Technical and Fundamental Analysis

There are generally considered to be two fundamentaly different schools of trading technique. They are Technical Analysis and Fundamental Analysis. This article is a brief overview of each of these Trading Techniques.

Technical Analysis is a method of analyzing the price of a financial instrument by studying its Stock Chart. Here, analysts look to find patterns in the Historical Price Chart which serve as indicators for the future action of the instruments price. Often, Technical Analysts will also apply Technical Indicators to the price chart. These indicators can serve to provide a level of statistical probability as to which direction the price will go in the future. Examples of Technical Indicators are Moving Averages (which shows the average value of price over a given time), Trend Lines (a straight line that connects two or more price points), and Stochastics (an oscillator that measures the position of an instrument relative to its trading range).

Fundamental Analysis is a method of analyzing the financial instrument by studying the the intrinsic value of that instrument. One of the most import aspects of Fundamental Analysis is the studying of a companies Balance Sheet. This points to a more sedatory approach than that of Technical Analysis as aspects such as crowd behaviour and price action are dismissed in favour of disecting such things as the companies Assets and Liabilities in order to assess its value.

However, it is important to understand that you do not have to commit yourself to an individual school of Technical Analysis. Technicians often look to the fundamentals of a stock to reinforce their technical belief - and likewise - Fundamentalists will check the price action of a stock to reinforce their research.

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