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Market Analysis
In order to
determine the probable direction of a market, traders use various
forms of
market analysis. The idea behind market analysis is to find
trades that are likely to be profitable. Of course, the key word
here is “likely,” because the process of selecting a trade or making
a forecast involves a method of analysis that is not always correct.
In
analyzing a market for the purpose of selecting trades, the trader
is making an educated guess based on a system, method, or procedure
that supposedly has had a successful record in the past. The process
that is used in making decisions about what to buy or sell and when
to buy or sell is known as market analysis. There are two types of
market analysis, technical analysis and fundamental analysis; and
there are combinations of both.
Method and Systems
of Market Analysis
In the
pursuit of profits and high accuracy, commodity (and stock) traders
often develop systems and methods of market analysis. Such methods
can vary in complexity from the ultra-simple to the highly
intricate. They can be run on a computer or they can be determined
manually. The decision is entirely up to the trader. There are
literally hundreds (if not thousands) of trading systems and
methods. Some are worth pursuing, but most are worthless. Be very
careful in selecting a system or method. Consult Chapters 10 and 11
for more information. The selection of a system or method is
critically important.
The Advantages and
Disadvantages of Systems
Systems’
trading has its good points as well as its liabilities. Among the
major positive points is the fact that a trading system will keep
you objective and focused on the markets. You will have a specific
set of rules to follow, and you will have specific ideas on managing
your risk, in addition to several other aspects that are important
in the quest for profitable trading.
The
disadvantage of a trading system is that it is rigid and often
inflexible. It requires you to follow its signals. Some traders
claim that a rigid approach will not work. Others disagree. You must
decide for yourself, based on the information in this book, your
experience, and the information you will get from other books,
courses, and traders.
Categories of
Systems
Trading
systems fall into several categories:
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Trend
following systems,
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Breakout systems,
-
Market
pattern systems,
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Support
and resistance systems,
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Swing
trading systems,
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Artificial intelligence systems, and
-
Market
structure systems.
Each system
has its specific theory, rationale, rules, and methods. Within each
of the above general categories you will find many different
systems. The problem for the trader is finding systems and methods
that make money.
Profitable systems are few and far between. They are neither
easy to develop nor easy to find. Hopefully the information
presented in this book will help you find winning systems.
(How the Futures Markets Work, Jake
Bernstien)
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