There is an eternal debate as to whether technical analysis or fundamental analysis is better. Which trading signals are the most accurate. We found and translated an interesting article from Bloomberg magazine. The article shows the results of research and conclusions on the effectiveness of market analysis by different methods. If you adapt for trading binary options, as well as compare the results of trading on different binary strategies, you can come to a conclusion about the effectiveness. The article in a simple form shows the difference and the reasons for the study.
Technical analysis works better than fundamental analysis
Critics have argued that technical analysis is a measure of signals where they do not exist. However, new research by Bloomberg claims that based on charts and dioramas when making a decision on trading, they show better results than fundamental analysis. In a study titled “The Effectiveness of Technical Analysis,” the researchers found that hedge funds that relied on technical analysis performed better than their rivals, averaging 5.3 percent per year during periods when investor optimism was high. One of the reasons is that price dynamics increase the impact on the market during a period of market euphoria. The research is part of a discussion on the efficient market hypothesis led by Nobel laureate Eugene Fama. The hypothesis asserts the theory of predicting a raging price, relying on historical testimony. According to David Smith, one of the authors of the study, decisions are made on schedules, at a time when investors are acting irrationally. “If you can manage emotions and ignore psychological obstacles, using readings such as moving averages, Bollinger Bands and other types of technical analysis can save people from their own impulses,” says Smith, a professor of economics and finance at the U.S. School of Investment Management.
Technical Analysis & Research
Smith, along with fellow professors at Newyir University, Na Wang, and Edward Zivoch, track the performance of more than 5,000 hedge funds from 1994 to 2010. After that, we compared the results between the topic who uses technical analysis and makes decisions on charts and graphs with the topic who uses only economic indicators (fundamental analysis) to obtain trading signals. The result showed that those who used technical analysis are ahead of their rivals by 0.6 points. The best results were constant, which shows the effectiveness of technical analysis. Smith argues that not many can work and trade on shorts (market decline). Playing against stocks can increase risks that are difficult to predict from financial statements alone. It is often possible to observe the difference between the fundamental value of an asset and the difference from the expected price. While technical analysis shows more accurate signals, the authors argue. As markets show strong trends and strong trader sentiment, technical analysis techniques such as moving averages and momentum strategies are more informative because they are primarily designed to detect price trends.” Unlike other signals, such as earnings and economic prospects, they are likely to be inaccurate.”
The factor of randomness in the financial market
Burton Mulkiel, Chief Investment Officer, Wealthfront Inc. and a kidney professor at Princeton University argues that the market is not as unpredictable as is commonly believed. There are cycles that happen all the time. There will never be 100% certainty in making a decision. However, too many factors depend on the price of assets and information is transmitted very quickly. Therefore, any analysis based on economic factors may change. While technical analysis will show the general behavior and direction.
Editor’s conclusion:
We fully support the statement. Our strategies are based on technical analysis. When trading binary options, in our opinion, it is better to use technical analysis. Test and draw conclusions from the numbers you get.
Tagged with: Fundamental analysis • proximate analysis
