Technical Analysis Vs. Fundamental Trading
TA dictates that all known data are included in the current price of a commodity, including fundamental data and market sentiment. TA doesn't discount fundamentals, it just assumes that they are already captured in the price. Proponents of TA believe they can use historical price movements, trends, and patterns to assist in predicting future price movements in commodities and improve their market timing in entering and exiting trades. There are hundreds of different TA indicators and even more trading strategies that utilize them. Whether it's moving averages, candlestick charting, oscillators, trading envelopes, volume, or any number of methods, all of these TA indicators are being used by practitioners to try and predict future movements in prices over short, medium, and long-term time frames.
Fundamental trading instead relies on analyzing the supply and demand fundamentals of the market. What is the current and expected future demand for a commodity vs. the current and expected future supply of that commodity? Based on this analysis, traders will either take a long (buy) or short (sell) position in the market and wait to see if their analysis plays out correctly. Fundamental traders may tell you that chart patterns are about as good at predicting future prices as reading tea leaves, and that the only drivers of price are the actual events taking place on the ground.
Neither one of these trading styles guarantees profits. Anyone trying to tell you they have a holy grail trading system that will return you X% profits is simply trying to get your money. There are far too many 'Gurus' online that are quick to show you a 30 second clip of one of their amazing trades trying to sell you a course. If someone had a secret recipe to success do you really think they'd be sharing it?!
More important than actual trading methodology is money management. If you don't have the right approach to trade allocation, stop-losses, targets, and win ratios, you are unlikely to be successful over the long run. The best traders in the world are often directionally wrong more often than they are directionally right, but it is their money management and risk-reward ratios that allow them to make money long-term. When they are wrong they want to be wrong quickly to limit losses, but when they are right they allow those trades to run in order to extend profits. While money management is not the same as hedging, it does follow similar principles of not putting all your eggs in one basket, if one thing doesn't work then you won't lose it all.
