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Investment - Decision Making

November 27th 2014 – Written by Andrew Chorley

When making an investment decision it’s important to consider overall market conditions and where we are in relation to history; we like to look at a number of key indicators to gauge the potential risks. 

The images to the right may look complex but it simply puts into context where the current indicator is in relation to its average, median, minimum and maximum levels; for example looking at the first column we see that the asset being assessed is currently 1.81% above its 20 week SMA (simple moving average). This is a bit above the average of 1.14% and close to the median, whilst being some way from the maximum of 15.75% and minimum of -22.72%; effectively a “neutral reading”.

We can also look at this in a graphical context, the 10th column shows the ratio of the FTSE-100 to its volatility, a high reading tells is that the FTSE-100 is going up whilst volatility is low (the opposite would tell us a low FTSE-100 and high level of volatility). So looking at the current level of 582 is well above average and heading towards the maximum as shown below.

Looking at each of these in this way we can start to build a framework in which we can make decisions taking account of the potential risks.

EST. 1999