Fundamentals Drive, Technicals Time

What moves the markets?

So what actually moves the markets?

Is it fundamentals, or is it the technicals? Or maybe both?

It’s an argument that’s been alive since traders first started drawing charts…

I hear hardcore technicians say

“Everything is reflected in the chart” and then pure fundamentalists dismiss TA as “voodoo”

So, which is it?

Warren Buffet says this:

“I realized that technical analysis didn’t work when I turned the charts upside down and didn’t get a different answer.”

But Marty Schwartz says this:

“I always laugh at people who say, ‘I’ve never met a rich technician.’ I love that! It’s such an arrogant, nonsensical response. I used fundamentals for nine years and got rich as a technician.”

Alright, so they both have different approaches (and net worth)… But who is right?

I think both…

The shorter term your trading, the less impact the fundamentals have, right?

If you’re trading a double-bottom exhaustion candle for a move back to VWAP over a 30-minute time period… that’s not ‘inflation expectations’ or the ‘robust economy’ driving price.

It’s short-term supply switching to demand.

But if we zoom out to a quarter… then the fundamentals, or at least the perception of them is going to have an impact.

So should us active traders ignore fundamentals completely?

Well, Larry Williams says this:

“Fundamentals drive the markets, and technicals time the markets.”

Now that’s a great quote…

It suggests we should approach things like this

  1. Have a good understanding of the fundamental market drivers
  2. Make our trade timing decisions based on technicals and price action
  3. Use the charts to manage risk and set targets

That way we have a heading (the fundamentals) but we navigate the twists and turns using price (the technicals).