What is the difference between fundamental and technical analysis
Sharefounders Forex believes that fundamental and technical analysis of the currency or stock market does not contradict each other in any way.
Based on its observations, Sharefounders Forex concluded that fundamental analysts focus on the ratio of supply and demand for the company's products and/or services. They study its reporting, profit and loss data, price/earnings per share (P/E) ratio, market share, sales dynamics, growth rates, and ratings of other stock analysts. Players who make deals based on the quality of the company's fundamentals usually buy shares «for the long term» and do not pay attention to the gymnastic tricks performed by the market on a particular day or week.
Technical analysis is the study of changes in prices for selected stocks (markets or indices) that occur over time and are reflected in charts. Moving prices form certain shapes or models on the charts. And since people tend to acquire habits, price patterns are also repeated many times. When technical analysts notice that one of these models is starting to form, they are able to calculate what the next price movement might be.
Sharefounders Forex adds that if the fundamental indicators tell us about the internal financial strength of stocks, then the chart reveals their nature (they also talk about «volatility», i.e., the volatility of prices).
So, what are the advantages of fundamental analysis:
- it allows you to determine the main trends;
- the fundamental analysis points to factors that really affect the market. That is, with its help, a trader can understand the reason for a particular trend.
The disadvantages of fundamental analysis Sharefounders Forex includes the following:
- he is beloved. That is, it is quite difficult for novice traders to correlate the results of fundamental analysis with the chart. This can lead to errors in operation;
- the fundamental method of forecasting is multi-faceted. A trader who uses this type of analysis will have to constantly keep their finger on the pulse and follow the latest developments in the markets. This applies not only to the economy, sectors of the economy or individual companies but also to politics;
- to work with fundamental analysis, it is necessary to have certain knowledge in the field of Economics and not only.
Advantages of technical analysis:
- Visualization. Technical analysis is working with charts. All information is in front of the trader's eyes. Also, today most terminals contain all the necessary additional tools for operation;
- availability of tools. Most of the tools for technical analysis are available on modern trading platforms;
- relative ease. Of course, technical analysis is not simple, but it will take much less time to master it than studying fundamental analysis.
The disadvantage of technical analysis Sharefounders Forex considers:
- subjectivity. One of the significant drawbacks of technical analysis is that each trader reads the chart in their own way;
- another important drawback is that technical analysis does not reveal the causes of fluctuations, but only suggests following them.
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- Fundamental analysis of securities
- What determines the dollar exchange rate-39 factors of influence
- Schaff trend cycle indicator (STC)
- The level of remuneration (what it is) and its impact on the market
- Anatomy of an uptrend.
Having considered all these factors, everyone can make certain conclusions for themselves — whether it is worth working with fundamental analysis at all or which type of forecasting to give preference to. Although we recommend working with two methods at the same time. After all, fundamental and technical analysis of the investment situation in the market do not contradict each other but complement each other well.
Should I avoid technical analysis when working with fundamental analysis?
Fundamental and technical analysis.
Probably, many traders are wondering whether it is worth avoiding technical analysis when working with fundamental analysis. Or, on the contrary, should you avoid the fundamental forecasting method if you already use the technical one?
Sharefounders Forex believes that fundamental and technical analysis of the currency or stock market does not contradict each other in any way. Moreover, they work well together, as technical analysis allows you to visually verify what is happening in the market.
The most successful traders combine both types of forecasting to achieve their goals. Having determined the main trend using the fundamental method, they look for confirmation on the chart and this allows them to open more accurate positions on a particular trading instrument.
When you use both fundamental and technical analysis, you get an accurate picture of the market. This is why we increasingly see technical analysts skimming the company's fundamentals, while fundamental analysts sneak a peek at the charts.
As smart and profitable traders, we recognize the value of both approaches. When entering the market, we want to take as many chances as possible. To do this, the next section will show you where you can find the most complete fundamental information about the company in the shortest possible time.