Difference between Fundamental Analysis and Technical Analysis.
Compare and contrast the fundamental and technical analysis
Fundamental analysis a method of evaluating a security that entails attempting to measure its intrinsic value by examining related economic, financial and other qualitative and quantitative factors. Fundamental analysts attempt to study everything that can affect the security’s value, including macroeconomic factors and company-specific factors
The end goal of performing fundamental analysis is to produce a value that an investor can compare with the security’s current price, with the aim of figuring out what sort of position to take with that security. This method of security analysis is considered to be the opposite of technical analysis.
Technical analysis a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security’s intrinsic value, but instead, use charts and other tools to identify patterns that can suggest future activity.
The key difference between technical analysis and fundamental analysis are as follows.
- The technical analysis mainly seeks to predict short-term price movements, whereas fundamental analysis tries to establish long term values.
- The focus of technical analysis is mainly on internal market data, particularly price and volume data. The focus of fundamental analysis is on fundamental factors relating to the economy, the Industry and the firm.
- Technical analysis appeals mostly to short term traders, whereas fundamental analysis appeals primarily to long term investor.
- The technical analyst looks backwards whereas fundamental analysis looks forward as well as backward.
- The technical analyst thinks that stocks market behaviour is 10% logical and 90% psychological whereas the fundamental analyst thinks that the stocks market is 90% logical and 10% psychological. Famous / Renowned Investor’s like Warren Buffet, Raamdeo Agarwal, Ramesh Damani, Peter Lynch rely mainly on fundamental analysis while making an investment decision.
Both types of analysis are useful for examining market action. Your trading style and attitude to trading will determine which kind of analysis you will find most beneficial. But before making that decision, it is a good idea to study the subject of analysis in slightly greater detail. In the next few sections, our subject will remain the various aspects of forex analysis.