What is the difference between fundamental and technical analysis?


Fundamental analysis and technical analysis, the main schools of thought when it comes to approaching the markets are at opposite ends of the spectrum. Both methods are used to study and predict future trends in stock prices, like any investment strategy or philosophy, both have their supporters and opponents.

Fundamental analysis is a method of evaluating a security by attempting to measure the intrinsic value of the stock. Fundamental analysts study everything from the overall economy and industry conditions, the financial condition and management of companies. Revenues, expenses, assets and liabilities are all important characteristics of the main analysts.

Technical analysis differs from fundamental analysis in that the price and volume of shares are the only inputs. The basic assumption is that all known fundamental foundations laid in the price; thus, there is no need to pay them much attention. Technical analysts do not attempt to measure the intrinsic value of securities, but instead use stock charts to identify patterns and trends that suggest that stocks will do in the future.

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The most interesting forms of technical analysis are moving averages, support and resistance, trend lines and momentum indicators.

Simple moving averages are indicators that help to evaluate the stock trend by averaging prices over a fixed period of time. Buy and sell signals are generated when a shorter term moving average crosses a longer term one.

Support and resistance use the history of prices. Support is defined as areas where buyers stepped in front, while resistance is where sellers are holding back price growth. Practitioners to search for and buy on support and sell on resistance.

Trend lines similar to the levels of support and resistance, as they provide specific points of entry and exit. However, they differ in that their predictions are based on how shares are traded in the past. They are often used for stocks moving to new highs or new lows, where no price history.

There are a number of speakers on the basis of indicators such as Bollinger bands, Chaikin money flow, stochastics and moving average convergence-divergence (MACD). Each of them have unique formulas and give signals to buy and sell based on different criteria. Indicators usually used in the range or flat markets.

For further reading, see the Basics of fundamental analysis Basics of technical analysis.

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