Technical Analysis for Long-Term Investors by Clay Allen
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Forex Trading – Foreign Exchange Course
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Foreign exchange, or forex, is the conversion of one country’s currency into another.
In a free economy, a country’s currency is valued according to the laws of supply and demand.
In other words, a currency’s value can be pegged to another country’s currency, such as the U.S. dollar, or even to a basket of currencies.
A country’s currency value may also be set by the country’s government.
However, most countries float their currencies freely against those of other countries, which keeps them in constant fluctuation.
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Long-term investors often shun technical analysis because it is thought to be a tool used solely for short-term speculation. In fact, a large part of the literature of technical analysis is devoted to short-term timing, which confirms this belief. Many individual investors have experimented with various charting techniques and have dropped the technical approach after a few “bad” experiences. Professional long-term investors are often completely indoctrinated in the belief that the market is “efficient” and that technical analysis is of no practical value since the day-to-day fluctuations of stock prices are random. There can be little argument that the day-to-day movements of stock prices are random. And yet, the movements of individual stocks and the broad market demonstrate an uncanny ability to anticipate future fundamental developments and other factors that influence stock prices. Short-term randomness of stock prices does not seem to diminish the ability of the market to more-or-less consistently act as a long-term discounting mechanism. The random nature of stock price movements has led to the development of a primarily academic theory called the Efficient Market Hypothesis. The EMH is highly critical of professional investment management and is often used to justify a passive indexed approach to portfolio management.
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