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Is Technical Analysis Better Than Fundamental Analysis?

Wed May 26 2021 14:47
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The most searched topic in the trading community is which is better, technical analysis or fundamental analysis? What is your opinion on this question? 

From beginners to advanced traders, everyone is looking for the right answer. Both trading analysis techniques are most commonly used by many traders. That's the reason why they always debate about this question & which one is better than the other? 

Whether technical analysis is better than fundamental analysis? Traders spend most of their time appreciating the benefits of these two analysis. But still they don't get to the point. To help all the traders out there who are asking themselves the same question. 

We are here to help you learn more about these two analysis techniques. Here we will let you know which one of them is more beneficial than the other one

Know The Basics 

So let's start with the basics. Knowing the basics of both types of analysis will help us as we read this post. If you have no idea about the basics, this topic will be taken to a level where it has no relevance to anyone. So it is important to know the basics very well. 

We all know that these two types of analysis are popular among traders in different markets. Traders use these methods to analyze the market for sentiment, trends and more. But there is a difference between these two main types of analysis in the market. 

Technical Analysis 

The first type is technical analysis and traders use it to access historical data that relates to a stock they will be trading. Traders use this historical data to create patterns with different trading signals. After that, traders use it to get an idea about the trend or the coming trend.

Fundamental Analysis 

On the other hand, fundamental analysis is completely different from technical analysis. Here, fundamental characteristics of an asset are used to find out whether it is going to go up or down. 

Undervalued or overvalued data is used to perform fundamental analysis and no historical data is used for fundamental analysis. 

Know The Difference between them 

Now let's get to the point & we are trying to figure out the best type of analysis for us. We need to know the main differences between the two types of analysis before making a final decision. 

Before we choose the best one for us, we need to know the differences they have. So here is a complete list of the main differences. 

Fundamental Analysis Vs Technical Analysis 

Different markets see fundamental and technical analysis in different ways. For example, stock markets see them differently than the forex market. So it depends on the market you want to trade. 

But some basic differences remain the same for both types of analysis, no matter what market they are performed for.

Major Differences 

So often you will feel that technical analysis is different from fundamental analysis. From its use to its process of execution, there are many differences. 

Nevertheless, there is confusion about the existence of both. So here are the complete details about technical analysis and its difference from fundamental analysis. Below are the main differences that you will see. 

Purpose 

The purpose behind both types of analysis is different. When we talk about technical analysis, the purpose is to use the historical data to create a pattern. 

Traders use this pattern to find out the trend for an asset or a particular market. On the other hand, the purpose of fundamental analysis is to find out the fundamental characteristics of an asset. 

Process

The process is also different for both the analysis. Technical analysis takes historical data and then creates patterns after finding the relationship. While on the other hand fundamental analysis involves different processes.

Usage 

Technical analysis is used for different markets and different assets. However, it is recommended that technical analysis is more commonly used for short term trading such as intraday trading. On the other hand, fundamental analysis is best for long-term trading.

Signals

Different signals are used in both types of analysis. Technical analysis uses signs like trend lines, simple moving averages and more. While, on the other hand, fundamental analysis uses overvalued and undervalued stocks as signals. And, all types of these signals have their crucial influence on the research.

Pros & Cons Of Both 

For better understanding, we need to know the advantages and disadvantages of both types of analysis. Technical analysis is good for some traders while it does not work for some traders. 

Some traders claim that fundamental analysis is the best way to analyze the markets and assets. While some traders claim that technical analysis is the best way to analyze financial instruments. Below are some of the main advantages and disadvantages associated with both types of analysis. 

Pros

Technical analysis is known as the best method for short-term traders. It uses human psychology to track the market trends which is a good practice. This is because human psychology is one of the most important factors that influence the market and its trends. 

Instead of depending on trends and myths, it depends more on the statistics and historical data related to an asset. Therefore, it is known as a reliable source of analysis. 

Cons

Along with the advantages, technical analysis also has some disadvantages. It is a complex and tedious process to perform technical analysis. Without being an experienced trader, you cannot use technical analysis for your trading account. Technical indicators give wrong results or different results, which might confuse new traders.

Fundamental Analysis - Pros 

Fundamental analysis considers strong fundamental data while analyzing an asset. No historical data is used, which means you rely on the current market segments and environment. Instead of making predictions, fundamental analysis is more practical compared to other methods. Moreover, fundamental analysis is easy to perform for beginners. 

Fundamental Analysis - Cons 

here are also some advantages of fundamental analysis & it is a time consuming process to perform fundamental analysis. Sometimes, not much data is available or published by the asset owner and it becomes difficult for traders to perform it for some assets. So the tip here is not to do fundamental analysis from scratch and look for economic calendars, reports and more. 

Summary

Both types of analysis are important and they have been used by experts for years. But it's hard to say which one is better, even after years of use. But there are many opinions about these two types of analysis in the market. 

Some traders believe in technical analysis while others rely on fundamental analysis. It all depends on you which one is good for your trading portfolio. Before you choose one of these two, you need to read out the differences, advantages and disadvantages. 

Once you have gained some experience in trading, you can start using both. The combination of technical and fundamental is profitable and you cannot miss it.
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