Wednesday, 4 October 2017

Which Type Of Trading Analysis Is Right For You?

Posted by Valentine at 11:05 Labels:

There are three types of trading analysis. Maybe you have heard of them or maybe you have not. Don’t worry, we will revise them here.

But first, an important thing I need you to remember: the three of types should be applied harmoniously for an efficient trading experience.

Not one. Not two. Three. Fundamental, technical and sentiment analysis should operate together and benefit from each other to increase certainty and precision.

So yes, you can have a favourite type of trading analysis, but that does not mean you should not work on the other two, because you need anyway.

Fundamental analysis

Fundamental analysis is about monitoring economic, political and social forces and finding the relation with the price of a certain asset.

This type of analysis would usually involve following up with an economic agenda, paying attention to central banks meetings and their monetary policy configurations, searching for hints on policymakers, watching out for protests and tragedies.

For example, if you are analysing the US dollar from a fundamental view. You would have to keep an eye on employment and inflation data, speeches from Fed Chair Janet Yellen or Treasury benchmark bonds yields.

Technical analysis

Have you ever heard the expression “History tends to repeat itself”? Because that’s the core of technical analysis. The main idea is that prices are a reflection of their context. That’s why technical analysis is based on the historical evolution of prices, available in charts.

Technical analysts would rely mainly on indicators such as bollinger bands, fibonacci, moving averages and many others to determine price direction in the near / medium / long term.

However, traders should understand that technical analysis is subjective. While charts could be looking the same, people in front of them would not necessarily understand them the same way.

Sentiment analysis

Long or short? Buy or sell? Bull or bear? Of course you know what I am talking about. Market positioning. To analyze market sentiment is about identifying whether most traders are betting up or down and when they reach an overbought or oversold level in order to correct.

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