John Jeffery |
With a large number of traders beginning to regain an edge in their trading through integrated analysis, it is sometimes worth revisiting the concept and asking the simple question: what is integrated analysis? An integrated approach means fusing all the beneficial elements of fundamental studies, technical analysis and consensus figures into one immensely powerful blend of comprehensive and thorough analysis. This has not always been an accessible area of analysis for traders. It is only with recent innovations in technology, allowing the rapid assessment of large volumes of data, that integrated analysis has become a viable tool for retail traders. Qualifying stocks that meet specific and tested criteria from HUBB’s precomputed lists can be collated and cross referenced to produce advanced shortlists for further analysis. But what does integrated analysis mean, and how does it benefit the trader?
Conceptually, a trader is faced with an intellectual challenge every time they prepare to open (or close) a position. That challenge can be viewed as a problem which requires some form of solution. With integrated analysis, the philosophy for solution is to consider as many perspectives (or angles) as possible, before committing money to the market. In essence, the trader is aiming to only choose trades which meet multiple criteria. The diagram below illustrates this point.
click to enlarge
Simply choosing one particular style of analysis ignores the benefits that can be extracted from another. If you consider the upper most circle in the diagram (fundamental analysis) all the stocks which make it into this selection could have ideal growth characteristics. What fundamental analysis does not consider, however, is the element of timing. Are these stocks about to break out or are they forming topping patterns, for example? Alternatively, technical analysis may not show the underlying reasons for a stock’s price movement as it approaches valuation parity with other stocks in the sector. This could potentially throw false signals at different stages of the trend. Consensus figures are another superb discriminator when it comes to timing markets, yet they do not take into account yields or trend techniques. It is the areas of overlap, or intersections, between the styles where the best trades and investments are found. Obviously, a stock which passes the assessment criteria for technical, fundamental and consensus analysis (including information from the equity derivative markets) will be at the overlap of all three circles and that’s where the trader should target. This is not to say that the analyst’s job is done! Stocks which match the multiple criteria are, by definition, a higher probability selection; however, the investigative process must be continued. A review of the charts, a review of the fundamentals and the implementation of a trading plan, including entry, exit and risk mitigation techniques needs to be undertaken. Integrated Analysis and Integrated Investor are tools to help, not replace the trader.
Stay Sharp,
John Jeffery
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