Comparison of fundamental and technical analysis

In order to profit from Forex trading it is necessary to continuously forecast future developments. Of course, analysis must be multi-level and the more factors it takes into account, the more likely it is for the trader to make the right choice when opening orders. The two main types of analysis are fundamental and technical. We have already written about their various elements on our blog on several occasions. And now we will compare them with each other.

 

Features and advantages of technical analysis

 

Perhaps the main advantage of technical analysis is its clarity. Conducting it, a person has before his eyes a lot of charts, gets the opportunity to impose on them various indicators and oscillators. At line intersections, you can literally lead with your finger, attach a ruler to them.

 

There is nothing simple in trading. But still, in comparison with the fundamental, technical analysis is easier. And this advantage stems from the previous one - clarity. For example, to determine the channel boundaries, support and resistance levels, it's enough to draw a line between the peaks in the chart. Basically, such work can be entrusted to a first-grader as well: he will not understand the essence of it, but will mechanically perform it.

 

Technical accessibility is also an important plus. You just need to download the trading terminal from the Internet and install it on any device - computer, laptop, tablet, smartphone. Many brokers offer to work through their site, in this case you do not need to install anything. And dozens of trading and auxiliary tools are at hand. There is no need to look for each indicator separately.

 

Features and benefits of fundamental analysis

 

Unlike the technical analysis, the fundamental analysis reveals the reasons for what is happening. Of course, it is more difficult to understand and evaluate them. It requires better preparation and search for more sources of information. If technical analysis can be done by looking at a single graph, in the second case you may need extensive knowledge in politics, economics, geography. After all, changes in the price of an asset may be affected by statements of managers, hostilities, natural disasters, changes in prices for other assets and a huge number of other factors.

 

Fundamental analysis is good in that it allows you to identify major trends without being distracted by minor current price fluctuations. Thus, it provides an opportunity to make a profit in the longer term. Related to this is the scope of its application. Fundamental analysis is more suitable for investing, especially in securities. For example, you can spend time studying the performance of a company to decide to buy its shares and leave them in your portfolio for several months. During this time it is unlikely that anything will change in the policy of the chosen company.

 

On the contrary, technical analysis is better suited for short-term trading on Forex. It allows you to determine trends within a day, hour, few minutes, which is not fundamental.

 

In any case, a trader should not give up any of the types. And a skilful combination of them is the way to success. After all, the more various factors are included in the prediction of the situation, the higher are the chances for its correctness. Two methods complement each other in trading and investing, and the advantages of each of them overlap the disadvantages of the other.