A Complete Guide to the Futures Market, 2nd Edition

CHAPTER 23

Types of Fundamental Analysis

When you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot measure it, when you cannot express it in numbers, your knowledge is of a meager and unsatisfactory kind: it may be the beginnings of knowledge, but you have scarcely, in your thoughts, advanced to the stage of science.

—William Thomson, Lord Kelvin

■ The “Old Hand” Approach

The “old hand” approach refers to the analytical method used by analysts whose familiarity with the market is so finely honed that they have developed a virtual sixth sense with respect to its price fluctuations. By talking to a variety of commercial participants, they get a feel for market tone. They are also well tuned in to the flow of market news and are constantly assessing the market’s behavior in response to this information. This is strictly a nonscientific approach, with the individual acting as the computer. It is not intrinsically inferior to more sophisticated approaches; its value is strictly dependent on the skills and intuition of the practitioner. In fact, it is hardly unusual for some analysts of this school to consistently outperform their econometrically oriented counterparts. This approach is strictly individualistic, however, and by definition can only be acquired by personal experience.

■ The Balance Table

The balance table summarizes the key components of current-season supply and disappearance, along with prior-season ...