Tuesday, July 30, 2013

Fundamental reasons to trade

Do I only trade BOTs? No, but it is the only pattern I'm concerned with. Sometimes I trade for fundamental reasons. I never buy an individual stock for fundamental reasons but I do buy ETFs. Fundamental reasons I take into concideration are QE, inflation and government debt. I have a position in DXJ and YCS due to the massive government debt and new debt issuance in Japan.

I also consider the time decay in leveraged ETFs. This together with the fact that emerging markets over time perform bettern than mature markets and that markets in the long term generally trend higher makes we want to have a short position in the inversed and leveraged emerging market ETF EDZ. It is also good that the ETF is broad since global recessions are rare and generally short.

With this said fundamental trades should still be timed by BOT like patterns. Leveraged ETFs displays them regularly. It is best to be patient and look for a good entry. It's a common saying that fundamantals always looks the best at the top and I believe it to at least close to the truth. Fundamental reasons alone is not enough to enter a long position if the chart already looks toppy or vice verca enter a short position.

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