Through a previous article, we have put technical analysis from the perspective of someone who invests in or trades Chinese assets under the microscope. When it comes to the article in question, things have for the most part been fairly straightforward, with you as an investor or trader letting charts (price action, if you will) do the talking.
Fundamental analysis tends to be a trickier topic to cover, for the simple reason that… well, it tends to be difficult to get market participants to agree on what it actually represents. Furthermore, even if we let’s say go with the consensus, your fundamental analysis approach will vary in some cases even wildly from asset to asset, much more so than with technical analysis.
Whether you are trading agriculture-related commodities, Chinese assets or cryptocurrencies, a technical analyst will tell you that a pattern is a pattern. As such, should he identify let’s say a descending triangle formation, his approach will be pretty much identical regardless of which asset he is trading at that point in time.
When it comes to fundamental analysis, things get quite a bit trickier.
Fundamental analysis when referring to let’s say shares revolves around trying to assess the “intrinsic” value of a stock by analyzing its proverbial books to get a firm grasp on its the financials, market positioning, growth rate and/or growth rate potential… the list could go on and on.
When trading a currency pair, you will obviously need a different approach so as to do the same, assess its “intrinsic” value in order to determine if it is over or under-priced at a certain point in time. For Forex pairs, you will most likely analyze various metrics associated with one country or another (GDP, government revenue, debt to GDP, unemployment rate, etc.) so as to assess the overall health of its economy, then you take a look at its monetary policy as well and so on.
For real estate, everything tends to be much more localized. While investors and/or traders do indeed look at the bigger picture or let’s say broader market as well, local variables are the name of the game, anything from past transactions to information which might lead to conclusions pertaining to the growth of a certain area (a new shopping mall or anything else of that nature)… or lack thereof.
As can be seen, methods are all over the place.
At the end of the day, however, your goal when trading or investing will be the same, whether you use fundamental analysis exclusively, technical analysis exclusively, market sentiment analysis exclusively, news exclusively or various combinations thereof as well as with other factors included: identifying opportunities that are asymmetrically in your favor.
Furthermore, just like with technical analysis, it is paramount to understand that no method known to man exists that enables market participants to accurately predict the future. Generally speaking, it tends to be wise to admit that humans are pretty terrible at that. Instead of using fundamental analysis in our case or any other approach to try to predict what WILL happen, the ChinaFund.com team would strongly recommend limiting yourself to settling for the next-best thing: determining what is more LIKELY (but certainly not guaranteed) to happen.
As such, your research should end up leading you to trading or investing opportunities that are asymmetrically in your favor, with pretty much any investor/trader worth his salt and who has been around the block for a while being quick to confirm that you don’t HAVE to always be in the market. In other words, you don’t have to take on each and every trading opportunity that you perceive as half-decent and instead, should most likely limit yourself to those where you have valid reasons to believe that the probability of doing well is asymmetrically in your favor.
Even when it comes to those scenarios, it is paramount to understand that no matter how thorough your research is and no matter how excited you may be about one “once in a lifetime” opportunity or another, we are always in the realm of probabilities. As such, even when your conviction levels are sky-high, we would strongly recommend accepting the possibility of losing money right from the beginning and putting together a robust money management strategy (a topic covered in detail through another article).
As can be seen, our team essentially believes that the previously discussed methods (fundamental analysis, technical analysis, market sentiment analysis or anything else) should be used for probability assessment purposes and doubled by a robust money management strategy. Whether you are investing in Chinese assets or anything else, putting together a long-term strategy that enables you to have meaningful staying power is ultimately in the realm of common sense.
Why do most traders fail, in that case?
Time and time again, failure case studies lead to conclusions which revolve around the tendency of market participants to be attracted to shortcuts. Or, if you will, to conclusions that revolve around the lack of patience exhibited by the average investor and trader.
The implications of that should be rather obvious.
Impatient investors who are always looking for a “hot” trick or shortcut and are not patient enough to measure their results in years rather than days or weeks end up taking on trades common sense should have told them to stay far away from. Unfortunately for them, the market doesn’t exactly have the habit of being kind to such market participants and needless to say, they end up losing money, blaming anyone but themselves for the outcome in question: manipulation by whales, the Chinese government, the US government, the list could go on and on.
Here at ChinaFund.com, we firmly believe in taking things one step at a time, with “longevity” being the operative word. Should our views and goals align, we would be more than happy to embark on a journey together with you or your organization and should you need to get in touch, we are only a message or an email away.