Fundamental news can move the market.
What this means to me:
While price is prime, there are factors from the day to day operation of a business that can change the price.
What this belief gets me into:
I need to have some level of awareness about the underlying business for a stock trade.
Studying fundamental evaluations of a business.
I need to pay attention to earnings announcements (at least their timing).
Looking at the big picture – general economic and business trends.
It could lead me to try to pick stocks with huge potential upcoming moves.
Looking for reasons behind price action.
Listening to mainstream media and following the crowd.
Holding a position until a news event (regardless of price action)
What this belief gets me out of:
Stocks in industries I don’t understand (where dramatic fundamental shifts happen).
It can keep me out of stocks with expected fundamental news events.
Being reliant solely on price.
Honoring my stops (letting a loss grow if price blows through a stop).
Considering the psychological side of trading (mine and the market).
It can keep me from building price based trading systems.
Limitations of this belief:
Looking only at fundamental news can hamper my ability to follow price based stops. It does not capture the psychological side of trading or the market.
Utility of this belief:
Being aware of fundamental news events and trends is useful to choose (or avoid) markets to trade. While markets are engines of psychology, some of the psychology is opinion about the fundamental status of a business.
I need to be aware of fundamental considerations and events, but can not make this the sole criteria for trading. Any price based trading system needs to also account for potential fundamental news events.