Fundamental analysis vs technical analysis: What’s the difference?

Julie Brownlee, Fsp Invest, 08 Apr. 2015

Tags: analysis, fundamental analysis, technical analysis, trading, trading strategies, difference between fundamental analysis and technical analysis,

When it comes to trading, you’ll have to find a form of analysis that suits you.

The two main schools of thought are fundamental analysis and technical analysis. Some traders stick to using just one of these types of analysis, whereas others use a combination of the two.

So what is the difference?

Read on to find out…

The ins and outs of fundamental analysis

Fundamental analysis concerns itself with supply and demand, and how these factors affect the price of an asset. Assets include shares, commodities and currencies.

It also involves delving into economics. You need to look at the health of a country or a company, and what bearing this will have on an asset.

You’re looking to uncover what the intrinsic value of an asset is from the data you can access.

And from this you can decide whether to go long or short a certain asset.

If you’re a pure fundamental analyst, you probably won’t concern yourself with price charts.

The ins and outs of technical analysis

On the other hand, if you’re a technical analyst, price charts are the basis of all your analysis.

Technical analysis boils down to believing that everything that can affect the price of an asset is already in the price. So to decide whether to long or short an asset comes down to studying the price action of the charts.

Pure technical analysts ignore fundamentals, such as what’s going on in the news, economic data, supply and demand, and company results.

Instead they concentrate on what’s happened to the price of an asset in the past compared to where it is now and from there work out where it should be, Frank Hemsley in Forex Round-Up explains.

Technical traders base a lot of their decisions on the premise that history will repeat itself and follow similar patterns again. And that’s where they try to make money.

So there you have it, the difference between fundamental analysis and technical analysis.

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