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Fundamental analysis

Just like in any other market, in capital and money markets investors put their money at risk by evaluating potential future profits and risks. On the other hand, these markets are governments, corporations and other institutions that raise funds for their activities. Market participants constantly assess both the potential profit that can be obtained from these investments and the risk that must be taken into account. The result of this assessment is influenced by new information, constantly coming to the market. Changes in profit/risk balance estimates result from changes in trading assets in the markets. What information should be monitored?

Monetary policy

Monetary policy maintained by central banks directly affects capital and money markets, as it regulates the supply of money and, thus, directly affects their value

Economic relations

Economic relations have a major impact on how investors perceive local markets. If there are strong trade relations in the country, investors consider this country economically stable with the possibility of increasing profits.

Situation in other markets

The situation in other markets is important when considering an investment decision, regarding where and when funds should be transferred between countries. When capital markets in one country move in the direction opposite to a trend, investors start suffering losses, capital move out of the country and provoke the depreciation of the local currency

Company Situation / Reports

One of the important factors affecting capital markets is the current economic state of individual companies. The positive economic situation of the company may encourage investors to invest their capital in its shares. The bad economic situation, in turn, forces investors to move their assets to other companies and/or eventually withdraw capital from the country

Legal acts and taxes

Legal acts, local or international, can have medium and long-term effects on capital markets. Legal acts can create barriers, or vice versa – act as an impulse for foreign economic investment

Weather

Weather directly affects the prices of goods, which in turn affect the companies that use these goods as raw materials. Rising commodity prices also increase the cost of production. This, in turn, depending on the type of enterprise and company, leads to a decrease in profits and adversely affects the company’s reporting. The deterioration of the economic situation leads to a fall in stock prices, which in turn forces investors to withdraw capital from this company

Political situation

Political situations or conditions have a significant impulse in capital markets. When there is a stable political situation in the country (external or internal – international policy), investors comfortably invest in this country. On the other hand, in times of political instability, traders can respond by withdrawing money from a given market or region

Economic downturn

An economic downturn may have various sources. It can be financial (for example, a banking crisis) associated with goods (for example, the oil crisis), political, etc. It is common that during a recession, people tend to withdraw capital from the market in order to “escape the worst moment”. Therefore, banking and finance, tourism, automotive, etc. are the most risky.

The economic growth

The situation of economic growth in a country or region is favorable for companies that sell their products to consumers in this field. Economic growth, as a rule, means that customers are more optimistic and in a better economic position, thus they can afford more and are predisposed to making real purchases. The expected increase in profits of companies selling more and more of their products can attract both local and foreign investors, which create demand, resulting in an increase in prices for company shares.

Consumer confidence

Consumer confidence indicator reflects the big picture of how people in the country perceive future prospects. It is also one of the factors taken into consideration by central banks in the formation of monetary policy. In general, high level of consumer confidence means that they are more optimistic and willing to spend more on consumption, and, as a result, companies will be able to sell more products and get higher profits. Consequently, the attractive prospects of companies may attract investors, believing that the value of shares in the future will grow

Events

Single events can have a significant impact on capital markets. A good example is the organization of the Olympic Games, which requires large investments in infrastructure to attract tourists to the region, and which provides a positive incentive for participating companies. On the other side of the scales, there are negative events, such as terrorist acts. These are rare cases, of course, but shortly after the 9/11 terrorist attack in the United States — the main stock markets were closed due to severe consequences for the capital market. Events in one company, as a rule, do not affect common markets, although there are exceptions. An example of such an exception is the case of Enron, in which more than 20,000 employees were dismissed because of allegations of financial fraud, after which ENRON was bankrupt. What matters is not the number of laid-off employees, but the scale of the enterprise being one of the main energy companies. Investors should carefully monitor events for the reason that the effects on capital markets cannot always be predictable.

Expert forecasts

Expert forecasts may correspond or contradict investors’ expectations. As a rule, they do not have a direct impact on capital markets, but the sentiments of market participants may be affected when “experts” represent national authorities – either political or monetary. When monetary authorities make statements about the economy as a whole, they can give signals about future performances or hints about the future of monetary policy. This, in turn, may affect the money supply and the interest rate (the latter is the most interesting factor for foreign investors). Please consult with an independent financial advisor if you have any doubts about the specification of market instruments and mechanisms

Technical analysis

Technical analysis is the process of studying price changes, in order to determine their future direction. Technical analysis experts are based on the principle that supply and demand are reflected in prices and volumes of traded securities.

Technical analysis does not provide confidence in the case of futures, but it can help in predicting possible trend changes. The information underlying the technical analysis is presented on a real-time chart and is interpreted to determine when to buy and when to sell securities

The technical analysis is based on 3 principles

  1. Price reflects reality

    This principle refers to the fact that all fundamental aspects of securities affect their supply and demand, thus affecting price

  2. Price moves depending on trends

    Typically, securities prices are maintained for a specific uptrend or downtrend. It is highly likely that investor confidence can quickly turn into distrust. Thus, if the value of the securities begins to grow, this trend is likely to continue for a certain period of time. Properly determining the direction of the trend is an important key for successful investment

  3. History repeats itself

    Technical analysis of securities immediately shows the recurring pattern of price changes. We can draw an analogy with the cycles of the economy. Economic growth, as well as a recession, is always repeated (the correct term for “economic recession” is also “negative economic growth”). After many years of technical analysis, those who devote themselves to the study of this area have revealed some patterns in pricing in the financial market. The most famous of them are in our trading platform and can be used as an example

Price change on the chart

Line charts and bar charts are the most famous and easy to use, line charts make it easy to scroll through data and bar charts make it easy to view the optimal amount of information. There are various types of charts used in technical analysis that represent price movements over a specific period. The right to choose the type of charts remains with the investor. The most famous is the line chart. It is often used when viewing the average price direction. This is followed by bar charts and candlesticks (also known as candle charts), which investors and traders around the world prefer because of their versatility and the amount of information they can present

Line charts

Linear chart

Linear graphs are preferred because of their ease of use. They show the price (usually the average or the closing price) of the assets (for example, goods or currencies) for a given period of time, for example, 3 months. They are useful for quickly observing the medium / long-term direction of a single asset

Bar charts

Bar chart

Bar chart also known as OHLC is a graphical representation of the price level for a certain amount of time.
They consist of one vertical line and two horizontal lines on each side of the bar, where the vertical bar shows the price movement in time, for example 1/5/10 minutes.
When the time period is set, the open level/price is displayed by a horizontal bar on the left side of the vertical bar. The “Close” level/price is set in the same way (on the right side of the bars) and can be located above or below the “Open” price.
“High” and “Low” prices are displayed in the specified period and calculated by the length of the vertical line, where the “lower line” shows the minimum price for a given period, and the upper line shows the maximum price (the highest price level in a given period of time).

Candlestick chart

Candlestick chart

Japanese “candles” are popular among traders, as they bring clarity to the market situation by providing the maximum amount of information in an accessible form. Japanese “candles” began their history in Japan, which is probably one of the oldest types of charts, and at the same time one of the most famous. They are somewhat reminiscent of bar charts, but the main difference between the rise in prices and the fall is the color. Like bar charts, candles have a main vertical line, defining the time interval (for example, 1, 5, 10 minutes), but the difference is the body, which changes color depending on the price change. Growth, as a rule, is determined by white or blue color, the falling price is indicated as black or red. The shadow of a candle or the wick determines the minimum and the maximum price levels for a specified period of time much more accurately than the body. Thus, the candles reflect how the opening price transitions into the closing price