TAILIEUCHUNG - Trend Forecasting With Technical Analysis Chapter 2

Chapter 2 SINGLE-MARKET ANALYSIS. Trading With Tunnel Vision Can Put You on the Losing Side of a Trade. Analysis of the behavior of financial markets for the purpose of identifying and forecasting market direction has historically and traditionally been divided into two distinct schools: fundamental analysis and technical analysis. | Chapter 2 SINGLE-MARKET ANALYSIS Trading With Tunnel Vision Can Put You on the Losing Side of a Trade Analysis of the behavior of financial markets for the purpose of identifying and forecasting market direction has historically and traditionally been divided into two distinct schools fundamental analysis and technical analysis. The rationale of fundamental analysis is to make trading decisions by forecasting market direction based upon underlying economic factors affecting a particular stock or futures market. For example a trader sells futures contracts on . Treasury notes anticipating a price decline due to expected increases in interest rates by the . Federal Reserve Board buys corn or soybean contracts based on estimates of crop damage due to expected drought conditions or buys shares of Intel or Oracle on expectations that they will beat the Street s quarterly earnings estimates. The premise behind technical analysis is that all of the internal and external factors that affect a market at any given point in time are already factored into that market s price. In other words a market s current price is thought to reflect the rational collective judgment of all market participants each with his own information pertaining to that market and perception of what he anticipates the market direction is likely to be in the near future. Trend Forecasting With Technical Analysis 35 While Numbers Don t Lie They Can Be Deceiving With the assumption that the current price fully discounts all of the available information about a market and the influences or forces affecting it technical analysis in contrast with fundamental analysis does not delve into any of the underlying economic factors that influence the market. Instead technical analysis uses various technical studies indicators and market-forecasting theories to analyze market behavior. Historical market data such as price volume and open interest of commodity contracts is examined to identify repetitive .

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