Credibility of Technical and Fundamental Analysis

Topics: Technical analysis, Scientific method, Prediction Pages: 13 (4232 words) Published: June 16, 2013
Credibility of Technical and Fundamental Analysis

Submitted To: Tanya Davies

Submitted By: Ibrahim Mubarak

Course: Core 111, Intensive Academic Research

Date: 6/6/2011

The Main prediction schools in the Finance World

Prediction is a process used in many aspects in our lives. For countless financial analysts, economists, it’s a vital function that draws the line between success and failure. What made it logical for them is the principle of the logical basis for interpreting the future contract for a market probability that the predictions will occur. In other word, the empirical analysis of markets looks at the prices as predictions of the probability of future contract, and markets are designed specifically to be predictable in certain ways.

The two main schools and techniques in financial world that are used to predict the market paths are the Technical and the Fundamental analysis. Their origins are derived hundreds of years ago and they still used as main methods to determine the profitable contracts. The accepted true is that any broker or investor needs to acquire the principles and the roles for both, and to have a great experience in the financial markets is predominant. What makes brokers successful or not, is the quality of their interpreting. This concept is the main cause of distress for many beginners, and even experts.

The economics deals for the most part and mainly with the future, and the consequence is not tangible in the present, there is a period between the acts and the results. This period can last for a long time, and during that, many unpredictable events could occur. Dealing with the future means dealing with the improbable, unknown, but it’s not necessary to be completely unknown. The future in this form has been an interesting subject for the human race since thousands of years ago, while the importance of the past confined with nostalgia and the considerations of its lessons. Finally, the present is based on its consist in the past, a result of certain previous acts, and it finds a sense in the future. For that, the nature of the human beings is to make acts that lead them to a desirable future, and prediction is a main one.

In the few next pages, the main schools that are used in the prediction process in the financial markets, the technical and the fundamental analysis, there mechanism, and essentially the prediction philosophy that they rely on will be defined.

Technical and Fundamental Analysis Principles

Fundamental analysis and technical analysis are both methods of evaluating securities, stock and currencies, and they are considered as “the main schools of thought in the financial markets” (Barbara, 2004: p. 16). These methods of analysis are looking at the obtainable information and statistics in order to make a decision about the future prices of the market being traded. While fundamental analysis measures the intrinsic value of securities by looking at earnings, expenses, liabilities, and economic factors, the technical analysis is generated by market activities, which includes prices and volume. In other words, technical analysis is the study of how securities prices behave and how to exploit that inform action to make money while avoiding losses (Cory & Chad & Casy, 2010). Many experts consider fundamental and technical analysis are on completely opposite sides, but they still have some similarities.

The important similarities between fundamental analysis and technical analysis that they are both ways to predict the future prices of securities, as Jun Tan emphasizes that they all aim to indicate a buy-in price and sell price for securities (Jun, 2010). They are also use economic factors related to the market being traded. These methods also use past information about companies and economies to find the price trend to make the right decision that will lead...

References: Bettman, J., & Sault, S., &. Schultz, E. (2009, March 6). Fundamental and technical analysis: substitutes or complements? Accounting & Finance Journal compilation, Volume 49, 21-36. 
Kirkpatrick, C., & Dahlquist, J
Vogel, H. (2011). Entertainment Industry Economics: A Guide for Financial Analysis. (8th ed.) Cambridge University press.
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Menkhoff, L. (1997, October). Examining the use of technical currency analysis. International Journal of Finance & Economics. Volume 2, 307–318.

Jack,F., & Fredrica, M. (1976, June). The fallacy of prediction. International Journal of Offender Therapy and Comparative Criminology, Vol 20(2), 153-164.
Arthur, L., & Thomas, L. (2009). The Allocation Fallacy and Financial Analysis. Financial Analysts Journal, CFA Institute,45, 37-42.
Renter, I
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