Types of Market Analysis

Types of Market Analysis

Let’s learn about the types of market analysis. There are different approaches people use to understand the present and possible future commodity price trends. Major players of the market always conduct some form of study before the take a position in the market.

(i) Technical Analysis:

It is the study of price movements using charts to recognize patterns and trends. The practice looks at the historical price movements of an asset to understand the future price movements as it is assumed that history tends to repeat itself. The technical analyst looks at price changes that occur over a period of time (hour-to day-to-day or week-to-week basis) or over any other constant time period displayed in graphic form, called charts.

In addition to the prices changes, a technical analyst also studies technical indicators derived from those price changes. It is believed that all the relevant market information is reflected (or discounted) in the price with the exception of natural disasters or acts of God.

(ii) Fundamental Analysis:

This study focuses on the overall state of the economy, interest rates, production, earnings, and management. When analyzing a futures contract, there are two basic approaches one can use; bottom up analysis and top down analysis. Fundamental analysis is performed on historical and present data, with the goal of making financial forecasts. The objectives of fundamental analysis are to conduct an asset valuation and predict its probable price evolution, make a projection on its market performance, evaluate its management/marketing, and calculate the commodity’s credit risk.

Fundamental analysis includes Economic analysis, Industry analysis and Company analysis.

(iii) Quantitative Analysis:

In quantitative analysis, one seeks to understand behaviour of the market or the commodity by using complex mathematical and statistical modeling, measurement and research. By assigning a numerical value to variables, quantitative analysts try to replicate reality mathematically. Quantitative analysis can be done for a number of reasons such as measurement, performance evaluation or valuation of a financial instrument.

(iv) Sentimental Analysis:

The commodity market, like the stock market, has market sentiment i.e. the general prevailing attitude of traders as to the anticipated price movement in the market. Either there is bullish sentiment or bearish. Individuals working on sentimental analysis, acquire their data from various sources. It could be the simple extraction of movement on the stock exchange and validly called market sentiment. Another source is to extract the news and media information based on their polarity. Going further, another sub-subject might be community sentiment about the market movements through blogs and forums.

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