The difference between fundamental and technical traders

There are many types of market analysis: wave, candle and even quantum method to predict asset prices. But most traders use technical or fundamental analysis.

The confrontation between fundamentalists and technicians is akin to the everlasting battle of physicists and lyricists. Adherents of a particular type of analysis is most often ignored by other methods, and their opponents feel incompetent. However, strict separation of today is not welcome, because for a comprehensive market analysis and vision the entire picture traders must use both types of analysis.

Fundamental analysis

This type of analysis is used in long-term trade or intraday trading on the news. Fundamentalists believe that certain world events affect financial markets, therefore, studying the event data to predict future behavior of prices. For example, if a company announces a new product, the punters are expected to raise stock prices. However, if users do not take the product and the company suffers losses, traders decide to play on the slide.

Adherents of fundamental analysis requires access to different information, so they often rely on private news sources or insiders. However, most of the news that a major influence on quotations of currencies or securities are publicly available. Moreover, know about them in advance. Reporting companies or macroeconomic indicators are published in the preset time, and political speeches often are announced the day before. There are also Flash factors that cannot be predicted, for example, acts of terrorism, catastrophes or natural disasters.

The benefits of fundamental analysis

This method is ideal for long-term prediction. Integration of economic, political, consumer or technological factors allows traders with high accuracy to predict the behavior of quotations. A thorough examination of fundamental securities options gives you the ability to identify valuable shares with domestic growth potential. In addition, research reporting companies allows traders to better understand the nuances of the functioning of specific companies, and therefore, completely immersed in their cases and respond to any changes.

Disadvantages of fundamental method

The primary flaw of fundamental analysis is that it is impossible to take into account all the circumstances affecting the stock quotes. The stock quotes are influenced by too many factors: even temperature could affect the stock price or index certain sectors. It's almost "the butterfly effect", and it is impossible to track absolutely all factors of influence.

In addition, fundamental analysis often turns into a self-fulfilling prophecy. If a famous analyst argues that Gazprom's shares will drop in the near future based on fundamental data, traders will start to actively "Raiffeisen Bank International has doubled" position on Gazprom that will provoke their real downfall. But large investors and market makers interpret the data differently, so their vision of the market can radically change the situation. As a result, fundamental data does not always allow you to correctly predict the market situation.

Technical analysis

Followers of technical methods use historical data to predict future behavior of prices. Three postulates of technical analysis, read as follows:

  • the schedule takes into account all quotations, i.e. price laid absolutely all influence factors;
  • the movement of prices is subject to trends;
  • history always repeats itself, and thus, past patterns necessarily will be fulfilled in the future.

Therefore, the chart displays quotes with all necessary information, so a trader for forecasting uses mathematical data processing. Many computer indicators (moving averages, Bollinger bands, Parabolic SAR or Momentum) can help you to identify the trend and certain patterns (candlestick patterns or shapes graphic analysis) allow you to anticipate a reversal or a growing trend. For the experienced technician virtually no matter what schedule of an asset before him: he can with sufficient probability to determine future behavior. Asset-specific considerations enables technical traders to achieve maximum accuracy.

The advantages of technical analysis

The schedule is an easy and convenient way to provide information that allows you to detect pricing maneuvers as a result important fundamental events, assess trading volumes or reveal the dependence of an asset from the market. It is technical data enable to choose the best moment to open position and correctly calculate levels of stop orders.

Shortcomings of technical method

The main disadvantage is the inertia. Indicators confirm the delayed and over short time frames, this may cause the deal to be opened too late. Technical indicators are constantly Veer between accuracy and sensitivity to price change. Too sensitive instrument will often generate false signals and precise — presenting them with delay when the moment to enter the market already missed. If we talk about shapes, technical analysis, of course, they don't always work.

Conclusion

Each method has its advantages and disadvantages, however, if a trader uses only a single type of analysis, he sees the market one-sided. For example, technical data may indicate a reversal of the trend, but a strong fundamental factor can confuse all the cards. And without examining the past prices and knowledge of technical parameters, fundamental data does not allow to define clear boundaries change quotes.

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Автор статьи: Максим Миллер - о авторе.
Бизнесмен, инвестор, финансовый консультант Facebook
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