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
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Technical analysis
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- Focuses on what ought to happen in a market
- Factors involved in price analysis:
- Supply and demand
- Seasonal cycles
- Weather
- Government policy
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- Focuses on what actually happens in a market
- Charts are based on market action involving:
- Price
- Volume
- Open interest(futures only
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The fundamentalist studies the cause of market movement,
while the technician studies the effect.
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