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Looking Beyond Fundamentals in Today’s Market

In today’s volatile market environment, the need for more active investing and hands-on approach is essential for any investor looking to protect their stock portfolio. No one knows this better

In today’s volatile market environment, the need for more active investing and hands-on approach is essential for any investor looking to protect their stock portfolio. No one knows this better than Toni Turner, the best-selling author of A Beginner’s Guide to Day Trading Online, A Beginner’s Guide to Short Term Trading, and Short-Term Trading in the New Stock Market, and the President of TrendStar Trading Group, Inc.

Toni talks about her interesting path from novice investor to trading expert, and shares her advice for anyone hoping to make that same transition.

EQ: Can you start off by talking about your background and experience in technical analysis and trading education?

Turner: I first became interested in the stock market at the very beginning of 1991, and once I got into it, I absolutely fell in love with it. I became enamored with the way it worked. I started studying it everyday. I didn’t start reading charts yet, but like a good investor, I studied fundamentals. And back then I had a stockbroker like most of us did, and I think I must’ve talked to him like five times a day.

Around the mid-‘90s, I noticed one stock in particular, and it was Lucent Technologies. It became the darling of the stock market and I suggested to my stockbroker one day that we should buy 1,000 shares of Lucent in the morning and sell it in the afternoon. It just made sense to me because it seemed to go up about a point a day, which was a lot back then. From there, I dove head-first into trading because I thought it was like investing. Well, it got real ugly because I found out the hard way that there is a huge difference between trading and investing.

I came to a point where I either had to dive in really hard or stop trading all together. Obviously, I chose to lock down and focus. I moved to New York where I studied technical analysis and it took me about three years but I climbed out of my hole one trade at a time. While I certainly don’t recommend this approach, it did teach me a lot about technical analysis and trading the markets.

EQ: Obviously you’ve been very successful, authoring multiple books and developing very popular educational offerings that cover a wide range and comprehensive understanding of trading strategies and styles. Do you personally have a preferred style or strategy of trading the markets?

Turner: I trade on all time frames. I trade intraday–though not as much as I used to when I did it for a living–but now I mostly do more swing and active trading. With my students, we focus more on swing or position (trend) trades. If the market environment supports it, it’s nice to hold positions for days to weeks; it’s easier, it doesn’t cost as much in commissions, time and emotions, and if the company is kind enough to continue on an uptrend, I’m certainly willing to hold it.

EQ: When trying to identify trading opportunities, what are some of the criteria on your checklist that you watch for?

Turner: Every Tuesday, I have Toni’s Market Club and I think we are among the few traders who actually check out a company’s fundamentals before entering a position, even on a swing trade. If I find a set-up that fits our criteria on a daily chart, I then flip to a weekly chart. If I still like what I see, I will actually spend about 15 to 30 minutes studying a company’s fundamentals, valuations, earnings growth, and so forth.. I do this because our chances of a profitable trade are greater, if the company’s fundamentals are solid and institutional money agrees So, if that all checks out, then I go back and set my entry, protective stops and profit target.

I want an edge when I go into a trade. If I make fewer trades, but they are on average higher gainers, I’m good with that! Of course, , we have a technical set-up that we look for, but we make sure it’s in a sector that’s thriving, and that the market climate agrees.

EQ: So for investors thinking about getting more active in the market, what are some important differences that they should understand between being a longer-term investor versus being a shorter-term trader?

Turner: As we know, most long-term investors use a “bottom-up” approach. They focus on a single stock or a group of stocks, and they generally disregard the market environment. Traders, however, use a “top down” approach. They focus on the market environment and immediate price action. I highly recommend longer-term investors– whether they want to get into trading or just use it on their long-term investments– to learn simple chart-reading techniques, so that they can use them to identify trends.

It is important to understand how a company will interact with the trend of the overall market and to evaluate how its price changes, when the major indices change. This gives you a better idea of how this whole market works in concert. It’s not like the old days when you can just buy General Electric (GE) and assume it’s going to put your kids through college. I suspect, generally speaking, those days are over.

Learning how the stock market works can be done in bite-by-bite, and taken in small steps. But for both short-term traders and long-term investors, but it’s important to understand how stocks and different sectors respond to the market environment. That’s key to beginning a deeper, and highly successful, exploration of the market.

As the markets put the debt ceiling debacle in the rearview mirror, more than a few issues remain open.