Both technical and fundamental techniques are adopted with the similar objective to determine the direction of the prices.
Yet both approaches are poles apart with the main differences as follows:-
- The fundamentalist studies the cause of the market movement while the technician studies the effect.
- Fundamental analysis deals with factors that affect the supply and demand of a market. Technical analysis deals with price action and identifies patterns that repeat themselves.
- Fundamentalists dismiss the concept that one can predict future price movement just from looking at charts. Technicians regard charts to be an extremely valuable trading tool and their sole mechanism.
- Fundamental approach is considered more myopic as compared to technical approach. Fundamentalist will need to understand a particular market thoroughly in order to forecast the price direction. Due to the tremendous amount of data a fundamentalist must deal with, he tends to specialise. However using technical approach, the same technique can be applied in various markets. Technical approach is often regarded as more versatile.
Technical and fundamental approaches may differ in various aspects but in reality there is a lot of overlap. Many fundamentalists have a concept of the basic tenets of chart analysis. Technicians also will have at least a passing awareness of the fundamentals. What is most important is to find a balance and adopt a combination of fundamental and technical analysis. Often fundamental analysis is adopted to provide a long term perspective on the market. On the other hand, technical analysis will aid trader in timing the entry and exit levels of trades.
