Many investors have an inaccurate understanding of the relationship between fundamental and technical analysis.
In fact, in the case of the or stock market, both kinds of analysis are necessary in order to see the true face of the market.
Fundamental analysis in markets is the process of trying to understand the relationship between supply and demand.
Money, like goods, falls when supply exceeds demand;
If demand exceeds supply, prices will rise.
Since the relationship is so simple, we want to study: first, the supply relationship, second, the demand relationship.
Other problems don’t need to be dealt with at all.
Understanding supply relationships is not difficult.
Just look at the website that has reports every month.
Assuming that demand for pairs remains constant and the Fed starts to increase, this leads to two market reactions: stocks will rise and the dollar will weaken.
If the money supply decreases, the dollar will stabilize or rise.
There is a difference of about two months over time, meaning that the market reacts two months slower than the change in the money supply.
Therefore, a monthly study of the money supply is a top priority for financial market professionals.
Having seen the money supply, the next step is to look at the demand relationship.
This is more troublesome because there are many issues to study.
Demand for a country’s currency depends on its attractiveness, which depends on: first, its potential for appreciation;
Second, the practical direction.
In order to see the future of money, we must first see the future of money assets.
The potential for asset appreciation depends on the outlook for the country’s equity, property and bond markets.
In other words, if the economic outlook is good, there is the potential to add value.
The potential for higher real interest rates lies in increased demand, so the country’s currency has the potential to rise.
We should also look at the economic outlook.
The first is employment/unemployment, national productivity, political stability, international trade, interest rate cycles, foreign capital inflows, domestic capital operations, etc.
After we understand the relationship between money supply and demand, you will get a sense of the general direction in the medium and long term.
This is the basic skill of what’s called basic analysis — very necessary.
With regard to technical analysis, the basis of technical analysis is that “because such and such a figure or technical data developed such and such a result in the past, a similar figure may now develop the same result as in the past”.
Even some technical analysts believe it’s all in the price.
There is no need to study anything else, just prices and graphs or some indicators.
In the foreign exchange market, such investors are the overwhelming majority.
The focus of technical analysis is to thoroughly familiarize yourself with past graphics and other technical data and apply them to real situations.
Either analysis does not predict short/end/long term emergencies.
For example, the big earthquake in Japan, the situation is serious, or 9/11, or the intervention, the release of data and so on.
Some big businesses rely on intelligence to deal with these emergencies.
Small businesses can only follow the market and adapt to changes.
But either way, in the investment market, you can only follow trends and make money.
In short, basic analysis points out the direction, and technical analysis points out the twists and turns along the way.
The combination of basic analysis and technical analysis can improve the hit rate of trend prediction.
Markets shrugged off the Fed’s doubling, the dollar fell from a three-week high and gold rallied more than $20.
Please pay attention to the specific operation, the market is changing rapidly, investment needs to be cautious, the operation strategy is for reference only.
