Technical Analysis is a method used in evaluating financial markets by analyzing and reading the historical trends of a stock’s price and trading volume through charts to predict the future direction.
Technical analysis depends on several assumptions, one of which is the relationship between demand and supply. For that reason, stocks’ market value is determined as a result of the relation between supply and demand.
The forces of supply and demand are governed by many rational and irrational factors such as economic variables, opinions, moods, guesses, and others.
Of course, some tools that traders can use to help them interpret price behavior and predict future trends are called Technical Analysis Tools. Among the most popular technical analysis tools are:
- Support and Resistance Levels
- Trend Lines
- Moving Averages
- Momentum Indicators
From the previous explanation, we conclude that technical analysis is based on the study of several elements or data, all of which are found on charts, and can be summarized as follows:
Prices: The change in the price of securities reflects the change in the position of speculators, and also reflects the movement of supply and demand for securities.
Time: It is the amount of price change or reversal in a certain period of time. For example, the time it takes for the price to reverse trend will determine the change in price.
Volumes: Technical analysis pays great attention to the study of trading volumes. There must be a harmony between trading volumes and the strength of price action. For example, a change in price direction, with low trading volumes; It is a sign of weak price action.
What is fundamental analysis?
Fundamental analysis is a method of valuing securities by attempting to measure the true value of a stock or a traded financial asset.
Fundamental analysts study everything that leads to the knowledge of the intrinsic value of an asset, including macroeconomics, industry conditions, as well as the financial and administrative conditions of companies. They also focus on studying profits, expenses, assets, and liabilities; They are all important tools for fundamental analysts.
To simplify further, it can be said that fundamental analysis focuses on the performance of the company itself, and not on the performance of the company’s stock.
In currencies, the fundamental analysis focuses on the strength of the currency and the strength of the economy of the country that belongs to it, and not on the movement of the price or the direction of trading on the currency against the rest of the currencies.
From this we conclude that fundamental analysis evaluates all factors that may have the ability to affect the value of securities, which include macroeconomic factors and company-specific factors, all of which are called fundamental factors (or fundamentals), which also include financial statements, management, competition, And the concept of work..etc. The goal is to study the real value of the asset or stock, taking into account the state of the entire economy, the industry to which the company belongs, and the business environment in the company.
The difference between technical analysis and fundamental analysis
After discussing both technical analysis and fundamental analysis, we will talk in detail about the difference between technical analysis and fundamental analysis to study the fundamental differences between them, in terms of several elements:
Concept:
Fundamental analysis is a method of studying the true value of securities to identify good long-term investment opportunities.
On the contrary, technical analysis is a method of evaluating the price of a security and predicting its future direction on the basis of price movement based on interactions between demand and supply during a specific period of time, as it assumes the sufficiency of this data to predict what the stock will do in the future.
This was not written by Thndr and this is not investment advice, you should do your own research before making investment decisions.
