follow the daily posts and picks by subscribing to the RSS feed.