Fundamental Analysis versus Technical Analysis
In analyzing the futures market, traders or investors mainly refer to two kind of analysis. There are those who follow price trends and movements while ignoring other factors is also known as technical analysis. There are also traders or investors who prefers to look at economic events and news and choose to focus their time on fundamental analysis. We’ll take a look at the difference of them both.
What is Fundamental Analysis?
Fundamental analysis is the method or technique to predict the price movements by using economic data, research and news. Compared to technical analysis, fundamental analysis has more indicators that traders refer to. Apart from just news that will affect the market, fundamental analysis also include the study of other aspect such as financial law, politics, social attitudes, as well as economic indicators such as GDP, inflation, unemployment and so on.
Advantage of Fundamental Analysis
From fundamental analysis, one the greatest benefit is to the ability to comprehend the causes which affect the market. By understanding the dynamics of the market, there is more confidence to enter a position in the futures market. Another benefit is that we will not sway our opinions and emotions due to market volatility.
What is Technical Analysis?
Technical analysis is used to determine the entry point for entering into a position in the futures market. It is also mainly used for short-term trading of which investors rely mainly on the charts and price movements.
This analysis is based on three assumptions. The first assumption of technical analysis is that price discounts all information available to public. Second is that price movements have patterns and are not random which can be established with tools, and the third is that price trends will repeat themselves. This also means that past trends and price movements can also give direction to the future price movements.
Advantage of Technical Analysis
This type of analysis is simple and straight forward. The technical tools are widely available across the field from fund managers to individual trader or investor. Technical analysis is relatively easier to understand and to interpret as compared to fundamental indicators as the fundamental indicators takes time and effort to learn. This makes it also easier to focus and not to go confused with all the reasons that is affecting the market.
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