The IDDA investment strategy development method is short for the Invest Diva Diamond Analysis. There are different methods to analyze the markets before pulling the trigger and actually executing your investment strategy. Most individual traders learn one or two methods, say technical analysis, or following their favorite economic news anchor on TV. Unfortunately, relying on only one type of analysis can be incredibly dangerous.
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The IDDA suggests analyzing the markets from five different points. Those include technical analysis, fundamental analysis, market sentiment analysis, capital analysis aka personal risk management, and overall analysis.
IDDA – Five Points of Invest Diva Diamond Analysis
IDDA Point 1: Fundamental Analysis
Fundamental analysis is the art of using all the gossips, stories and events about the economy, financial situation of the securities or assets you are looking to invest in, and upcoming risk events which could move the markets.
A fundamental analyst will look at all these data to make a decision whether that security is worth buying or not.
Most of the news that you hear on the radio and TV are trying to help you get a glimpse of the fundamentals. Fundamental analysis is a way of looking at the market by analyzing economic, social, and political forces that affects the supply and demand of a security.
Fundamental analysis can be used in all different types of markets, including stocks, forex and bonds.
Check Out All Points of the IDDA for Forex in Forex Coffee Break Education Course
For example, forex traders buy and sell currencies with the hope of making a profit when the value of the currency changes in their favor, whether from market news or events that take place around the world. Currencies, just like anything else that can be bought or sold, are subject to the laws of supply and demand. When people want a particular currency, the cost of the currency in terms of other currencies will go up.
The IDDA method tends to rely more on fundamental analysis when analyzing the stock market, comparing to when trading forex.
Although very valuable, the vast majority of investment information available can be overwhelming and intimidating. The good news is that in our Make Your Money Work For You PowerCourse, we go deep into details of fundamental points to analyze when trading stocks, ETFs and forex. This can help you begin to work through the maze of information and become a more informed investor.
Fundamental Analysis for Stocks
- The art of gathering information about the economy, and company who’s shares you want to invest in.
- The Internet is a major force in the investing environments.
- You’ve got to avoid market noise though.
Types of Fundamental Information
- Economic and Current Event Information.
- Industry and Company Information.
- Information on Alternative Investment Vehicles.
Sources of Information for Fundamental Analysis – IDDA Point 1
We can divide the sources of information for fundamental analysis into two categories as listed below.
Economic & Current Events
General news papers such as New York Times, Washington Post, Los Angeles Times, Chicago Tribune, USA Today, MarketWatch, CNBC, and Bloomberg.
Industry and Company Information
For Mutual Funds, your best bet would be Morning Star (www.Morningstar.com).
The ease with which information is available to all investors today makes it easier for scam artists and others to spread false news and manipulate information. Anyone can sound like an investment expert online, posting investment tips with no underlying substance.
In the fast-paced online investment environment, two types of scams turn up frequently.
- Get-Rich-Quick Scams: Promoters sell worthless investments to naïve buyers.
- Pump-and-dump Scams: Promoters buy select stocks and then falsely promote or hype the stock to the public.
To crack down on cyber-fraud, in 1998 the SEC formed the Office of Internet Enforcement, which was merged into the Office of Market Intelligence in 2010. Its staff members quickly investigate reports of suspected hoaxes and prosecute the offenders. At www.sec.gov, you can find specific instructions about how to spot and avoid Internet scams.
IDDA Point 2: Technical Analysis
The second point of the IDDA suggests analyzing at the price action history of the security on a trading chart. Technical analysis is the art of using history to predict the future. At all charts and trading platforms, the securities have been making history with their price action moves. A technical analyst looks how a security has been performing, and determines potential future price movements.
Here is the difference between fundamental and technical analysis via an example perfect for all the shopping lovers.
“Let’s say you are trying to find the perfect shop to buy everything you need for your best friend’s bachelorette party. As a fundamental analyst, you ask all your friends about the products of different shops that you have in mind. You would go to each store and study the product that was being sold. After you have gained all the information, you will decide which store to shop at.
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On the other hand, as a technical analyst, you would save all the phone calls and walking from store to store on your high-heels shoes, and instead, you would sit on a bench close to each store and watch people going in and out. You will analyze their shopping bags, their facial expressions before and after shopping, etc. Your final decision will be based on the patterns or activity of people going into each store.
