I believe both are possible if you trade setups and have the discipline to only trade setups.
I started playing the market years ago looking more or less at the fundamentals. After losing a lot of money, I decided that there's no way I could figure out the truth or profit from them. Most analysts are wrong even though they make a living on only a few stocks. Even if you're right about a company, the stock may not move in your way for months or even years.
I then experimented with the technical approach. But it didn't work out too well either. A break-out may fail. A head and shoulders break-down may reverse and the toad could even go on to make a new high. A bullish flag might frustrate me for days and then would break out after I finally give up.
Like most traders, I made lots of trades using intuition. Market seems strong but RIMM isn't participating, so I buy hoping the toad would wake up. Sometimes it does wake up; but sometimes it wakes down. I believe this is why most traders make money one day and lose the next.
It all comes down to odds. Fundamentals, technicals, intuition, often their odds are no better than a coin toss. Besides, as normal men or women, we tend to pick the bad trades more often thus further decreasing the odds. Over the years, I've become more and more convinced that setups are the way to go because they have much better odds, some with almost sure outcomes. The reason? Stocks usually move in the same way under the same circumstances.
There're different setups occurring every day in the market, bull or bear, dull or active. As a result, you can consistently get a paycheck from the market, every single day. And the setups unfold in hours or even minutes so you never have to subject your money to risk for long.
One example. Recently, GHM suddenly got killed on no news, dropping from $70 to $62 in about an hour. Longs were puzzled. One guy screamed "classic buying opp" and said he was all-in. What do you think?
Next morning, despite strong bids at $62.30, the toad quickly dropped to $58.02 in almost seconds. There're plenty of time to buy under $59 and some more around $59 half an hour later.
If you understand this setup, you could've bought the spike low and made a dollar or two in minutes. At least you wouldn't do an all-in the day before. There's no technical analysis. No fundamental analysis. No time wasted for your money on a dead stock. No agony over what would happen tomorrow or next week. No risk of getting killed over earnings. Just a setup. Plain and simple. Fast and reliable.
Where will GHM go from here? I don't care. This is the essence of trading setups. You don't guess where a stock or a market would go. Nobody can do this successfully over time. You only enter if a stock is in a setup. Most stocks are not in a setup most of the time. Most traders trade by guessing so they'll never be able to make a living.
Homer: Kids, you tried your best and you failed miserably. The lesson is: never try, just wait for setups.
