What is Technical and Fundamental Analysis?

This is a discussion on What is Technical and Fundamental Analysis? within the New to Trade2Win forums, part of the Reception category; Good article on one of the most successful hedge fund managers out there, Stve Cohen and his SAC Capital: Relevant ...

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Old Jul 24, 2008, 3:24pm   #9
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Good article on one of the most successful hedge fund managers out there, Stve Cohen and his SAC Capital:

Relevant excerpt in this context:

"Mr. Cohen's reputation rests on an investing style altogether different from the buy-and-hold strategy espoused by influential investors such as Warren Buffett. Mr. Cohen believes that by scrutinizing trading patterns of a stock -- by "watching the tape" -- it is often possible to predict how the stock will move in the coming hours or even days. For years, he jumped in and out of stocks -- sometimes without any knowledge of a company's fundamentals, or even what it did. It was akin to picking out rocks in a river by watching the currents swirl around them.

On a typical day, SAC's trading accounts for 2% of overall stock-market activity. SAC pays securities firms an average of one cent for each share it trades, which adds up to more than $400 million in trading commissions each year, making SAC one of Wall Street's best clients.

For years, the relentless trading was highly effective. SAC Capital Management LP, Mr. Cohen's largest and oldest fund, launched in 1992, has generated an average annual return to investors of 43.5%, after he takes a sizable cut of profits. He and his partners keep 50% of that fund's gains, along with a 3% annual fee, far more than the 20% and 2% charged by most managers."


Click Full article: Hedge Fund Strategy: September 2006

Further reading:
Click: Technical Analysis: Fundamental Vs. Technical Analysis
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Old Aug 18, 2008, 11:13am   #10
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The Technical Analysis technique stems from the assumption that all information about the market and a particular currency's future fluctuations is found in the price chain. That is to say, that all factors which have an effect on the price have already been considered by the market and are thus reflected in the price. Essentially then, what this type of investor does is base his/her investments upon three fundamental suppositions. These are: that the movement of the market considers all factors, that the movement of prices is purposeful and directly tied to these events, and that history repeats itself. Someone utilizing technical analysis looks at the highest and lowest prices of a currency, the prices of opening and closing, and the volume of transactions. This investor does not try to outsmart the market, or even predict major long term trends, but simply looks at what has happened to that currency in the recent past, and predicts that the small fluctuations will generally continue just as they have before.


A Fundamental Analysis is one which analyzes the current situations in the country of the currency, including such things as its economy, its political situation, and other related rumors. By the numbers, a country's economy depends on a number of quantifiable measurements such as its Central Bank's interest rate, the national unemployment level, tax policy and the rate of inflation. An investor can also anticipate that less quantifiable occurrences, such as political unrest or transition will also have an effect on the market. Before basing all predictions on the factors alone, however, it is important to remember that investors must also keep in mind the expectations and anticipations of market participants. For just as in any stock market, the value of a currency is also based in large part on perceptions of and anticipations about that currency, not solely on its reality.
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Old Sep 9, 2008, 8:20pm   #11
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Obviously technical analysis can give buy or sell signals but you can be caught out by a sudden news revelation which will greatly effect the price trend/pattern. So keeping an eye on the fundamentals is a good idea?
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Old Mar 25, 2009, 7:28pm   #12
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Technical & Fundamental Explained

This site explains it all very well - a the main differences and the issues you need to think about before trading in any market - Making Bread includes excellent free advice and help on a variety of subjects - hope this helps
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Old Jun 16, 2009, 1:51pm   #13
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In Forex trading, technical analysis is the key. Therefore, an understanding of technical analysis is essential to trade currencies. Technical analysis is the study of past prices in an effort to "predict" or know with greater possibility where future prices may be. This is consummate through the application of mathematical equations to Forex prices and the use of other techniques. You got to go for a good training session this could be done through Internet, a good mentor, and books.
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Old Jun 23, 2009, 11:57am   #14
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Technical Analysis and Fundamental Analysis both are equally important.

