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Using Fundamental and Technical Analyses to Predict Prices

 August 09, 2007 12:14 AM

When trading futures and options, money is made by buying low and selling high, or vice-versa. If you could predict prices perfectly, then making money in futures and options would be terribly easy. Unfortunately, predicting futures prices has proven to be anything but easy. While most futures traders admit that it is impossible to predict prices perfectly, most nevertheless believe that they can improve their chances beyond a "pure guess". How they go about this differs from trader to trader. Some use fundamental analysis, others rely on technical considerations, while still others base their trading on gut instinct or seemingly totally unrelated events such as celestial movements. By far, the most commonly used methods of price prediction can be grouped into either fundamental analysis or technical analysis. The general features of these two techniques are described below. You can find industry-leading textbooks containing more specific and detailed information in our bookstore.commodity futures broker, futures trader, commodities futures trading, financial and commodity futures markets, paper trading, full service broker assisted accounts.
Fundamental Analysis
Fundamental analysis attempts to predict futures prices by determining the factors or variables that effect the futures price, and then monitoring these variables for change - as they change, you can predict the resulting change in the futures price. For instance, the fundamental determinants of a Deutschemark futures price may be the level of short-term interest rates in the United States relative to those in Germany, the rate of inflation in the United States relative to that in Germany, net merchandise trade flows between the two countries, and the outstanding relative supplies of money. Determining exactly how each of these variables effects the futures price is done through regression analysis which borrows heavily on economics and statistics. Theoretically, once the relationship is identified, you are able to predict the movement of the futures price resulting from, say, a decrease in German interest rates, and then establish the appropriate futures position.
commodity futures broker, futures trader, commodities futures trading, financial and commodity futures markets, paper trading, full service broker assisted accounts.

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Advantages of Fundamental Analysis:

o Intuitive Appeal:
Most of us accept the precept that one thing causes another.

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