The difference between technical and fundamental analysis

6 basic differences between technical analysis and fundamental analysis that you should know!

When someone wants to invest in the financial markets, it is natural to research the market and find out which assets are worth spending time and money on.

This investigation is usually done in two ways, which we call technical analysis and fundamental analysis. In other words, the two most important and widely used methods that investors use to analyze their desired assets, such as stocks in the stock market or Bitcoin in the digital currency market, are these two methods.

Technical analysis and fundamental analysis are both tools for investors that provide them with very useful information. However, the ways to reach this information in these two methods are completely different, and in this article we want to discuss the difference between technical and fundamental analysis and point out 6 of the most important of them.

Of course, if you don’t have enough knowledge about these two analysis methods, don’t worry because we will review the basic definitions of these two types of analysis together.

What is fundamental analysis?

In fundamental analysis, an attempt is made to obtain its intrinsic value by examining external factors surrounding an asset.

Fundamental Analysis (Fundamental Analysis) which in Farsi can be equivalent to fundamental analysis is called an analysis that is done with the aim of finding the intrinsic value of an asset.

This asset is different in each financial market. For example, when we talk about the stock market, an asset can be a company’s shares, or in the digital currency market, Bitcoin is considered an asset.

In this type of analysis, the recognition of this intrinsic value is obtained by examining and studying various factors. For example, someone who intends to invest in the shares of an automobile company can study factors such as the annual income of that company or its financial balance sheet. With this, we can guess that the price of each share of this company will increase or decrease in the future.

In fact, in fundamental analysis, it is believed that the current price of an asset in any financial market is wrong and there is a possibility that the price will go up and down. There are various indicators for this, the most important of which are the “earnings per share” (EPS), “price-to-earnings ratio” (P/E), “price-to-book value” (P/B) and other indicators. Cited.

Fundamental analysis in some financial markets, such as the digital currency market, is slightly different from other markets, but this does not mean that its use in this market is not useful. The only thing that differs is the factors that influence our decision making.

For example, if we want to invest in Cardano digital currency, fundamental analysis can be to check the goals of the project, follow the news about it, the performance of the development team, the number of active network addresses, etc.

What is technical analysis?
In technical analysis, the goal is to predict the price movement in the future based on past data and the price chart.

The second type of analysis, which we call technical analysis, has been used since the past in various financial markets, and today, thanks to the digitization of everything, it has become easier to do it. Of course, this does not mean that you can learn it in a few hours and do the most correct analysis.

In fact, although learning the basic concepts and methods of using it is not a difficult task, it will take a long time to find the skill and use it correctly.

In technical analysis, we have nothing to do with external factors such as those mentioned in relation to fundamental analysis, and we analyze from the beginning to the end on the price chart. In other words, technical analysis tries to predict the price of an asset in the future only by examining the movement process of the price of an asset in the past.

Technical analysis does not differ much in different financial markets and it is used in any market for which a price chart can be drawn. Also, among the most important indicators of technical analysis, we can mention “Relative Strength Index” or RSI for short, “Moving Average Convergent Divergence” (MACD) and “Ichimoku Cloud”.

What is the difference between technical and fundamental analysis?
The differences between technical analysis and fundamental analysis can be compared in 6 sections: concept, investment time, purpose of analysis, decision-making method, type of data in analysis and type of trade.

Now that we are familiar with the basic concepts of technical analysis and fundamental analysis, let’s discuss the basic differences between these two types of analysis. For a better understanding of the issue, we compare these differences in different sections that you can see below.

Concept

The most important difference between technical analysis and fundamental analysis is in their concept. As we said, in technical analysis, we try to predict the future price and its next movement trend by using various mathematical and statistical formulas and methods and based on the price chart of that asset in the past.

While in fundamental analysis, we want to determine the intrinsic value of an asset using external factors and see if its current price is lower or higher than its actual price.

Investment time

Another difference between these two analyzes is that technical analysis is usually used for trading and short-term investments, and fundamental analysis is used for long-term investments.

For example, someone who wants to invest in the shares of a company so that he can get a good profit from its growth in the future, it is better to use fundamental analysis to check it. On the other hand, someone who wants to earn from Bitcoin price fluctuations can take help from technical analysis.

Purpose of analysis

Another issue that separates fundamental analysis and technical analysis is the purpose of analysis. In other words, when we want to see the status of an asset’s price and whether it is higher or lower than its real value, we should use fundamental analysis.

In the same way, if we are looking for suitable entry and exit points for trading an asset or we want to see which areas the price is likely to move to in the coming days, it is better to get help from technical analysis.

How to make decisions

When someone uses fundamental analysis, he actually makes a decision based on the information and statistics obtained from examining and studying external factors, while in technical analysis, this decision is made based on the movement of the market and the asset price.

For example, when the market is in a downward trend and the price of an asset reaches the support range, the investor may decide to enter the market accordingly. In fundamental analysis, the decision to buy an asset is made when the effective factors mentioned in the definition of fundamental analysis give a positive signal.

The type of data in the analysis

Another major difference between technical analysis and fundamental analysis, or if we want to say it in Persian language, one of the major differences between technical analysis and fundamental analysis is the type of data that we use in our decision making.

In other words, in fundamental analysis, financial reports of companies, news sites, statistics related to various industries and the like are used, while in technical analysis, the entire analysis is done solely on the price chart and decisions are made.

Also, in fundamental analysis, both past data and current data are used to draw conclusions, but in technical analysis, this is done only on the basis of past data.

trade type

As you know, traders or those who trade and sell an asset are classified into several types.

For example, someone who buys an asset and does not touch it for a long time is called a long-term investor or trader. Or someone who enters and exits trading positions several times during the day is called a scalper.

If you are interested in knowing the most famous trading methods, refer to the article “Introduction of the top 10 digital currency trading methods”.

We said this to say that investors and long-term traders usually use fundamental analysis, while scalpers and those who do short-term trades use technical analysis more.

final word

In general, we must say that both types of analysis are used by investors and financial market participants, and it is not that we have to use only technical analysis or fundamental analysis alone. In fact, according to many, the best method is to use both of these analyzes at the same time to reach reliable results.

If you also intend to succeed in these markets and get good profits, then you must get acquainted with technical analysis and fundamental analysis. Therefore, in this article, we tried to briefly introduce these two types of analysis and talk about their 6 basic differences so that you can better understand their difference.

Technical analysis and fundamental analysis are both ways to find the best assets for investment, but the method and tools they use to achieve the goal are different. Now that you are more familiar with them, you can take advantage of them in your decisions and imagine a bright future for yourself in these markets.