Financial Market Analysis: Technical vs. Fundamental

Financial Market AnalysisThe main school of analysis thought in the financial market is technical or fundamental. Fundamental analysis examines the economic factor of the financial markets. Technical analysis studies the movement in price of a stock and uses the information to predict its future activity. The new trader may be asking, “Which is the best analysis method for me?”

In a simple definition, technical analysis studies charts while fundamental analysis examines financial statements. A fundamental analyst will study the financial statements and other documents to determine the value of a company, and if it is worthy to pursue in stock trade. Technical analysts tend to skip all the documents, and go straight to the charts which show a visual of the performance of the company. Those people who prefer technical analysis believe that the company’s true performance activity is contained in the charts.

Fundamental analysis can take substantially longer to determine the health of a company. It does take a while to generate historical data. Technical analyst can have a generalized idea in a few weeks, days, or even a few minutes. This is dependent on the type of information they are seeking. Some critics view technical analysis as a form of financial magic buried in the algorithms of performance patterns.

The two analysis methods rarely mix. The general impression is that of oil and water, they just don’t mix. However, some analysts have had great success in combining the two techniques. By combining the two, you may be able to see something that others miss. However, there are distinct benefits to understanding both methods, and can be explored more in an educational setting.

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