Fundamental Technical Analysis And Tools Of Trading The Markets

Fundamental analysis is the evaluation of non-visual information to evaluate trading activity and make trading decisions. Whereas technical analysts utilize charts and mathematical indicators to quantify price activity, fundamental analysts utilize market news and market forecasts to qualify price activity. There are numerous market events that move financial markets every week. Some affect every market instrument while others affect specific instruments. If the outcome of a market event has been fully discounted by the market, traders will not notice any discernible impact on their charts. If the outcome of a market event has not been fully discounted by the market, the result is either price appreciation or price depreciation and traders will see this activity on their charts.

Every week, there are fundamentally-important market events that are scheduled in every country at specific times. Similarly, there are fundamentally-important market events that may not be scheduled for specific times. Some countries (Germany, for instance) often do not schedule market events for specific times. The outcome of market events is sometimes leaked in advance in certain countries (Germany, for instance) for different reasons. Market events include the release of economic data, speeches and testimony by government officials, interest rate decisions, and others.

Technical Analysis

Technical analysis differs from fundamental analysis in that technical analysis is applied only to the price action of the market, ignoring fundamental factors. As fundamental data can often provide only a long-term or "delayed" forecast of market price movements, technical analysis has become the primary tool with which to successfully trade shorter-term price movements, and to set stop loss and profit targets. Technical analysis consists primarily of a variety of technical studies, each of which can be interpreted to generate buy and sell decisions or to predict market direction.

Support and Resistance Levels

One use of technical analysis, apart from technical studies, is in deriving "support" and "resistance" levels. The concept here is that the market will tend to trade above its support levels and trade below its resistance levels. If a support or resistance level is broken, the market is then expected to follow through in that direction. These levels are determined by analyzing the chart and assessing where the market has encountered unbroken support or resistance in the past.

Popular Technical Analysis Tools

Moving Averages (MA): Indicators used to smooth price fluctuations and identify trends. The most basic type of moving average, the simple moving average, is the average of the past x bars ending with the current bar;

Moving Average Convergence Divergence (MACD): Indicator that utilizes moving averages to identify possible trends and an oscillator to determine when a trend is overbought or oversold;

Bollinger Bands: Bands that are placed x moving average standard deviations above and below a simple MA line;

Fibonacci Retracement Levels: Indicator used to identify potential levels of support and resistance;

Directional Movement Index (DMI): A positive line (+DI) measuring buying and a negative line (-DI) measuring selling pressure;

Relative Strength Index (RSI): Momentum oscillator that is plotted on a vertical scale from 0 to 100;

Stochastics: Momentum oscillator that measure momentum by comparing the recent close to the absolute price range (high of the range minus the low of the range) over a period of x bars;

Trendlines: Straight line on a chart that connects consecutive tops or consecutive bottoms of prices and is utilized to identify levels of support and resistance. Stay updated and have a nice day.