Technical Analysis vs. Fundamental Analysis

Technical Analysis vs. Fundamental Analysis

Endless debate – which is better? Technical analysis versus fundamental analysis. Whenever this argument is made on forums or blogs, it is based on the premise of stock markets. Let’s compare fundamental analysis and technical analysis of all three segments – stocks, commodities and forex.

Fundamental analysis

The fundamentals of the three markets are very different. One is about balance sheet and income, another is about supply and demand, and the third is about the country’s economy. Therefore, instead of generalizing it, we will evaluate it as separate concepts.

Fundamental analysis of the stock market

It includes an analysis of the company’s balance sheet to assess its economic well-being. Analysts create financial models to predict future earnings growth and discount them to present value. A retail trader can easily predict the earnings of companies if they have the proper accounting and financial education. Fancy tools are not required to predict the price of a stock.

Although it seems tedious, it is certainly doable for the retail investor. All necessary financial data is readily available on the company’s website.

Fundamental analysis of the commodity market

Commodity market fundamentals involve studying the supply and demand for a commodity to determine its fair value. If the forecast for the future is either a shortage of supply or excess demand, then the price of the good increases. If the opposite is predicted, it lowers the price of the good.

The forecasting process takes a long time, and the numbers are not static either. But high-end newsfeed tools could theoretically make this possible for the sophisticated retail investor.

Fundamental analysis of the Forex market

Saved the best for last. A fundamental investor must predict the state of the country. GDP, CPI, PPI, inflation rate, government fiscal policy, central bank monetary policy, employment data, imports and exports, and other nonsense. It is safe to say that he should take on the role of financial secretary and central bank governor. Sounds mesmerizing!! Is not it? It doesn’t stop there when new shocks emerge, such as a trade war or political instability, it has to work extra hours. (Get our Free News Feed Indicator which provides live economic data on MT4/MT5 terminal)

Don’t bother right now. All three markets are interconnected. The fundamental analyst must have an overview of the other two segments. The investor should also study intermarket dependencies, as well as the correlation of currencies.

Technical analysis

A technical analyst exploits the historical price behavior of an asset using a chart. Charts help determine supply and demand in the market. But who creates the supply and demand for an asset? Large financial institutions – banks, brokerage houses and hedge funds – are fundamental analysts. The technical analyst simply gets down to business. He uses the chart as a cheat sheet to find answers to the hard work of a fundamental analyst and trades with it. Smart! Is not it?

The fundamental investor will be the early bird at the party, while the technical investor will be late. But both enjoy the party in their own way. The early bird will get an incentive in the form of happy hours, while the latecomer will sometimes have to pay the price of being late.

But recent investment patterns tell a different story. Fundamentalists were screaming overpricing and exiting early, while technical analysts were profiting from continued bull runs in every segment. The technical analyst also uses short-term volatile movements, which many fundamental analysts consider noise.

Truce in Dispute – Technical Analysis vs. Fundamental Analysis

Each economic (fundamental) news and factor will be reflected technically on the chart in one way or another. Therefore, it makes no sense to continue the discussion about which is better – technical analysis versus fundamental analysis. Instead, let’s see what’s possible for a retail trader or investor.

Technical analysis of the stock market

Technical analysis of the stock market is comparatively tedious than the other two segments. The reason is that it produces a lot of fakes. Equity dominance doesn’t help in any way either. A serious trader needs advanced stock screening tools and trendy tools. Investing using long-term charts always gives the investor a shadow of doubt, since technical indicators are subject to frequent changes. Although the technical analysis of stocks is available to the retail investor, the chances of success are higher for retail fundamentalists with good knowledge in accounting and finance. But technical analysis certainly helps in short-term trading.

Technical analysis of the commodity market

It’s complicated. Technical analysis is easier here, because there will not be so many fakes. The number of goods is also less compared to promotions. A trader can choose commodities such as crude oil, copper and gold, which are traded in high volumes and also have good volatility. A retail technical trader is certainly much more likely to succeed than a fundamental commodity analyst.

Technical analysis of the Forex market

Always the hero of technical analysis. This follows a tutorial on technical analysis. A good technical analyst can easily predict fakes. Although there are many currency pairs, a trader can choose from the major pairs. The major pairs also have round-the-clock volatility. Technical analysis does not require any fancy charting software. Metatrader has it all. (Get Pipbreaker, the best indicator for MT4/MT5 for identifying trend reversal points)

In terms of feasibility, the commodity and forex markets are ideal for retail traders. If you are a forex trader and you are learning the technique then you are in the right direction. Learn, enjoy and appreciate it!


Fundamental analysis

In the stock market, this is relatively easy.

For a retail trader in the commodity and currency markets, this is almost impossible.

In short, fundamental analysis serves its purpose in long-term investments.

Technical analysis

It is cumbersome in promotions due to frequent fakes.

Whereas in Commodities and Forex it works best.

Technical analysis serves its purpose in short-term trades.

Therefore, the discussion about whether technical analysis or fundamental analysis is meaningless. Both have their uses and needs, and choosing the right one for a particular market based on feasibility is the only thing that matters.

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