The comparison between technical and fundamental analysis of market securities has been going on for ages now, and investors and traders are divided between the two, while others simply try to use both of the approaches depending on what their respective situations require.

In this article, we will discuss FXempire Brokers Review the differences between the approaches to security evaluation.  Whether you’re a beginner or an experienced trader or investor, this is an essential read for you to find out which approach suits you better. Read on!

What is Fundamental Analysis?

Fundamental analysis attempts to find the enterprise value of the company, which means arriving at the business’s intrinsic value through the use of assessment and evaluation of economic factors.  These factors are considered to be the fundamental elements that help determine the true value of a company.

If you are more inclined to performing fundamental analysis, you must be knowledgeable with FHBC Broker industry analysis, company analysis, and economic analysis.

Major Assumptions

The first assumption of the fundamentalist approach to security valuation is that the stock price, even though it may be overvalued or undervalued at the moment, will correct itself in the longer run.

The second assumption is that fundamental analysts make gains by purchasing an undervalued stock and then waiting for the market to correct itself.

Thus, this investing strategy is adapted by buy, hold, and value investors.

What is Technical Analysis?

Technical analysis is also a method of evaluating securities. However, the entire process is based upon the statistics generated by the market. Charts and patterns are the bread and butter of technical analysis.

The characteristics of technical analysis are as follow:

• The analysis makes us eof the past price movements to predict its future price movements.
• Trends and patterns play a major role, instead of the intrinsic value of the asset.
• Market price is key, and the fundamental factors that affect it are not very much considered.

3 Rules of Technical Analysis

For technical analysts, the following are the three rules they must adhere to in order to successfully perform the evaluation;

First rule: prices discount all of the information that are available to the public.

Second rule: Price movements are not random. Rather, there are trends behind the price action and they can be established by using technical tools and indicators.

Third rule: Price trends are likely to repeat themselves.

Advantages and Disadvantages

Both technical analysis and fundamental analysis have their own pros and cons that one should always keep in mind whenever using either of them.

Fundamental analysis uses analytical methods based on sound and accurate financial data. This reduces the amount of personal bias the investor may feel. This approach also considers long-term economic trends.

However, fundamental analysis is also time-consuming. It can easily get complicated. Moreover, it’s also assumption-centric.

Technical analysis, on the other hand, provides some insights on volume trend. You judge how the overall market is performing by just looking at the demand and supply sides, which also tell you something about the market sentiment.

On the flip side, technical analysis largely ignores the underlying fundamentals of a company. This can be really risky in the case of long timeframes.