the hAnDbook of teChnICAl AnAlysIsdecisions, as opposed to short‐term market participation, where short‐term price
fluctuations and precise market timing may be of lesser importance.
Fundamental data, on a broader scale, accounts for the overall underlying
economic performance of the markets. Supply and demand reacts to the economic
data released at regular intervals, which include interest rate announcements and
central bank monetary policy and intervention. One example of how supply and
demand in the markets are affected by such factors is the Swiss National Bank’s
(SNB) decision to maintain a 1.2000 ceiling on the foreign exchanges rate of the
EURCHF, with respect to the Swiss Franc. This creates a technical demand for the
Euro (and a corresponding supply in the CHF) around the 1.2000 exchange‐rate
level. Many traders have acted and are still acting on this policy decision to their
advantage, buying every time the rate approaches 1.2000, with stops placed at a
reasonable distance below this threshold. The integrity of this artificial ceiling re-
mains intact as long as the SNB stands steadfast by their policy decision to uphold
the ceiling at all costs. See Figure 1.5.
It behooves the analyst and investor to examine the actual decision‐making
process involved with investing in a stock based on intrinsic value. While it does
provide an indication, with all else being equal, of the integrity of a certain stock
relative to the universe of stocks available, there is a disruptive behavioral com-
ponent that affects this process. It is not just the calculated or estimated intrinsic
value that is an important element but also the general perception or future ex-
pectation of this value that plays an arguably greater and more significant role in
determining the actual share price of a stock. This may explain why shares prices
do not always reflect the actual value of a stock. This disagreement between price
and value is the result of divergence between the actual intrinsic value and per-
ceived or projected value.
fIgure 1.5 SNB Policy Impacting on the Value of the CHF.
Source: MetaTrader 4