Trading in the Zone

Fundamental vs. Technical Analysis

As recently as the late 1970s, fundamental analysis was by far the dominant orthodoxy among professional traders. Fundamental analysis is about creating mathematical models that incorporate all the variables that might affect the supply-demand equation of any particular stock, commodity or financial instrument.

Technical analysis, which has always existed in one form or another, has come to dominate the thinking of professional traders for a good reason: Technical analysts make more money. Technical analysis is all about patterns and the ways traders interact with the market. Certain behavioral patterns are observable, quantifiable and predictable; therefore, they can be profitably exploited.

Mental Analysis

Within the framework of technical analysis is the realm of personal analysis. After all, if technical analysis were the ultimate solution, you’d expect to see everyone who uses it getting rich, but in fact the opposite is more nearly true. Traders, in general, lose. That’s a fact of the market. For every dollar made, a dollar is lost somewhere else. Every buyer is buying from a seller. When one trader...