Tuesday, February 8, 2011

The 4 Element of Market Analysis

Hello everybody,

Below is my article for this week. Feel free to read.

There are 4 elements in Market Analysis;

1) Rumours
2) Probability
3) Data
4) Pattern

Each of the element play a significant role in contributing into the movement of the market price.  To understand each element, we need a simple method called balance trading which interpret in a better word a hybrid approach.

Let discuss each element.

Rumours are what you read on the market commentary. It’s basically an unverified account or explanation of events circulating from person to person and pertaining to an price, event, or issue in public concern. Rumour can be taken from 2 type sources which are Probability and Data. Most of the time, rumours create sentiment in the market.  

Probability is a way of expressing knowledge or belief that an event will occur or has occurred. Which when we interpret into FX will be the knowledge of technical analysis. From this part of studies, we need to find the probability of certain price level which at the historic pattern movement create a simple probability of bullish or bearish movement.

Let’s take an example of Fibonacci Retracement;

There is a swing form from point A to point B. The retracement preferred bounce level is around 61.8%. So here I put a probability of the price will hit 61.8% Fibonacci level and after that bounce back to the specific level which are also a probabilities.

Probability can be put as sums of all hidden connections between price and technical pattern. Technical Analysis in specific is a Probability Analysis.  

The term data means groups of information that represent the qualitative or quantitative attributes of a variable or set of variables.

In FX we’re using data from an Economic Calendar which soon be interpreting in our daily trading. Some data can bring high impact to the currency market and some are low.

Data can also bring sentiment to the market by their connection to the rumours of speculation on the data. This can make an obsessive amount of misleading toward the real market price.

In trading, pattern can be defined as sum of trading experiences. Part of our everyday trading, we’re collecting price pattern which include momentum, price action, price probabilities, data action and etc.

This pattern somehow generates a better understanding toward our trade. Most of cases show that senior traders made more accurate position than a new traders. Part of the building a pattern is by acquiring knowledge from senior traders by attending a courses and seminars. There is no complete knowledge as some suggest as there is no fact in the market itself. The will to understand the theory depend on each person and their capabilities. Some may proceed with only probability and some act more on data feeds. Each trader has their own way of studies and proceeds with their pattern reading.      
The general meaning of pattern is your trading skills.

Conclusion to these 4 elements is that we need to study the market before we jump into trading. Regardless of what one understands, the market always reacts by these elements. To be in any single element will contribute frustration and confusion toward our trade.

The best part about mastering this 4 element, you can already reason the movement of the chart. Moreover, you might consider making your own Market Analysis and try to compare it to other a senior market analysis. 

By all mean, there are no ends toward knowledge. Every day is a new day and everyday people change. Changes are what impact the market most of the times.     

That is rumour, probability, data & pattern. Hope you guys enjoy it. ^_^

Good luck & Happy Trading!  

Warmest Regards,

Blogs: AsiaFXCapital.blogspot.com | Ahmadshahmi.blogspot.com

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