FAQ What is Technical and Fundamental Analysis?

zambuck

Well-known member
Jan 30, 2003
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#16
Fundamental Analysis - Relates to a particular entity's performance. In the old days before Computers and gizmos, traders looked at entity's data like PE ratio, EPS, yield etc etc..and then decided if it is worthwhile to 'invest' in that entity by deciding 'how much' they would be 'willing' to pay to purchase a 'share' in that entity, with a hope that in few years the price of share will rise with the performance of hat entity.

Financial pages of any reputable newspaper will have these data listed daily. In past not everyone purchased stock on a minute timescale, but days of weeks.

While this was in some way 'real time' it was only the presence of Brokers and Traders who carried out 'trading' on behalf of people willing to 'buy share' via verbal or telephone instruction.

Sometimes traders in pits wanted to keep track of price changes and only means to record these was a note pad or fag packet.

Rather than writing actual data some reverted to point and figure charting. Traders did not want to record small and irrelevant noises in trading, only those that made significant ones were recorded. O's for 'pipe waters flowing down'...and X's for 'spiders climbing the wall....! or Point and Figure Charting was born. It is basically shorthand version of data of share movement.

Advent of computers allowed people to record data every second, minute, hourly etc....and online trading meant that these kind of decisions were executed faster and in almost real time.

Technical Analysis - It was at that time that the term Technical Analysis was born, with people creating 'indicators' that took into account OHLCV format of data. These were based on information taken from OHLCV and Time (Min, Hour, Day, Month etc etc)

This allowed Traders to see which entity is rising or falling. Traders looking at Fundamental information will decide to sell or purchase the 'shares' of that entity, but Technical Analysts will observe this rise and fall, which will be made more apparent by the indicators and purchase or sell 'shares' by just looking at the indicators reading. Generally they would not look at the PE, EPR etc etc in making that decision.


Yield - http://en.wikipedia.org/wiki/Yield_(finance)

PE Ratio or PER - P/E ratio - Wikipedia, the free encyclopedia

EPR - P/E ratio - Wikipedia, the free encyclopedia

I have been doing research on TA and Indicators for some time now. I have been looking at which indicators work when. Which one will work in - sideways, rising or falling markets....Which indicator will complement another one....what are the best time scale to use for each indicator etc etc....

And then how to group indicators on a chart layout....in this case Metastock....I trade with mid term trading...so it may be weeks or months...I refuse to sit in front of 6 screens, I would rather watch paint dry..!....I have other business interests and time is scarce so I have my own set up that suits me fine.

It is perfectly possible to make reasonable money trading short to mid term.

I have no time for Forex, or spreadbets or CFD. If your TA is perfect then why spreadbet..?..Go for the real thing.
 
Jul 24, 2009
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#17
you can also think of fundamental analysis is the cause and the technical analysis as the effect. technicians believe that everything fundamentally, psychologically, or whatever may affect the stock price is displayed on charts. technicians believe that studying technical analysis is like a shortcut then rather studying fundamentals. i look at both, but then again they sometimes contradict each other..also, fundamentals are more long-term - you study their annual balance sheets and decide if it's a good investment...technical analysis is more short term- you can just look at a daily chart and using their indicators, you can decide if a stock is worth holding for a couple days to take some quick profits
 
Nov 3, 2010
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#18
I read somewhere that fundamentals determine price action while technicals express it. Something to that effect. But in terms of which analysis works best, it's tough to tell. I personally am biased towards fundamentals but then "history tends to repeat itself" so I make use of technical analysis as well.
 

Hate2Lose

Active member
Jul 22, 2013
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#19
Fundamental analysis is based on looking at external factors that can affect the performance of a company, commodity or currency. These factors can range from anything from a company having a large investment in company that is set to be liquidated, to political issues. This often makes it difficult to conduct research based on fundamental analysis because the factors are generally outside the control of the traders or the stock market.

Fundamental Analysis - Keep It Easy

What Is Technical Analysis? - YouTube
 
Apr 16, 2015
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#20
I think it is necessary to use both types of analysis and watch what more profitable in the process.
 
Oct 2, 2014
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#22
Different people use different approaches to markets, someone might tell you that fundamentals are the key, another will tell you that technicals are the key, don't listen to either one. Devise your own strategy.
 
Oct 25, 2015
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#23
How can we combine TA & FA in trading? Support with FA, we know the price would go up but TA tell the opposite, how do we decide?
 

IFeelFree

Active member
Oct 3, 2015
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#25
That is to say, that all factors which have an effect on the price have already been considered by the market and are thus reflected in the price.
However, many factors have an influence on price that is limited in duration. Such factors ("shocks") can move prices away from equilibrium. One way of trading is to bet on a return to equilibrium. This is the approach of statistical arbitrage, which is what I use.
 
Oct 16, 2015
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#27
Technical is speculating off historical data. Whether it be patterns, indicators, or some other form of analysis that evaluates historical data.

Fundamental is speculating off future predictions. A fundamentalist would buy wheat futures predicting the price will rise because of higher than average rainfall, or short a currency because of some political influence.
 
Nov 25, 2011
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art-by-alexa.com
#28
A fundamentalist would buy wheat futures predicting the price will rise because of higher than average rainfall
It could be argued that in practice, that also tends to be based, at least to some extent, on historical experience: typically she wouldn't do that, if higher-than-average rainfall, historically, had usually been followed by a fall in the price of wheat. Both TA and fundamental parameters involve an assessment (whether analytical or intuitive) of the probability of previous and/or current events influencing future developments, and in either case price movements are caused by imbalances between buying and selling pressure.