Classic Methods of Forecasting Financial Markets

There are many methods of forecasting financial markets. The most popular are technical analysis and fundamental analysis. Some traders think that technical analysis is more important than fundamental analysis. Let’s look at this!

Technical analysis is the method of forecasting financial markets which based on past price and volume. There are many trading rules and models based on volume and past price. These are such models as head and shoulders, flags, symmetrical triangles, ascending triangles, descending triangles and others. Traders attributed to the technical analysis indicators and oscillators. Indicators and oscillators are mathematical calculation based on a past price or/and volume.

The difference between indicators and oscillators is that oscillators are bound within a range and indicators are not bound within a range. The most popular indicators are moving average, Bollinger bands, alligator, Ichimoku Kinko Hyo and others. The most popular oscillators are relative strength index (RSI), commodity channel index (CCI), moving average convergence-divergence (MACD), Stochastic and others. If you use this method you can determine entry point in market, level of stop loss and take profit.

Fundamental analysis is the method of forecasting financial markets which based on analysis financial statements of the company and economic news. These are some news which influences on the financial markets – the Household Confidence, the Consumer Price Index (CPI), the Trade Balance index, the Federal Open Market Committee (FOMC) Meeting Minutes, the Food Price Index (FPI), the Producer Price Index (PPI) and many others. It determines global trends of moving financial markets. Fundamental analysis is more difficult than technical analysis. One of the disadvantages of this method is the inability to determine an entry point into the market, stop loss and take profit.

For successful trading in the market should be able to combine both these methods. Some successful traders on foreign exchange market and stock market say that they use fundamental analysis only on 20% and technical analysis on 80%. But traders which trade on stock markets also say they use fundamental analysis on 95% and technical analysis on 5% at earnings period.