Types of Market Analysis

Technical Analysis and Fundamental Analysis are the names given to the two approaches most frequently utilized by traders. They are the toolset that provides the ability to track events and trends in the market and are often used to predict likely market moves.

Fundamental Analysis

This assesses instruments based on external influencers and events as well as financial information about the instrument. It is used by traders to measure conditions that can impact price movement, such as financial, economic and market conditions.

It involves utilizing a wide range of quantitative and qualitative factors to assess an instrument. For example, when assessing stocks, it can reference the numbers in the earnings report of a company: its revenue, profit margins, projected growth, EPS, and so on. In terms of Forex trading, it can mean referring to the numbers published by central banks to give a picture of the economy of that country.

While technical traders extract their critical data from an instrument’s charts when considering how to trade, fundamental traders look at factors external to the price movements of the instrument itself.

Traders frequently depend on fundamental or technical analysis exclusively, or use both to varying degrees.

Technical Analysis

This approach examines investor behavior and its effect on historic price movements of an instrument.

Fluctuating levels and volumes of supply and demand over time is reflected in the up and down price movements that are recorded on market price charts. Technical analysts are sometimes called Chartists because they depend on the sequence of up and down movements on charts to identify patterns and trends. They then use this information as the basis for predicting future movements of that instrument.

Comparing Fundamental Analysis Vs Technical Analysis

In fundamental analysis, the objective is to predict price movements based on external factors rather than on historical up/down price movement patterns. Fundamental analysts strive to place a value on the instrument in the market.

For example, when attempting to evaluate a stock, a fundamental analyst would look for forthcoming events that probably could impact the company’s value and therefore its share price. For example, such factors might include the quality and reputation of the company’s management, the industry and segment it operates in, forecasts of revenue, earnings and growth, and so on. The analyst would then take a view on that company, possibly in relation to its peers or competitors, to determine whether its current valuation is too high or too low.

By contrast, a technical analyst would only consider the information available from various charts. Technical analysis does not consider what is happening in the market or outside it but only at price movement patterns and trends of the market itself.

Technical analysts observe the behavior of buyers and sellers based on price movement activity on the charts. They identify patterns that occurred repeatedly in the past and then look to see what happened next. They then use that information as a means of predicting what will happen next on this occasion