✔️ Information reviewed and updated in April 2024 by Pedro Martínez González
Trading is one of those things that you need to study for and keep studying more and more. And within trading, technical and fundamental analysis are no exception. If you master this tool well, you can obtain many benefits in trading regardless of its type.
What are technical analysis and fundamental analysis and what are they for?
It is very likely that, if you want to enter the world of trading or if you already have a little time in it, you have heard about these two types of analysis. Both are different techniques that help us establish different strategies. However, one thing they have in common is that they are very important to any trader regardless of their experience or the investment strategy they plan to use.
📈 What is technical analysis? 📈
Technical analysis was born in the United States in the late XNUMXth century, and was introduced by Charles Henry Dow. This analysis study the market through the analysis of charts in order to be able to predict the behavior that an asset will have in the near future. This tool completely obviates the external risk that can affect different markets.
This analysis focuses its efforts on the study of prices, stock market volume and open interest. This is a method that is highly dependent on the analyst's perception and therefore can be directly affected by it.
✅ Advantages of technical analysis
- It is able to predict, with enough accuracy, what will be the behavior of an asset, allowing us to know when is the optimal time to enter or exit.
- Many people use this method in their trading strategies, which is why there is a lot of information and resources about it.
- Although the learning curve is higher compared to fundamental analysis, once learned it can be used on any type of asset.
📊 What is fundamental analysis? 📊
This type of analysis is widely used by a large number of traders worldwide. East, It was created in 1934 by Benjamin Graham and David Dodd who discovered that it is possible to calculate the real value of stocks through balance sheet data.
This fundamental analysis is based on the observation and analysis of balance sheets, which in turn are compared with the current market value. With these data, it is possible to deduce if the value of an asset is undervalued at a certain time. It is very important to bear in mind that stock market values can be highly influenced by external factors.
In short, fundamental analysis is a tool that will allow us to assess financial risk that a company may have by analyzing its environment.
✅ Advantages of fundamental analysis
- It allows traders to evaluate the entire environment of what happens with the financial markets.
- It allows obtaining benefits in the short or medium term thanks to the anticipation of the market when knowing news or events that are happening.
- It is usually more effective compared to technical analysis.
- Your learning curve is shorter making it an attractive option for those who are just starting out.
🖐️ Conclusion 🖐️: Which one should I use?
Both types of analysis are used for the same purpose, to predict the movements that an asset will have within the stock market. While it is true that both use different techniques and are based on completely different market perceptions. Knowing which one to use will depend on two factors, first the type of strategy you want to implement and second how willing you are to learn.
At the end of the day, it is best to use both types of analysis as much as possible.. You do not have to decide only on one, they can complement each other.
Very good explanation, it has clarified my doubts and I have understood it perfectly! Thank you!!