Note on Futures price forecasting with technical analysis vs fundamentalist

(Last Updated On: July 9, 2015)

Note on Futures price forecasting with technical analysis vs fundamentalist

This is from my Future and options course. This is a good reason why I prefer fundamentalist where those who forecast on past pricing don’t do well long term

 

This revolves around the role of speculators

 

Fundamental analysis includes:

Supply and demand factors

Intrinsic value

Probability of a price move

 

Technical analysis:

Studies the market itself

Ignore supply and demand

 

Theory of random walk:

Says a price change from day today average zero

Price changes a random so you can’t predict the future from the past

Pt=Pt-1 + et where Pt is today’s price and et is an error term . It also works off of yesterday’s price.

E(et)=0 third term is expected to be unbiased so

E(Pt-Pt-1) = E(et)=0

 

You will not make money long-term as a technician due to the markets are way too efficient

 

Random walk Theory  says how a stochastic price will move through time. In the markets you cannot predict forthcoming prices on past prices because prices are random.

Is the expected in return is to be zero, expected price of today and yesterday difference should be zero. Essentially the markets are unpredictable.

 

Efficient markets fully reflect all available supply and demand information

In reality market seem to be partially efficient

Markets reflecting perfect information reflect influences other than fundamental information

 

Partially efficient markets

To beat the market a traitor must: use existing information in some way other than the market does

Interpret existing information were actually in the market

To submit changes and non informational aspects of the market

 

Difficulty of fundamental analysis:

What is a fact?

Hog and pig reports

USDA crop forecasts

Orange juice

 

Amount date it is overwhelming

Sucks or soon discounting the price old adage is by the room and so the fact

 

Difficulty of fundamental analysis:

What is fact?

New York oil prices search past $32 little downside seen August 5, 2003

Oil prices move Laura supply concerns Linder August 8, 2003

Rising crude oil futures read the prices at the pump August 10, 2003

Oil futures rises rock Nigeria sparks apply for years August 18, 2003

Oil futures Laura rock shrugged off US crude build I August 20, 2003

 

 

What is a fundamentalist?

Fundamentalist breaks all information into supply and demand

Supply and demand elasticity’s become important. E.g. weather affects on the coffee prices. Four instance, cold weather in Brazil in July and August can demolish the coffee crop in the world’s largest coffee producing nation and demand for coffee is inelastic. If you keep buying the commodity regardless of the price of it.

 

Purchasing power parity

PPP is a long run theory based on law of one price

Hamburger index illustrates this:

US price of big mac equals $2.30

Big Mac is produced and 68 countries

Big mac indexes a guide to whether currencies are at the correct level

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About caustic

Hi i there My name is Bryan Downing. I am part of a company called QuantLabs.Net This is specifically a company with a high profile blog about technology, trading, financial, investment, quant, etc. It posts things on how to do job interviews with large companies like Morgan Stanley, Bloomberg, Citibank, and IBM. It also posts different unique tips and tricks on Java, C++, or C programming. It posts about different techniques in learning about Matlab and building models or strategies. There is a lot here if you are into venturing into the financial world like quant or technical analysis. It also discusses the future generation of trading and programming Specialties: C++, Java, C#, Matlab, quant, models, strategies, technical analysis, linux, windows P.S. I have been known to be the worst typist. Do not be offended by it as I like to bang stuff out and put priorty of what I do over typing. Maybe one day I can get a full time copy editor to help out. Do note I prefer videos as they are much easier to produce so check out my many video at youtube.com/quantlabs