Analysis and practical methods of three major schools of foreign exchange trading

currentforeign exchange marketThere are many types of trading methods on the Internet, but they mainly include three schools: quantitative analysis, fundamental analysis and technical analysis. These three are ranked in no particular order. The debate over which school is superior has been going on for nearly a century, and all parties have their own insistence. So far, no unified conclusion has been reached.

People who study quantitative analysis have always found fundamental and technical analysis too subjective, and a quantitative analysis professor at the University of Auckland has directly called the two methods ineffective in class. However, some financial elites believe that financial investing is more of an art than a pure science. Peter Lynch has said that the mathematics required in financial marekt is actually learned in fourth grade.

Of course, the two schools of fundamental analysis and technical analysis are not without differences. They often accuse each other of ignoring the fundamentals. In fact, everything in the world exists for a reason and value. The reason why these three schools have been able to compete for nearly a hundred years is precisely because each has an advantage that cannot be ignored. In this article,DLSMForex learners can gain an in-depth understanding of the characteristics of these three major schools.

First, quantitative analysis

Quantitative analysis is the construction of mathematical models to predict the price level that a financial product may reach in the future. More precisely, its core goal is to analyze what kind of return is reasonable under the condition of taking a certain risk, and to use the model to make the risk proportional to the return. It can be seen that the main purpose of quantitative analysis is to preserve capital and value, not to pursue high returns.

Therefore, many multinational companies and international funds widely use quantitative analysis methods. It is important to note that these institutions use quantitative analysis not for profit, but for asset preservation. For example, if a New Zealand trading company sells goods to a US company, $100,000 will arrive in the account after three months. At the current exchange rate, the money can be exchanged for 150,000 New Zealand dollars. But during these three months, the New Zealand dollar may appreciate, so that the 100,000 dollars cannot be exchanged for the same amount of New Zealand dollars after three months. To avoid this risk, the company will lock in the exchange rate by buying and selling financial instruments such as options and futures, so as to ensure that 150,000 New Zealand dollars will be received regardless of the exchange rate changes. Whether the New Zealand dollar will depreciate or whether it can be exchanged for more New Zealand dollars is not considered.

Second, the fundamental analysis school

Any price fluctuation has its inherent reasons. Fundamental analysis hopes to grasp these reasons to evaluate the current value of a financial product, determine whether its price is reasonable, and predict future trends. It can be said that fundamental analysis is an internal-to-external, macro-level analysis method, which is often used by governments in various countries for economic regulation and control. However, this analysis method is not very suitable for ordinary retail investors. On the one hand, the workload of collecting and analyzing various data is very large; on the other hand, it is difficult for retail investors to ensure the accuracy and authenticity of the information obtained. In addition, fundamental analysis is a macro analysis, and the conclusions drawn are often related to a long time period. For example, if the New Zealand dollar is found to be overvalued through fundamental analysis, it can theoretically be sold short, but the analysis does not indicate the degree of overvaluation and when it will fall. Moreover, after overvaluation, there may be further overvaluation, and the exchange rate may continue to rise after rising, and maintain it for a long time. Whether retail investors have enough funds to withstand the fluctuation of the exchange rate, and whether they have the conditions to wait that long, are all issues to be considered.

Third, the technical analysis school

Technical analysis can be said to be a set of methods tailored to speculative behavior. Its core is to help investors judge what trend the market is currently in and guide them to operate in accordance with the trend. Therefore, investors in DLSM Forex can summarize technical analysis into eight words: "buy up and sell down, follow the trend". To some extent, the only purpose of technical analysis is to help retail investors gain profit opportunities in an unfair market environment. For example, technical analysis is like an assassin's way of killing, there is no extra action, everything is only for one goal. A killer in a novel once said: "My martial arts skills are definitely not as good as his, but I am 70% sure that I can kill him." Those who study technical analysis may not be able to explain the causes and consequences of the market in as much detail as the other two schools, but they are often not inferior in terms of analysis, trading, and profitability.