Technical Analysis vs Fundamental Analysis
Comparing Fundamental and Technical Analysis is an endless debate. This argument is always predicated on financial markets, whether it is presented in forums or blogs. Let’s examine the differences between the technical and fundamental analyses of the stocks, commodities, and forex.
Each of the three markets has different fundamentals. A balance sheet and income are the subject of one, supply and demand are the subject of another, and the national economy is the subject of still another. Therefore, we shall evaluate it as distinct concepts rather than generalising it.
Fundamental Analysis of Stock Market
Commodity market fundamentals entail analysing a commodity’s supply and demand to determine its fair value. Commodity prices rise if either a supply deficiency or an excess demand is anticipated in the future. A commodity’s price drops if the opposite is predicted.
Forecasting takes a lot of effort, and the data is dynamic as well. But theoretically, a knowledgeable retail investor may be able to do so with the use of high-end Newsfeed technologies.
Fundamental Analysis of Forex Market
Saved the best for the last. A fundamental investor should forecast a country’s GDP, CPI, PPI, inflation rate, fiscal policies by the government, monetary policies by the central bank, employment data, import and export and other mumbo jumbos. Safe to say, he has to assume the role of finance secretary and central bank governor. Sounds intriguing! Isn’t it? It doesn’t end here, when a new turbulence like trade war or political instability develops, he needs to punch in more hours. (Get our newsfeed indicator for free, available at the MT4/MT5 terminal, to receive real-time economic data.)
It is important to remember that all three markets are interrelated, and just as with currency correlation, investors should also analyse the inter-market interdependence. The fundamental analyst should have a general understanding of the other two divisions.
The technical analyst uses a chart to analyse historical price action of an asset. Charts are useful in determining supply and demand in the market, but who determines supply and demand for an asset? The big financial institutions, such as banks, brokerages, and hedge funds, are the ones who conduct fundamental analysis. A technical analyst, on the other hand, skips all the hard work and uses the chart as a cheat sheet to trade using the answers to the hard work of fundamental analysts.
Technical investors arrive at the party later than fundamental investors, who arrive early. However, everybody takes pleasure in the celebration in a different way. An early riser will sometimes be rewarded with pleasant hours, while a latecomer may occasionally have to pay for his tardiness.
However, more recent investment trends tell a different tale. While technical experts were making money from the prolonged bull run in every market category, fundamental analysts were complaining about overvaluation and pulling out early. Additionally, the technical analyst profits from the brief, erratic fluctuations that many fundamental analysts ignore as background noise.
A truce in the debate – Technical Analysis vs Fundamental Analysis
In theory, every piece of economic (fundamental) news and element will be represented in one way or another in the chart. Therefore, it makes no sense to continue the discussion on which is superior: technical analysis or fundamental analysis. Let’s examine what is practical for an investor or retail trader instead.
Technical analysis of Stock Market
Comparatively speaking, stock market technical analysis is more laborious than the other two areas. The rationale is that it generates a lot of fakeouts. Additionally, the preponderance of stocks is not helpful. Advanced stock screeners and sophisticated tools are essential for a serious trader. An investor’s confidence is always questioned when using long-term charts for investing since technical analysis is subject to regular fluctuations. Retail investors can successfully use the stock’s technical analysis, but retail fundamentalists with strong accounting and financial backgrounds have a higher success record. However, technical analysis is undoubtedly useful for short-term trading.
Technical Analysis of Commodity Market
It’s not an easy one. This is a simpler case for technical analysis because there won’t be many fakeouts. In comparison to stocks, there are also less commodities. Commodities that trade in large volumes and have good volatility include crude oil, copper, and gold. In the commodities market, a retail technical trader has unquestionably a considerably higher success record than a fundamental analyst.
Technical Analysis of Forex Market
The technical analysis hero, always. It adheres to technical analysis from textbooks. A proficient technical analyst can anticipate the fakeouts with ease. A trader can select from a variety of main currency pairings, despite the fact that there are several pairs. Major pairings also exhibit constant volatility. Sophisticated charting software is not necessary for Technical Analysis. Everything is in Metatrader. (Download Pipbreaker, the greatest MT4/MT5 indicator, to find trend reversal points.)
The FX and commodities markets are the best options for individual traders based on practicality. You are headed in the correct way if you are a forex trader who is learning technical analysis. Discover it, enjoy it, and treasure it!
In the stock market, it’s really simple.
For a retail trader, it is nearly impossible to succeed in the forex and commodities markets.
To put it briefly, fundamental analysis is useful for long-term investments.
Because of the frequent fake-outs in stocks, it is inefficient. However, it works best in commodities and Forex. Technical analysis is useful in short-term trades, so the debate between technical and fundamental analysis is pointless. Each has a place and is necessary, and the only thing that matters is which one to use in a given market based only on feasibility. Check out our three untapped, yet highly effective forex trading strategies.