Fundamental vs Technical Analysis
Fundamental Analysis is a method of forecasting the future price movements of a financial instrument based on economic, political, environmental and other relevant factors and statistics that will affect the basic supply and demand of whatever underlies the financial instrument.
Technical analysis is a method of predicting price movements and future market trends by studying charts of past market action which take into account price of instruments, volume of trading and, where applicable, open interest in the instruments.
In practice, many market players use technical analysis in conjunction with fundamental analysis to determine their trading strategy. One major advantage of technical analysis is that experienced analysts can follow many markets and market instruments, whereas the fundamental analyst needs to know a particular market intimately.
Main differences between the two types of analysis
Fundamental analysis | Technical analysis |
| Focuses on what ought to happen in a market | Focuses on what actually happens in a market |
| Factors involved in price analysis: | Charts are based on market action involving: |
| 1. Supply and demand 2. Seasonal cycles 3. Weather 4. Government policy | 1. Price 2. Volume 3. Open interest |
Analysis of Foreign Exchange Markets
Foreign exchange traders base their decisions on technical analysis and fundamental analysis. Technical traders use charts, trend lines, support and resistance levels, mathematical models and other means to identify opportunities and drive trading decisions. Fundamental traders identify trading opportunities by analyzing economic information.
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