Fundamental Analysis vs. Technical Analysis
A lot of people are now trying to accumulate more wealth through forex and stock trading. If you are planning to make money in trading as well then note that many traders especially the new ones try to figure out which is a better approach when it comes to earning profits. In fact, a lot of traders make a fundamental analysis vs. technical analysis comparison because these two are said to be among the key points to achieving financial success in trading. If you wish to improve your current financial condition through stock and forex trading, then it is advisable for you to look for an investment strategy which is proven to be effective when it comes to receiving a huge return on your investment while also preventing excessive setbacks, losses and risks.
Fundamental Analysis vs. Technical Analysis: Understanding the Two Vital Approaches
If you want to figure out which is better between fundamental analysis and technical analysis, then it is advisable for you to gather as much information as you can get about the two approaches. Fundamental analysis can actually be defined as the study of vital economic factors underlying a stock’s price movement. This is a more conservative approach which results to long-term investments. If you plan to use this approach when it comes to trading, then be prepared to work hard in quantifying the present value of stocks by acquiring data associated to the overall market conditions, market share, earnings, dividends, financial strength of corporations, general viewpoint of the industry and the historical sales patterns. All these data can help you in assigning future value to stocks with the help of effective projection and interpretation.
Fundamental analysis is also said to focus more on analyzing real data by checking out the financial statements of the specific company which you are currently evaluating. When it comes to assessing stock value, fundamental analysis utilizes vital data present in financial statements including earnings, revenues, profit margins, return on equity and future growth. All these information are extremely useful when it comes to analyzing the underlying value of a company and its potential for growth.
Technical analysis is also a useful approach when it comes to gauging a company’s value. It focuses more on studying and analyzing historical prices and volume data as a means of detecting future trends. This approach is actually based on three major principles. The first one is to discount and reflect in the share price all the things that can have a major impact on the value of the stocks. The second one is that trends persist once they start to appear on the price movements of shares. The third principle which is related to technical analysis is that market activities tend to repeat. It should also be noted that technical analysis can benefit you by immediately detecting stock trends or momentum so you can choose the perfect exit or entry point. Charting is also one of the major approaches used in technical analysis.
Both fundamental analysis and technical analysis are effective when it comes to improving your profitability when trading in the stock or forex market. If you intend to choose one among the two by making a fundamental analysis vs. technical analysis comparison then make sure that you consider all the strategies that you are planning to use in trading so you can choose that approach which can perfectly suit your chosen trading strategies.
*By William Tan is a full time investor and trader.