Basic Technical Analysis Versus Fundamental Analysis
Technical
analysis is a method of predicting price movements and future market
trends by studying charts of past market action which take into account
price of instruments, volume of trading and, where applicable, open
interest in the instruments.
Fundamental Analysis is a method of forecasting the future price
movements of a financial instrument based on economic, political,
environmental and other relevant factors and statistics that will
affect the basic supply and demand of whatever underlies the financial
instrument.
In practice, many market players use technical analysis in conjunction
with fundamental analysis to determine their trading strategy. One
major advantage of technical analysis is that experienced analysts can
follow many markets and market instruments, whereas the fundamental
analyst needs to know a particular market intimately.
Main
differences between the two types of analysis
|
Fundamental
analysis
|
Technical
analysis
|
- Focuses on what ought to
happen in a market
- Factors involved in price
analysis:
1. Supply and demand
2. Seasonal cycles
3. Weather
4. Government policy
|
- Focuses on what actually
happens in a market
- Charts are based on market
action involving:
1. Price
2. Volume
3. Open interest
|
The
fundamentalist studies the cause of market movement, while the
technician studies the effect.
Analysis of
Foreign Exchange Markets
Foreign exchange
traders base their decisions on technical analysis and fundamental
analysis traders use charts, trend lines, support and resistance
levels, mathematical models and other means to identify opportunities
and drive trading decisions. Fundamental traders identify trading
opportunities by analyzing economic information.
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