Technical analysis and fundamental analysis
Technical analysis and fundamental analysis are two different approaches used by investors and traders to evaluate financial assets such as stocks, currencies, and commodities. Here is a brief explanation of each:
First: Technical Analysis
What is it?
Technical analysis relies on studying price movements and charts to predict future market trends.
The basis relied upon:
Prices move in trends.
History repeats itself (Patterns recur).
Everything is reflected in the price (the market reflects all available information).
Tools used:
Charts (line charts, candlestick charts).
Technical indicators such as:
RSI (Relative Strength Index)
MACD
Moving Averages
Price patterns (such as head and shoulders, double tops).
Support and resistance levels.
Suitable for whom?
Day traders
Short-term and medium-term traders
Secondly: Fundamental Analysis
What is it?
Fundamental analysis focuses on evaluating the intrinsic value of an asset by studying the economic and financial factors associated with it.
The basis relied upon:
The company's or economy's performance affects the asset's value.
The market price may not currently reflect the true value, but it will correct itself over time.
Factors studied:
For stocks:
Financial data (such as earnings, revenues, debts)
Financial indicators (such as P/E Ratio, ROE)
Company management, competition, target market
For currencies and economies:
Interest rates
Inflation and unemployment rates
Economic growth (GDP)
Political and economic news
Suitable for whom?
Long-term investors
Those seeking to understand the true value of the security
The fundamental difference between them:
Criteria Technical Analysis Fundamental Analysis
Source Past price movements Economic and financial data
Time Short to medium-term Medium to long-term
Goal Predict price trends Determine the true value of the asset
Tools Indicators and charts Financial reports and news
Which is better?
There is no absolute 'best'. The choice depends on the investor's goals:
Day trader: often prefers technical analysis.
Long-term investor: relies more on fundamental analysis.
Professional trader: may combine both in what is known as hybrid analysis.