A few weeks ago, the VIX posted its largest-ever weekly jump of 118% and then continued to be extremely volatile. Say goodbye to the investor complacency of the past three years, and hello to a new stretch of up-and-down trading.
When this type of two-way volatility appears in the stock market, it tends to stick around for longer than a few days. It also tends to leave traders befuddled and searching for direction – but what kind of market analysis is going to be best suited for today’s trader: technical or fundamental?
The Case for Technical Analysis of Stocks
Technical analysis is the practice of gauging a stock’s future price fluctuations by analyzing past activity. This method involves looking for specific chart patterns and examining other historical data related to price and volume. The field of technical analysis is based on three assumptions:
- The market discounts everything.
- Price moves in trends.
- History tends to repeat itself.
However, this can be problematic when markets are making outlier moves and the validity of previous technical price patterns needs to be questioned.
How Fundamental Analysis Works
Fundamental analysis is a method used to determine the value of a stock by analyzing the financial data that is ‘fundamental’ to the company. That means that fundamental analysis takes into consideration only those variables that are directly related to the company itself, such as its earnings, its dividends, and its sales. Fundamental analysis does not look at the overall state of the market nor does it include behavioral variables in its methodology. It focuses exclusively on the company’s business in order to determine whether or not the stock should be bought or sold.
If the recent markets are any guide, it’s easy to see that individual stocks are impacted by a variety of forces well beyond the company’s fundamentals.
Using Artificial Intelligence to Combat Market Analysis
With these huge market swings, a confluence of factors comes into play and it’s really difficult to make a case for using just one strategy to trade. What you really need when markets are in a constant state of flux is a comprehensive analytic framework that accounts for both the fundamental factors and the technical price levels.
This analysis must include the interplay of global market forces because the recent drop in U.S. equities has been tied to the price of oil, the price of the Chinese stock market and a confluence of other market forces. The challenge is finding trading tools that keep pace with the ever-shifting intermarket realities to help predict market trends. Most trading programs ignore these important intermarket relationships. The only way to truly get ahead in these market conditions is through the use of Artificial Intelligence.
VantagePoint Trading Software employs a sophisticated neural network process that identifies global market relationships that have the most influence on a target market, then produces a set of intermarket data to generate predictive indicators for short-term price trend forecasts for today’s volatile markets. The end result is a forecast that’s up to 87.4% accurate. This is the type of data that traders must have to properly play in the markets.