Every professional trader or investors whether they are trading Stock, ETF, Forex, Options, CFD has their own trading strategy that is religiously followed. These are strategies they already gained mastery acquired through years of experience. There are so many strategies to choose but these experts or professional never forgets the basics – relying on the core which is fundamental or technical.
Anyone aspiring to become a trader or investors need to understand the basic principles of the two strategy. Understanding it will surely help in trading but mastering one of them will lead to more success.
Some may think that it is plain and simple – fundamentals relies on news, company performance or other valuation of an asset or company while technical relies more on charts and indicators that represent the history of company or an asset, which I agree. Let’s try to understand the difference of the two and dig deeper on its concept.
According to Investopedia.com, Fundamental analysis is a method of evaluating a security in an attempt to measure its intrinsic value, by examining related economic, financial and other qualitative and quantitative factors. To make sense on the definition, usually this strategy applies to long-term that looks at the internal and external factors that could affect the company performance, currencies or asset. For example in stock market, investors look at the performance of the company based on their profit for a period of time, its financial statements, projected growth and management capabilities to run the business. Additionally, economic conditions plays a big part in the growth of the business on how it will perform in the years to come even in bad market condition like the 2008 US recession. Majority of companies that have proven track record that already stand the test of time is the eye-candy of many investors.
Fundamental can also be applied in short-term trading depending on what type of market is being traded. For fast paced trading like Forex or Options, looking at the news for a possible changes in economic condition such as employment rate, housing or crisis, a trader can exploit the sudden price fluctuation and could earn money by simply looking at the news. Of course, this sometimes can make or break a trader due to its high volatility which could go sideways or against their chosen position.
Regardless of internal or external factors, long-term or short term, investor’s looks at fundamental as the best strategy wherein time becomes their best ally in growing their investment as long as the business is doing well. Most investors believes that if they invest in a reliable company which grows on a consistent basis year after year even on bad market condition, in the long run their invested money will soon bear fruit.
Technical analysis on the other hand as defined by Investopedia is a trading tool employed to evaluate securities and attempt to forecast their future movement by analyzing statistics gathered from trading activity, such as price movement and volume. This strategy relies mostly on trend charts and statistical details in terms of volume to predict possible price movement in the future. Aspiring traders must at least understand the law of demand and supply to be able to become successful when using technical. This strategy are mostly used by traders who wants to earn money in a short period of time. Since price movement changes every second, many capitalize this move by looking past trend and analyzing its potential direction through patterns. This trading style is somehow risky but the reward is high in short time frame.
There are many traders that do day-trading – enter a trade and close at the end of the day, earns so much money as long as they follow certain set of rules as part of the strategy. However, those who do not have a clear plan sometimes pays the price.
This strategy can also be used for long-term by simply looking at charts and trend direction. With technical analysis, so many indicators was developed and evolved over the years that can supplement in analyzing chart direction. Once used appropriately, the reward is definitely amazing.
There is no such thing as perfect strategy. There will be bad times and you will lose and there will be good times. As a trader or investors, finding the one that works is key and understanding the two strategy will definitely help in future careers in trading or investing. It is good to master one but using the two to complement each other will be a sure plus to success. Happy trading.
Never give up. Continue learning and the earning will follow.
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Is a technology consultant working in a corporate IT service provider company. He’s a tech-savvy and at has interest in different trading and financial instruments.