Technical Analysis v. Fundamental Analysis

Technical Analysis operates on the theory that market prices at any given point in time reflect all known factors affecting supply and demand for a particular market. Consequently, technical analysis focuses, not on evaluating those factors directly, but on an analysis of market prices themselves. This approach theorize that a detailed analysis of, among other things, actual daily, weekly and monthly price fluctuations is the most effective means of attempting to capitalize on the future course of price movements. Technical strategies generally utilize a series of mathematical measurements and calculations designed to monitor market activity. Trading decisions are based on signals generated by charts, manual calculations, computers or their combination.

Fundamental Analysis is based on the study of factors external to the trading markets which affect the supply and demand of a particular market. It is in stark contrast to technical analysis since it focuses, not on price but on factors like weather, government policies, domestic and foreign political and economic events and changing trade prospects. Fundamental analysis theorizes that by monitoring relevant supply and demand factors for a particular market, a state of current or potential disequilibrium of market conditions may be identified before the state has been reflected in the price level of that market. Fundamental analysis assumes that markets are imperfect, that information is not instantaneously assimilated or disseminated and that econometric models can be constructed to generate equilibrium prices, which may indicate that current prices are inconsistent with underlying economic conditions, and will, accordingly, change in the future.

By the above definitions we can conclude that they complete each other and while forex trading both analysis are required.
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Old Jun 23, 2009, 7:22pm   #15
 
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Technical: What is
Fundamental: What should be
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Old Jun 27, 2009, 3:28pm   #16
 
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Fundamental Analysis - Relates to a particular entity's performance. In the old days before Computers and gizmos, traders looked at entity's data like PE ratio, EPS, yield etc etc..and then decided if it is worthwhile to 'invest' in that entity by deciding 'how much' they would be 'willing' to pay to purchase a 'share' in that entity, with a hope that in few years the price of share will rise with the performance of hat entity.

Financial pages of any reputable newspaper will have these data listed daily. In past not everyone purchased stock on a minute timescale, but days of weeks.

While this was in some way 'real time' it was only the presence of Brokers and Traders who carried out 'trading' on behalf of people willing to 'buy share' via verbal or telephone instruction.

Sometimes traders in pits wanted to keep track of price changes and only means to record these was a note pad or fag packet.

Rather than writing actual data some reverted to point and figure charting. Traders did not want to record small and irrelevant noises in trading, only those that made significant ones were recorded. O's for 'pipe waters flowing down'...and X's for 'spiders climbing the wall....! or Point and Figure Charting was born. It is basically shorthand version of data of share movement.

Advent of computers allowed people to record data every second, minute, hourly etc....and online trading meant that these kind of decisions were executed faster and in almost real time.

Technical Analysis - It was at that time that the term Technical Analysis was born, with people creating 'indicators' that took into account OHLCV format of data. These were based on information taken from OHLCV and Time (Min, Hour, Day, Month etc etc)

This allowed Traders to see which entity is rising or falling. Traders looking at Fundamental information will decide to sell or purchase the 'shares' of that entity, but Technical Analysts will observe this rise and fall, which will be made more apparent by the indicators and purchase or sell 'shares' by just looking at the indicators reading. Generally they would not look at the PE, EPR etc etc in making that decision.


Yield - http://en.wikipedia.org/wiki/Yield_(finance)

PE Ratio or PER - P/E ratio - Wikipedia, the free encyclopedia

EPR - P/E ratio - Wikipedia, the free encyclopedia

I have been doing research on TA and Indicators for some time now. I have been looking at which indicators work when. Which one will work in - sideways, rising or falling markets....Which indicator will complement another one....what are the best time scale to use for each indicator etc etc....

And then how to group indicators on a chart layout....in this case Metastock....I trade with mid term trading...so it may be weeks or months...I refuse to sit in front of 6 screens, I would rather watch paint dry..!....I have other business interests and time is scarce so I have my own set up that suits me fine.

It is perfectly possible to make reasonable money trading short to mid term.

I have no time for Forex, or spreadbets or CFD. If your TA is perfect then why spreadbet..?..Go for the real thing.
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