read can vary among analysts. In this area, I see technical analysis and fundamental analysis standing side by side. However, the main benefit of technical analysis over fundamental analysis is that the charts provide a very specific right or wrong point where protective stops can be placed and monetary losses can be limited. As you'll see shortly, the limitation of losses is paramount to the success of a trader and an investor, both financially and psychologically. People may be forewarned of situations such as the collapses of Bear Sterns and Enron by the deteriorating price action. Knowing when one is wrong using fundamentals, though, is a very grey area. Depending on the style of analysis employed, the lower a share price goes below its valuation may mean the better value the stock becomes. On the other hand, it may mean the valuation was incorrect to begin with. It's a hard ask for any analyst to amend his or her analysis and valuation in the face of a plunging share price – they are usually only forced do so after the fact and after the monetary damage is done. At the time of writing, I've been trading and investing since 1985, a total of 26 years, or just over half my lifetime. I have personally traded many global instruments; from stocks to bonds, from commodities to foreign exchange and ETFs. In the early 1990s, I worked in the pits of the Sydney Futures Exchange. Later, in the mid-1990s, I worked in dealing rooms in London and Singapore before starting a hedge fund in 1998. In 2001, with advancing regulatory conditions, I decided to move to another investment bank where I became an associate director and managed accounts using systematic trading approaches built around technical analysis. It was in the day-to-day dealing with retail clients that I realised the extreme psychological factors that play havoc with their decisions. The need to almost always be correct, the inability to realise when analysis is wrong and then to take the appropriate action to defend an account, the fear of losing money, the over-reliance on unproven theories, or any 5
The Successful Stock Trader
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