Technical Analysis
Technical Analysis
Investment is all about opinion; take shares for example, an investor who thinks something is a good investment buys it but at the same time someone who thinks it is a poor investment or wants to crystallise the profit they have made is selling the same share to the buyer.
It is this sentiment that helps drive the price, when there are more buyers than sellers the price rises and vice versa; some investors study the price movement and indicators such as the flow of money into an asset to try to identify patterns that they can use to help them decide whether to buy or sell an asset – this is known as Technical Analysis. This type of analysis typically appeals to human nature as we like to see repetitive patterns and gain some reassurance that we are making the right decision.
Whilst our decisions are not driven by technical analysis alone we do use some of the more reliable ones such as moving averages to help give us an idea as to whether the asset price has momentum in a certain direction – the graph shows the 50 day and 200 day Simple Moving Average for the US S&P500; when the 50 Day moving average is above the 200 day you should hold US Equities and when it is below sell US Equities. Whilst this may seem simplistic it is a tried and trusted approach and forms a valuable part of our asset allocation decisions.