Analyzing Markets with Fundamental and Technical Analysis

Analyzing Markets with Fundamental and Technical Analysis

Submitted by adil on Mon, 05/06/2013 - 05:05

You cannot expect to be near any kind of success in the options market if you do not subject your position to an analysis. Making wild guesses in an options market can very easily be translated in to catastrophe. The point would not require emphasis if you have been in the business for some time, but those who think that trading in options is quick money, well, they rather think again.

There are two approaches which a trader can use to identify signals for a possible profitable trade, they are fundamental analysis and technical analysis. The question that often arises is, which approach gives the best results? Are fundamental traders more successful or technical traders? We can see a lot of argument on which approach is better, but ultimately it is the decision of the trader, his own comfort in using either of the approaches or a combination of them.

When following a fundamentals approach, a trader analyzes the core or basic economic performance of an entity/ asset, anticipates an outlook for its demand and supply and decides whether he should go short or long. An investor looks at a company's assets, liabilities, income and expenses to decide whether he should invest in its stock or not. Similarly when taking a position in currencies, indices and commodities, a trader looks at the core elements affecting an economy, stock exchange or commodities demand and supply. In case of currencies the core elements can be balance of trade, unemployment figures, inflation rate, discount rate, GDP etc.

On the other hand, those following technical approach say that the price of an asset demonstrates its specific dynamics and outlook. These traders closely analyze the price charts and determine the future course of the price. For these traders the patterns and trends they can notice in the charts, are the signals themselves. They tend to explain movements in the price in terms of technical tools and statistical analysis such as moving averages, Bollinger bands, RSI, trend analysis etc.

In the end, what most traders end up doing, and rightfully too, is that they take help from both types of analysis. They corroborate the outcomes of each analysis with the other. Having said that, you must realize that to be a successful trader, it is important to develop an ability to perform the analyses fast and accurate. Join Intellitraders network for more information on Forex analysis and latest trading updates.