Technical Analysis v Fundamental Analysis
At the end of the day it is down to your personality type as to where your bias will be - the more aggressive traders, I have seen, tend to favour the immediacy of a technical chart, whilst the more measured, and typically more risk averse, tend to concentrate on fundamental analysis. I believe that a basic understanding of both should be the bare minimum of all traders and that weighing up the position of each, with stocks in particular, should be used when entering a trade.
The technical chart shows a nice golden cross forming in recent weeks, a break of the long term 2 year downtrend, a rising MACD and perhaps the only negative cautioning about the long side - an overbought measure on the RSI.
Let’s have a final look at the trade that cost me dearly last year — GBPvAUD. The fundamental backdrop still indicates a PPP measure in excess of $2 and there are signs of the Aussie economy slowing due to China’s recent pause in economic growth, whilst in the UK the hawkish noises out of the BoE and the diminishing prospects of more QE tend to lend weight to a stronger pound going forward. fair level against the Aussie of around $2.10-$2.20, and so with the pair trading at $1.60 I felt it a good buy. The pair continued to fall, however, during 2011 hitting a low in the early part of this year of $1.47. The trend was still intact and I ignored it to my cost.
In essence, both the fundamentals and technicals now align and so this is a less risky point to enter the trade - I think I’ll re-open that long bet...!
June 2012 | www.financial-spread-betting.com | 27