Fundamental and technical traders. What is the difference?

Fundamental analysis

This type of analysis is used in long term trade or intraday trade news. Fundamentalists believe that certain world events affect the financial markets, therefore, by studying these events, you can predict the future behavior of prices. For example, if a company announces a new product, from the players is expected to increase stock prices. However, if consumers do not agree with the product, and the company will suffer losses, traders will decide to play on the slide.

Proponents of fundamental analysis require access to very different information, so they often use proprietary news sources or insiders. However, most of the news influencing currency exchange rates or securities, are publicly available. Moreover, they are known in advance. Reporting company or macroeconomic indicators are published at a predetermined time, and political speeches often are announced the day before. There are unexpected factors that are impossible to predict, such as terrorist attacks or natural disasters.

Benefits of fundamental analysis

This method is ideal for long-term forecasting. Taking into account the economic, political, consumer or technological factors, traders can accurately predict the behavior of prices. A thorough study of fundamental characteristics of the securities gives you the opportunity to identify valuable stocks with potential growth. In addition, the research reports enable traders to better understand the nuances of the functioning of certain enterprises and, therefore, fully immersed in your business and respond to any changes.

The main disadvantages of the method

The main disadvantage of fundamental analysis is that it is impossible to consider all the circumstances affecting the stock market. Stock prices influenced by too many factors, even the temperature can affect the price of a stock or indices in certain sectors. It's almost "butterfly effect", and it is impossible to trace all the factors of influence.

In addition, fundamental analysis often turns into a self-fulfilling prophecy. If known, the analyst States that the shares of "Gazprom" will fall in the near future on the basis of fundamental data, traders will actively "short" positions of "Gazprom", which will provoke their real fall. However, large investors and market makers interpretiruya data in their own way, so their vision of the market can radically change the situation. In the end, the fundamental data do not always correctly predict the market situation.

Technical analysis

The followers techniques use historical data to predict future behavior of prices. Three postulates of the technical analysis are as follows:

Diagram factor in all that is embedded in the price of all factors of influence;
The price movement depends on the trends;
History always repeats itself, and this means that the last samples will be performed in the future.
Therefore, the chart displays all quotes necessary for a trader to predict the use of mathematical data processing. Computer indicators (moving averages, Bollinger bands, parabolic SAR or moving average) allows one to identify the trend, but some patterns (patterns candlestick or figures of graphical analysis) allow to predict a change or strengthening trends. For experienced techies, almost regardless of which card of the asset before him: he with reasonable probability determine the future behavior of prices. Specific assets allow technical traders to achieve the maximum accuracy.

The advantages of technical analysis

A chart is a simple and convenient way of providing information that allows to detect the movement of the price as a result of significant fundamental events, trading volumes or to identify dependencies of an asset from the market. Technical data give the opportunity to choose the best moment to open position and to calculate the levels for the installation of stop orders.

The technical disadvantages of the method

The main disadvantage is inertia. Indicators confirm the data delay and the short time frame, which can lead to the fact that the deal will be opened too late. Technical indicators are constantly maneuver between accuracy and sensitivity to price changes. Too sensitive a tool often generates false signals and precise - to give them a delay, when the moment of entry into the market is already lost. If to speak about models of technical analysis, of course, they don't always.

Conclusion

Each method has its advantages and disadvantages, but if the trader only uses one type of analysis, he sees a one-sided market. For example, technical data may indicate a trend reversal, but a strong fundamental factor can confuse all the cards. But without studying past prices and technical parameters, the fundamental data does not allow to define clear boundaries of price changes.