Fundamentals-Technicals-Money Flow Triad
Combine value, market psychology, and flows before making a trade
- Difficulty
- Advanced
- Time to result
- ~ongoing to results
- Steps
- 6
- Confidence
- 99%
The Fundamentals-Technicals-Money Flow Triad treats investment analysis as three complementary layers. Fundamentals estimate intrinsic value and eventual economic outcomes but can remain disconnected from price for long periods. Technicals expose psychologically important levels and momentum, helping determine how market participants are behaving. Money flow—observed through mutual-fund flows, ETF activity, creation units, institutional demand, or broad liquidity—explains the strongest short-term pressure on price. The investor assigns each lens to its proper horizon, identifies agreement or conflict, and sizes the position accordingly. A fundamentally attractive asset with negative technicals and persistent outflows may deserve monitoring rather than immediate purchase. The framework's output is a thesis that says not only what should be valuable, but why demand may move price and when entry is justified.
Origin
Extracted from Masters in Business as Jeffrey Sherman summarized the three analytical disciplines he believes investors must marry together.
Core principles
- 01Fundamentals anchor long-term value
- 02Technicals reveal behavior and actionable levels
- 03Money flow dominates short-term price movement
- 04No single lens explains every time horizon
- 05Market participants are people subject to incentives and career risk
How to run it
- 1
Build the fundamental case
Estimate value, earnings power, creditworthiness, and the economic conditions under which the asset should succeed.
Pro tip State the expected time horizon for fundamentals to assert themselves.
Watch out Correct fundamentals can remain out of favor longer than expected.
- 2
Map technical behavior
Identify trend, momentum, support, resistance, and other levels that reflect participant psychology.
Pro tip Use technicals to improve entry and exit decisions rather than replace the thesis.
Watch out A chart pattern without economic context can be fragile.
- 3
Track money flow
Monitor mutual-fund flows, ETF flows and creation units, institutional requests, and broader monetary liquidity.
Pro tip Distinguish persistent allocation flows from one-day trading noise.
Watch out Price can move sharply before flow data is fully reported.
- 4
Align each signal with its horizon
Treat fundamentals as a longer-term anchor, technicals as behavioral context, and money flow as the most powerful near-term force.
Pro tip Write separate tactical and strategic conclusions.
Watch out Do not expect one signal to answer a question outside its natural horizon.
- 5
Reconcile and size
Increase conviction when all three lenses agree and reduce size or wait when they conflict.
Pro tip Define what new evidence would resolve the conflict.
Watch out Signal agreement raises confidence but never eliminates risk.
- 6
Review continuously
Update fundamentals, technical levels, and flows as conditions change, then reassess the trade rather than defending the original view.
Pro tip Keep a decision log showing which lens changed first.
Watch out Do not reinterpret every adverse move as temporary noise.
In the wild
A sector appears inexpensive on normalized earnings, but its price remains below major support while ETFs experience persistent redemptions. The investor preserves the fundamental thesis but delays a full allocation until momentum stabilizes and outflows slow.
→ The investor avoids treating cheapness as an immediate timing signal.
A bond sector's spreads remain attractive, prices establish a rising trend, and institutional RFP demand begins increasing. With fundamentals, technicals, and money flow aligned, the manager increases the position while maintaining predefined risk limits.
→ Position sizing reflects agreement across valuation, behavior, and demand.
Common mistakes
Using fundamentals as a timer
Fundamentals can identify eventual value without indicating when buyers will arrive or price will turn.
Ignoring forced behavior
Fund, ETF, and institutional flows can dominate prices when participants must buy or sell regardless of valuation.
Treating momentum as permanent
Money flow is especially powerful over short horizons but can reverse, so it should not become an eternal thesis.
Is it for you?
Best for
Active investors and portfolio managers making decisions across both tactical and strategic horizons.
Not ideal for
It is unnecessary for purely passive investors who do not make timing, security-selection, or allocation decisions.
From the transcript
“Fundamentals work. They just can be they can they can be off for a while and ultimately fundamentals come home to roost.”
“Technicals teach you how to trade technicals. There's levels like that. They work relatively well because of the psychology.”
“But the one thing you can never ever ever ignore is money flow. Money flow is the most powerful thing.”
From the episode
Jeffrey Sherman on a Mathematician's Journey Into Finance
Jeffrey Sherman