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Fundamental Folly: Bad Trading Methods

Trend following trading doesn’t care what the CEO of a company is saying on CNBC or whether mutual fund managers are going to jail. The only data that matters is the price.

Let’s assume oil is trading at $30 a barrel. You learn OPEC will cut the oil supply sharply. What do you do now if your goal is to make money? From a fundamental perspective you probably figure that the news of supply decreasing will boost price. You probably buy oil assuming it will go up. Here is where fundamental trading gets into trouble. What if the supply cut doesn’t guarantee that oil will go higher? It might go up or down. Who knows? The problem with fundamental trading is that you have no plan after you buy. You have no system to tell you how much to buy, when to buy, when to sell, and what to do if, instead of the price of oil going up, the price tanks. These are all questions the fundamental trader trips over with no real answers.

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