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Browsing in the sports section of the local Barnes & Noble last night I came across a small paperback book with the subtitle The Modern Fundamentals of Golf. Nothing out of the ordinary just the fact that the book was written by Ben Hogan in 1957! Still in print after 50 years and over 10 years since the author’s passing, it discusses the modern fundamentals of golf.
Whether we are talking about golf or trading the fundamentals never really change. Each golfer has a unique swing. Just look at the different swings among three of the top golfers in the world: Tiger Woods, Jim Furyk, and Kenny Perry. Different swings with a consistent outcome. Owe it to the fundamentals.
No different with successful traders. We all trade differently but the outcome is the same: consistently profitable trades over and over again. And what are the fundamentals? Just think about some of the weapons used by successful traders today.
Candlestick Charting: began in the 17th century by Japanese rice traders and found its way into the US with Charles Dow in 1900 and further developed by authors such as Steve Nison today and is considered fundamental to stock traders.
Indicators: several popular indicators such as the MACD and RSI were developed in the 1970s and continue to be widely used today for verifying and spotting trends and momentum.
Fibonacci Numbers: these numbers first appeared in 1202 in a book written by Leonardo Fibonacci and are the foundation of W. D. Gann’s trading technique developed in the middle part of the last century. His followers and the use of Fibonacci numbers cannot be discounted. Many traders may indirectly use the numbers in one way or another without realizing it.
Trends: Charles Dow, who passed away in 1902, put forth the idea of market trends consisting of primary, secondary, and minor trends. There is not a successful trader today who does not at least consider the trend before entering the battlefield.
Moving Averages: the most widely used include the 10, 21, 50, and 200 and help traders find trends and possible support and resistance areas on any number of timeframes.
Support/Resistance: areas where buyers have supported the stock several times in the past or where sellers have found a reason to take profits. Particularly important when used in a sideways (or consolidating) market but can also be used to indicate the potential end or beginning of a trend.
These are just some of the fundamentals used by technical traders today. Every trader puts a different emphasis on their uses but the fact remains: the use of fundamentals is essential to building a strong base. After base building, it is up to you to create the right combination of the fundamentals and add your own rules for entries, exits, money management, etc.
Without a club there is no swing and without a base there is no structure.
“The secret is in the dirt.” Common answer Hogan gave when asked how he played so well.
TRADING IS WAR. PREPARE YOUR WEAPONS.
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