Technical vs Fundamental Analysis
Trading is a skill that is continually developed as one engages the markets actively. Every trader usually has a unique approach and trading style which most times is developed by the individual trader. The markets are either analysed technically or fundamentally. Let’s talk about both to evaluate which might be the best.
Technical analysis is the framework in which traders study price action.
The theory is that a trader can look at historical price movements and determine the current trading conditions and potential price movement.
The main evidence for using technical analysis is that, theoretically, all current market information is reflected in price.
If price reflects all the information that is out there, then price action is all one would really need to make a trade.
Now, have you ever heard the adage, “History tends to repeat itself “?
Well, that’s basically what technical analysis is all about! If a price level held as a key support or resistance in the past, traders will keep an eye out for it and base their trades around that historical price level.
Technical analysts look for similar patterns that have formed in the past and will form trade ideas believing that price will act the same way that it did before.
On the other hand, fundamental analysis is a way of looking at the market by analyzing economic, social, and political forces that may affect the supply and demand of an asset.
Using supply and demand as an indicator of where price could be headed is easy. The hard part is analyzingall the factors that affect supply and demand.
You must understand the reasons of why and how certain events like an increase in the unemployment rate affects a country’s economy and monetary policy which ultimately, affects the level of demand for its currency.
The idea behind this type of analysis is that if a country’s current or future economic outlook is good, their currency should strengthen.
The better shape a country’s economy is, the more foreign businesses and investors will invest in that country. This results in the need to purchase that country’s currency to obtain those assets.
Some traders have a bias that makes them stick to either technical or fundamental analysis while some tend to find a balance between the two suggesting that a mixed of both is the best. However, that is not uniformly agreed amongst traders. The veteran US30 trader Quillian Black, who made a seven-figure profit during one of his intraday trading sessionssaid, “fundamentals are no match to my technical”.
Legendary investor Warren Buffet is known for his fundamental skills and approach to the market. He’s known for reading and studying the fundamentals of companies judiciously to help guide his investment decisions.
Deciding which to stick with is a common dilemma for new traders. Here at KWAKOL, we are fully technical and consider fundamentals as a catalyst to what our technical have been screaming. Our trading decisions are made before any fundamental data is made available. For us our technical fore sees every fundamental that is to be released which makes our trading style unique and dependable.