Your grandma had a point when she told you “history repeats itself.” She would’ve made such a good technical analyst, because this is basically what technical analysis is all about!”
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There are so many fabulous tools and gadgets that help to understand the historical movements and patterns. By learning how each indicator works, you can have a higher accuracy in predicting future price actions.
Technical analysis looks for similar patterns that have formed in the past and will come up with trading ideas believing prices will make the same movements as they did before.
Let’s take a look at a currency pair’s historical printed movement printed on a chart.
IDDA Point 2 – Technical Analysis Chart
Charts are the best way to see all the moves a security has made in a glance. You can literary see the prices jump up and down in whatever time-frame that you like.
I almost forgot to mention that market prices can sometime be very trendy as well. Often times, they follow the latest trend of price, which help analysts to come up with trend trading strategies.
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IDDA Point 3: Market Sentiment Analysis
Market sentiment analysis is the 3rd point of the IDDA. Market sentiment is the emotions and attitudes of traders in the market, about a specific security. Sentiment analysis is the study of the love-hate relationship with the securities and traders, which in the geeky (or maybe animal lover?) investing world, is described as “bulls” and “bears.”
If traders expect upward price movement of a specific security, the sentiment is said to be bullish.
On the contrary, if the market sentiment is bearish, most traders expect downward price movement.
Most traders have their own opinion, feeling or intuition about the markets, that’s why the prices don’t simply reflect all the information out there.
Each trader expresses her thoughts and opinions through the position they take in the market (bullish or bearish.) This helps make the overall sentiment of the market.
Just like technical analysis, there are indicators that help having an understanding about the market sentiment. We will explain all about sentimental analysis once you start drinking your Sentimental Beans in the Forex Coffee Break Education Course or the Make Your Money Work for You PowerCourse.
IDDA Point 4: Capital Analysis
The 4th point of the IDDA is perhaps the most important one, which many retail traders ignore. Capital analysis includes research on your capital, risks and reward potential. You must calculate your risk tolerance before deciding on which trading strategy is suitable for your portfolio.
Before making an investment decision on your, you need to calculate your capital, the spread with your broker, and the leverage that makes sense to your trade and capital, to avoid unpredictable losses. This can also be called risk management.
Depending on your capital and the amount of money you have in your account, your trading strategy should differ. Every time you get in and out of a trade, you pay a fee to your broker which is called the spread- the difference between the bid and ask price. Furthermore, you have the option of using leverage that often is available anywhere from 2 to 50 times.
We normally do not recommend speculating and trading before risk events. Join us in our strategy development room by becoming a member of our investing group to learn more.
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IDDA Point 5: Overall Analysis
Overall Analysis is a general evaluation of all the other points of the IDDA, Invet Diva Diamond Analysis. Is at least 90% of the other points signaling for a successful trade? And most importantly, do you feel comfortable with this trade or there is something deep down in your guts that is preventing you from taking the final step and placing the order?
I call it “women’s intuition.” We’ve all heard the term and there is in fact research evidence suggesting women have some sort of “psychic” ability to discern other’s feelings and what they are thinking. Many fellow trading heroines such as Jody Samuels from JP Morgan also admit that they sometimes follow their heart and gut feeling on whether the market is going up or down. But this is not limited to women. Many male trading superstars such as Rick Bensignor also make a last-minute checkup with their gut feeling before placing an order.
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Intuition or instincts can be either a starting point for your analysis or a final determination of what position to take.
For example, you open up the chart of specific security and in the first sight, you feel the market is bearish. Then you will look for fundamental, technical and sentiment support to back your feeling up.
Another scenario is after you have done all your study and analysis, you are sweating and still not sure if the analysis is going to work. That is when you can use your intuition to confirm (or negate) your trading decision. The best advice here is that if you are not sure, then don’t do it! And certainly don’t simply hope that the market will move in your favor. As Martin J Pring wisely points out:
“Hope is not a good thing to have when trading!”
Do not ever trade only based on your intuition, EVER!
While you may be able to use your intuition and follow your heart in trading, you need to make sure that you are not confusing these feelings with fear and greed. You ALWAYS have to back up your intuition with other types of analysis provided by Invest Diva.
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