The New Sell and Sell Short: How to Take Profits, Cut Losses, and Benefit from Price Declines, Expanded Second Edition

SHORTING FUNDAMENTALS

Fundamentalists explore supply-demand relationships in futures and the financial data for companies whose shares they want to trade. Technicians follow the trails left by buyers and sellers on their charts. A savvy trader can rely on both types of analysis and profit from both.

You cannot become an expert in both fields—you will always be stronger in one than the other. Your guiding principle when using both fundamentals and technicals should be to make sure that their signals do not contradict one another. If one screams to buy while the other yells to sell, the safest course of action is to step aside.

You can apply the same technical tools to stocks and futures, to indexes and forex. Fundamental analysis is the more narrow. A fundamental analyst cannot possibly be an expert on both bonds and crude oil, or on biotech stocks and defense.

There are two main approaches to using fundamental analysis in trading—one broad, the other narrow. First of all, it pays to have a general understanding of the major fundamental trends that affect your market. For example, if you are looking for stocks to buy, you want to know that biotech or nanotechnology have greater potential for new advances than commodity chemicals or household appliances. This basic understanding can help you focus on the more promising areas of the market.

A more focused approach is to take a specific trading idea from fundamental analysis and put it through the filter of technical analysis. ...