It might sound like a cliché, but truly, “knowledge is power.” Actually, around here we believe that applied knowledge is power. As Goethe said, “Knowing is not enough; we must apply. Willing is not enough; we must do.”
Every investment expert will tell you that for any type of investment, you need to be armed with the correct information and to have conducted careful research and study. You can’t just take any old investment opportunity and expect it to instantly become profitable; you have to take the time to develop a good understanding of the conditions along with other important factors that affect the movement of the asset.
As mentioned in yesterday’s post, there are three types of analysis that you could use to be able to make a profitable call in this type of micro trade. You can decide to use one or the other or combine the two basic types for a more comprehensive knowledge base. These three types of analysis are fundamental, technical and combined or “hybrid” analysis.
Fundamental analysis pays close attention to the current considerations of the market conditions. Prices can be affected by many factors and it’s always beneficial to be mindful of what may cause price inflation or deflation. As an example, the rise of gas prices always directly affects certain commodities, and if a particular asset makes use of logistics and/or machinery that requires oil, this can have a substantial effect on the asset. Other things you might want to consider are movements or recommendations as these can change the way people make their economic choices.
Technical analysis on the other hand, uses previous trading volume and prices to help determine the cycles of the asset. This system has been around for a very long time, charts have been developed that have nothing to do with supply or demand – it is just prices and trading volume that determines what future prices will be. It can be a bit of a tedious process going about this properly as you do need a charting program that will easily display the data about the past performance of the instruments/assets you wish to trade, but it does greatly improve your chances in choosing the most profitable time and price to trade.
Combined analysis means using both fundamental and technical analysis; taking the best points from both methods and combining them for a more stable decision. Some say this produces more consistent results, because you aren’t just following a single straight track to get to the desired result. It takes into consideration all the pieces of the puzzle that can trigger changes in the trade, and therefore should provide you with a better probability for successful results.