Less Reliance on Market Averages and Indicators
posted under
Philosophy of Technical Analysis
by ceecabolos
Stock market analysis is based heavily on the movement of broad market averages—such as the Dow Jones Industrial Average or the S&P 500. In addition, technical indicators that measure the strength or weakness of the broader market—like the NYSE advance-decline line or the new highs-new lows list—are heavily employed. While commodity markets can be tracked using mea‑
sures like the Commodity Research Bureau Futures Price Index, less emphasis is placed on the broader market approach. Commodity market analysis concentrates more on individual market action. That being the case, technical indicators that measure broader commodity trends aren't used much. With only about 20 or so active commodity markets, there isn't much need.
Specific Technical Tools
While most of the technical tools originally developed in the stock market have some application in commodity markets, they are not used in the exact same way. For example, chart patterns in futures often tend not to form as fully as they do in stocks.
Futures traders rely more heavily on shorter term indicators that emphasize more precise trading signals. These points of difference and many others are discussed later in this book.
Finally, there is another area of major difference between stocks and futures. Technical analysis in stocks relies much more heavily on the use of sentiment indicators and flow of funds analysis. Sentiment indicators monitor the performance of different groups such as odd lotters, mutual funds, and floor specialists. Enormous importance is placed on sentiment indicators that measure the overall market bullishness and bearishness on the theory that the majority opinion is usually wrong. Flow of funds analysis refers to the cash position of different groups, such as mutual funds or large institutional accounts. The thinking here is that the larger the cash position, the more funds that are available for stock purchases.
Technical analysis in the futures markets is a much purer form of price analysis. While contrary opinion theory is also used to some extent, much more emphasis is placed on basic trend analysis and the application of traditional technical indicators.
sures like the Commodity Research Bureau Futures Price Index, less emphasis is placed on the broader market approach. Commodity market analysis concentrates more on individual market action. That being the case, technical indicators that measure broader commodity trends aren't used much. With only about 20 or so active commodity markets, there isn't much need.
Specific Technical Tools
While most of the technical tools originally developed in the stock market have some application in commodity markets, they are not used in the exact same way. For example, chart patterns in futures often tend not to form as fully as they do in stocks.
Futures traders rely more heavily on shorter term indicators that emphasize more precise trading signals. These points of difference and many others are discussed later in this book.
Finally, there is another area of major difference between stocks and futures. Technical analysis in stocks relies much more heavily on the use of sentiment indicators and flow of funds analysis. Sentiment indicators monitor the performance of different groups such as odd lotters, mutual funds, and floor specialists. Enormous importance is placed on sentiment indicators that measure the overall market bullishness and bearishness on the theory that the majority opinion is usually wrong. Flow of funds analysis refers to the cash position of different groups, such as mutual funds or large institutional accounts. The thinking here is that the larger the cash position, the more funds that are available for stock purchases.
Technical analysis in the futures markets is a much purer form of price analysis. While contrary opinion theory is also used to some extent, much more emphasis is placed on basic trend analysis and the application of traditional technical indicators.
Comment Form under post in blogger/blogspot