There is a lot of different market approach from different kind of traders inside the market, but the art of technical analysis and the professional approach of fundamental analysis always remain very subjective from a trader to trader.
The world big banks or analysts usually release their own perspective or forecast using fundamental analysis with very detailed statistics, as they review businesses financial statements, how healthy is the business, how is the management and manufacturing functioning, they look a lot of factors including GDP and competitors. These professional analysts have access to the most amount of information compared to normal retail traders.
Few steps of fundamental analysis.
· Economic and market analysis.
· Analysis of financial statement.
· Forecasting relevant payoffs.
· Formulating a security value.
· Making a recommendation.
Two main types of fundamental analysis
· Qualitative – A study that includes the value of the brand, how is the company performing monthly, quarterly, 6 months or annually.
· Quantitative – This is only based on numbers and also considers the companys financial statements and decide the share price from observation.
There is a lot that is required when you do fundamental analysis than what is available to normal retail traders, there is also hidden information but that is very useful that as retail traders we can not access.
Technical Analysis
The main thing about technical analysis is that in most cases history repeats itself. That is the only sentiment about technical analysis. Even with people we study their past behavior to know more about them, when an individual want to apply for a new loan, the bank will most likely review their past behavior of their financial statements and credit record, after that they could decide if it is risky or safe to approve that particular individual a loan. Technical analysis is the most widely used type market approach with a help of developed indicators and how the market reacts to its price point like the mentality of support and resistance, supply etc.
Technical analysis tools.
· Indicators – There is vast of developed indicators that traders could use in order to develop their edge in trading. Moving averages is one of the commonly known indicators there is an EMA (Exponential Moving Average) and SMA (Simple Moving Average). RSI (Relative Strength Index) and Stochastic these are mostly used for their flexibility which could be to determine divergence or oversold and overbought levels.
· Price Action – Price action commonly includes the market behavior itself and how it is currently moving. This type of approach you only use a few drawings that you come up with as an individual, a number of times these types of traders do not use any previously programmed tools like indicators. They use support and resistance, supply and demand, candlestick/line chart formation, the market patterns, trend lines, market structure (behavior) etc.
A number of profitable traders uses both fundamental analysis and technical analysis, but others just prefer to stick to one type of approach. Technical analysis is better to access than to take information from the online sources about the fundamental analysis. Taking a fundamental advice from the online sources is like taking signals from someone who has analyzed the market and alert you to buy or sell at a certain price level.