Whether you’re entering financial markets for the first time, or are one of the most experienced in the field, it is necessary to remind individuals of the different ways to study and analyze the markets in order to forecast future price movements. Over time, we have seen the development of two different schools of thought, especially in the online trading market, bringing two different types of trading approaches to the forefront in order to help traders identify opportunities that lead to profitable trades.
• Technical Analysis
• Fundamental Analysis
What is Technical Analysis?
Technical analysis is a form of analysis that purely analyzes pricing charts with the intent to identify momentums, trends, and price inversions that signify the movement of an asset. In order to properly conduct this form of analysis, the trader uses different instruments such as trend indicators and mathematic formulas represented on the charts. Additionally, technical analysis enables the trader to forecast the price movements just by looking at graph behaviors for the short, medium, and long term simultaneously.
What is Fundamental Analysis?
Instead of analyzing charts and price trends, Fundamental analysis analyzes the markets on a macroeconomic scale, which directly relates to a given asset’s economical performance. Thus, fundamental analysis bases its forecast on the following factors:
• Market rumors
• Company acquisitions
• Political Events
A trader who uses this analytical approach can identify economic driving forces that could eventually make the price of the asset move in a manner that can render it profitable for the trader.
Comparing the Two Types of Analyses
Technical analysis can be less time-consuming when compared to fundamental analysis. Timing is critical in determining the right point to enter or exit a trade in the market, and this is a fundamental element in order to trade successfully. Traders who know how to use timing well can afford to have better entry levels and tighten stop losses with more probability.
Technical analysis can be more flexible than fundamental analysis because it enables the possibility to plan better to stop losses and earn a profit for any timeframe of trading.
Availability of information:
With fundamental analysis, pertinent data can be gathered through recent economic studies as well as mainstream news sources. Though, some more intricate macroeconomic data is sometimes difficult to gather. Technical analysis, on the other hand, offers numerical methods of gathering information as well as providing visual accompaniments such as graphs and price charts which enable the trader to make informed decisions in a short period of time.
So which approach is better?
It is ultimately up to the trader, and the trader’s given skill set, as to which type of analysis works better. However, it is always advised to use both forms of analysis in order to gather the most information possible on the markets and subsequently achieve profitability. At Tradeview, we always encourage our clients to use both forms of analysis as well as capitalize on the technological advancements that are present in our trading platforms. Our platforms consistently perform at a level that enables the trader to not only channel both technical and fundamental analytics but to utilize those analytical principles in order to profit on their assets.
Senior Market Analyst