Q: How do you approach the market?
A: There are basically two philosophies on how to approach the market: fundamental and technical. With the fundamental approach you look at the supply & demand statistics for any particular market and I believe that fundamentals in the long run, move markets. But the fundamentals are discounted in price at any point in time, my opinion. So if you just analyze fundamentals, your timing is going to be off. In other words, in the long run, fundamentals do determine price, but as Keynes once said, “In the long run we’re all dead.” He also said that “the market can remain irrational longer than you can remain solvent”.
There was another great trader named Richard Dennis who pulled hundreds of millions of dollars out of the market. He once said that, “a known fundamental is a useless fundamental”. He was called a technician, because he approached the market solely using technical analysis, which is my preferred analysis technique for the market that we trade.
In technical analysis, price is the major fundamental. Even George Soros once said something to the effect that ‘the most important fundamental is credit flows’, meaning that the most important fundamental is money. Money is what moves a market. With technical analysis you look at the price action of the market. I use price action to determine the trend but I also have certain technical tools that essentially help me to trade the market.