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Technical vs fundamental analysis

Technical analysis studies the price movement on the basis of historical data. Fundamental analysis studies the economic indicators that have influence on supply and demand, thus affecting the price. The goal of fundamental analysis is to determine the intrinsic value of the company. If the market price is greater than intristic value, then the action is overvalued and if it is smaller it is undervalued.

The goal of both technical and fundamental analysis is to determine the direction in which prices will move in the future. But these two techniques have different approach in solving of problem. Fundamental analysis studies the cause, but technical analysis studies effect of changes in the market.

Conclusions of fundamental analysis little late for the price changes. When prices are changing we usually don't know what fundamentals have caused that, when it becomes known, price has already changed. Unlike fundamental analysis, technical analysis can predict price changes earlier.

The advantages of technical analysis is that it can help is for both short and long-term investments. Fundamental analysis can be used only for long-term investments.

These two techniques have also a different range of financial instruments that they can be applied to. Technical analysis can be applied to all financial instruments, while the fundamental can be applied only to those securities for which we can gather financial reports.

Many people think that technical analysis is superior, because technical analysis assumes that everything is included in the price including all fundamental indicators. So technical analysis indirectly includes fundamental analysis, while the opposite is not true.

When we would have to choose between these two techniques, of course most would chose technical analysis. But you should bear in mind that technical and fundamental analysis are not exclusive. As it was shown, both have their advantages. Therefore, they should be used both, so that one complements the other. So some traders are using fundamental analysis for selection of a financial instrument to invest to and technical analysis to create buying and selling signals.

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