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Technical or Fundamental Analysis?

There are a number of reasons that many traders favor technical analysis over fundamental. For starters, fundamental traders tend to be commercial firms; that is, they are involved in the actual production or consumption of a commodity. The commercial firms have the information that most of us cannot afford to acquire. For example, are you able to go out and check global soil conditions in an agricultural commodity you wish to trade? Can you check crop conditions? Commercial firms can and do check such things. They also check long range weather forecasts, crop yield forecasts, and existing inventories.

Technical traders tend to be most everyone else - commodity pools, funds and retail speculators.

Commercials have the best fundamental information on a market. As they are involved in the actual production or consumption of a commodity, they have intimate, day-to-day knowledge of supply and demand.

You and I have a harder time getting fundamental information, especially in markets that are more thinly traded.

Fundamental analysis generally requires a longer term trading horizon. Fundamentals tend to change more slowly. A gold miner, for example, is more interested in his consumption over the course of months or years than in the daily usage of gold. Barring supply shocks, over the long term, the production of a commodity changes incrementally.

Speculators tend to trade in shorter timeframes, and technical analysis may better serve shorter term traders. It's unlikely that fundamental analysis will tell you where beans may be next week, but technical analysis may do so.



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Monday, 03 October 2022

Derivative transactions, including futures, are complex and carry a high degree of risk. They are intended for sophisticated investors and are not suitable for everyone. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results, and all of which can adversely affect actual trading results. For more information, see the Risk Disclosure Statement for Futures and Options.