Are You A Balanced Trader?

| March 1, 2010 | 0 Comments

I stood on top of a little grassy hill.  The sun was shining brightly.  A slight breeze and a cold beer in my hand gave a bit of chill.  Looking through my sunglasses, I watched a huge crowd surround the 7th hole tee box.

Up walked a group of three professional golfers.  They looked over the course and referred to their notebooks.

After a few minutes of surveying the terrain, the first golfer set up.  His swing was smooth and fluid.  The thwack of the club hitting the golf ball was unmistakable.  The pearly white golf ball landed right on the green.  It was a beautiful swing and a beautiful shot…

Last weekend was the Phoenix Open.  The weather was perfect… at least for the first few days.  The grounds were in great shape.

And the fans were out in force.

For those of you who don’t regularly follow golf, the PGA Scottsdale event is the largest spectator golf event in the world.  More than 500,000 people attend the event every year.

And the course is right up the road from my office.

I love seeing the pros play in person.  It’s much more exciting than watching them on TV.  While I went to the tournament to get away from work, what I saw reminded me a lot about trading the stock market.

Golf is an amazingly mental game… as is trading the market.  You need to have incredible control of your mind and emotions.  No one will dispute that.

But I also realized something else.

Every golfer on the course was very well balanced.  The next time you watch a pro golfer play competitively, watch their swing closely.  You’ll notice they don’t try to kill the ball… they also don’t lightly hack at the thing.  Their swing is a study in balance…

Their stance is balanced.  They have a balanced backswing.  Their swing is balanced… as is their follow-through.  And the pros are balanced as they watch the golf ball rocket down the fairway.

Everyone knows how important balance is in life.  Ask any life coach, therapist, or advisor and they’ll all agree… balance in life is a key to happiness.

You’re encouraged to eat a balanced diet.  You need a balanced work/life arrangement.  And everyone should have a balanced budget (unless you’re the government).

Let me add one more area to have balance in… your trading.

What do I mean by that?

Let’s take a look at the research process many investors follow.  When an average investor looks for a trade, they often focus on fundamentals. They’ll look at revenue growth and product cycles.  They’ll analyze the competition and study financial statements.  They’ll know by heart P/E ratios, dividend yields, gross margins, and earnings.

Once they know the company inside and out, they then place a trade. Sometimes it works out… and sometimes it doesn’t.

Unfortunately, their research was unbalanced.

I believe a thorough analysis of the fundamentals is important… But like a golfer’s back-swing, it’s only one part of a bigger picture.

You can study a company and their numbers to your heart’s content.

But you’ll miss out on what the market’s telling you.  You’ll miss out on the bigger picture.  The direction a market takes overall is very important to the results of each and every trade you make.

You can pick the best company in the world… but if you buy it at the wrong time, you’ll lose money every time.  Just think back to the market peak in 2007… regardless of what you bought, you were bound to lose money.

That’s why successful traders use a balanced approach to market research.

The easiest way to balance your approach to market research is by using both fundamental and technical analysis.

It sounds complicated, but it really isn’t.  Build upon the fundamental research you already do every day.  In addition to looking at the company, check out the chart action.

Learn how trends start.  Understand what the charts look like when the market moves.  Study moving averages, crossovers, trend lines, and support and resistance.

Expand your research from just fundamentals by including technicals.  You’ll become a more balanced trader.

Before long, you’ll start seeing situations where one type of analysis looks strong… and another looks weak.  The fundamentals may be perfect, but the technicals are ugly.  By not investing, you’ll save yourself thousands of dollars… and lots of heartache.

Remember, in life balance is important.  Combine fundamental research and technical analysis to get a better picture of your trades… and before long, I guarantee you’ll be a better trader… Unfortunately, I can’t say the same for your golf swing!

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Category: Technical Analysis

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The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

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