Fundamental analysis and technical analysis. These two approaches to the understanding of finance are generally considered incompatible because they are based on different data and tools. In fact, they are chosen according to the preferences and the style of each one. Nothing prevents anyone from utilizing the two branches of market analysis simultaneously to create an effective synergy and have an even deeper understanding of the markets.
Definition of fundamental analysis
Fundamental analysis places the target company or sector at the heart of a stream of complex economic information in order to determine its true value and prospects. The challenge is to obtain an absolute value of a security, its intrinsic value. The number of criteria selected depends on the depth of the analysis performed. Thus, beyond accounting balances, it is the prospects of trade, expansion, innovation and competition that will be taken into account. Similarly, elements of the country’s economic or social policy, plans for redundancies, internal scandals will also affect this value positively or negatively. It is very advisable to read our separate article on Fundamental analysis if you are interested in this area.
Technical analysis considers pure market data available on the charts. All the information will come from observations and statistical calculations on the evolution of the prices, their cycles and their volumes. We use data from the past to project ourselves into the future. In fact, the overall principle is to create, through mathematical models, a curve or zones that will give an image of the movement of the courses or a zone of evolution. This graphic data allows the trader to identify trends, perceive discrepancies, anticipate changes in future trends. The trading platform You will choose will usually have some of the most widely used technical analysis indicators in the market pre-installed so You can easily plot them on a chart of Your choice. Read more on Technical Analysis