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Using Fundamental and Technical Analyses to Predict Prices
By: Rick Thachuk   Thursday, August 9, 2007 12:14 AM
Using fundamental analysis to predict futures prices has that precept as its foundation, and attempts to identify the "causing" factors. In this sense, the approach is intuitively appealing.

o Objectivity:
Fundamental analysis is objective in that relationships are tested by sound mathematical and statistical methods. Those that fail are discarded, while those that pass are perceived as being credible. There is no room for personal predilection or bias. The reliance on objectivity is desired by many traders who hold little confidence in their ability to predict prices purely by discretion.

o Available Resources:
Attempting to predict variables through fundamental analysis is not exclusive to the futures trader. Companies attempt to predict sales, governments attempt to predict unemployment and meteorologists attempt to predict the weather. With all of these industries attempting to harness the power of fundamental analysis, one benefit is a refinement and improvement in the pool of fundamental analytic techniques available. For instance, if a good technique is developed to predict the weather, it can be applied to futures prices and, hopefully, yield satisfactory results as well. This is exactly how Chaos Theory, a particular type of fundamental analysis, moved into the realm of the futures trader.

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Disadvantages of Fundamental Analysis:

o Data Intensive:
Fundamental analysis relies on a considerable amount of data to test the significance of variables. Such data are often not easy to acquire and, moreover, are seldom available without charge. As well, data are often contaminated with reporting errors which must first be identified and corrected.

o Labor Intensive:
Fundamental analysis also requires a considerable amount of human labor - time and energy. As well, methods have become so complex that few individuals short of a trained economist can properly apply the available technology. As an example, large banks often employ teams of economists for formulating their in-house prediction models.


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