One fault that many traders possess is the fact that they rely far too heavily on technical indicators to make their trading decisions. This can be an easy mistake to make, especially because you can still make consistent money the whole time you are doing this. If you look at your profit number, it could be easy to miss the fact that you were making a mistake at all. To put it another way, you can rely on technical indicators your whole trading career and be profitable. However, if you do this, you are not being as profitable as you could be, and this is why it’s a mistake to do so.
Let’s illustrate why technical indicators are not enough through an example. The Walt Disney Company (DIS) dropped 3 percent in price on a limited trading day on the Friday after Thanksgiving. This came on the heels of the fact that ESPN, the cable sports channel owned by Disney, has lost millions of subscribers over the last couple years. It points to a larger trend that is going on in the television and entertainment industry as streaming video services like Netflix, Amazon, and Hulu are taking customers away from cable TV. Some companies (such as Amazon and Netflix themselves) are positioning themselves to take advantage of this. Others are in a precarious situation where they are losing customers quickly. Disney, despite having a digital branch, is on the immediate losing end of things because of their interests in their TV stations. It shouldn’t last for long.
A trader paying attention to the fundamental and sentimental analysis immediately following these emerging facts would have been safer than a trader trying to go long on Disney. Disney had just released their earnings report, and they had missed on analyst predictions. The kneejerk reaction was to pull money out of Disney, and that’s exactly what happened. It’s impossible to tell the future with 100 percent accuracy, of course, but this is a dip that’s not likely to last forever. Disney has revamped their movie production, has improved their core management, and has merged with the hyper-successful animation studio Pixar over the last several years. These have all led to better profits for the company, and as such, it’s still likely that Disney will do well far into the future. The new Star Wars movies are about to be released, too, which is likely to boost profits immensely. Short term binary options traders that have focused just on the technical indicators might have seen that Disney has been above both the 50 day and the 200 day exponential moving average lately, and they might even know that there are some good movies coming soon, but they could have easily missed the fact that an earnings report missed what it was supposed to. You need to be well rounded if you want to be as successful as possible.
It is always smart to look at fundamentals so that you can gain a long term perspective, too. Looking at Disney’s business model, they are in a great long term position. This price drop is perhaps a good thing if you look at it in this light. It creates a better long term opportunity for those that want to see gains going into the future. This is another thing that traders often overlook. Short term trading is one piece of a big puzzle. Having long term investments is a way to increase the diversity of your open positions and create an extra layer of safety. When a strong company has a sudden, yet unfounded, drop in price, such as how traders sentimentally responded to Disney’s poor data last week, it opens up the door for investors to put their money into the company as a bigger window of opportunity has just come up.