What is most important in investing: fundamental or technical analysis, or maybe something else?
There is a dispute between people who use fundamental analysis and those who use technical analysis. Who is right, what is more important? My answer to this question is an investment pyramid, where I placed fundamental analysis at the top, then technical analysis, and fashion at the bottom. In my opinion, fashion is the most important factor in effective investment; but, in turn, let's begin with a fundamental analysis.
Fundamental vs Technical Analysis
It would seem that fundamental analysis is the most important, and I put it to the top, why? First of all, fundamental analysis is easiest to study, even if we ourselves cannot estimate the cost, it is very easy, even free, to find such an assessment on the Internet. There are a number of indicators by which we can evaluate assets. The problem begins when we have to evaluate an innovative asset, and we cannot associate it with other assets. If everyone can know what we know (bypassing insiders), and since everyone has the same problem as we have in evaluating innovative projects, we cannot expect that by applying fundamental analysis, we will get some advantage over the market, which will allow us to earn big money.
Technical analysis is used by most speculators and investors, consciously or not. Since most speculators use technical analysis, it must necessarily have a big impact on the market, but will the use of technical analysis give an advantage over the market? The answer in this case is no longer as straightforward as in the case of fundamental analysis. As technical analysis is constantly developing and new indicators are being created and new methods of earning on the market, in fact, for a certain period of time, applying this method in this market, we can get an advantage that will allow us to earn. The key is that because the method is effective in a particular market, as more and more traders start using it, it becomes less and less efficient.
Another important issue when discussing technical analysis is the fact that ten traders can look at different conclusions, looking at the same chart and using the same indicators and methods. It abstracts completely from the fact that most indicators can be changed by maneuvering their parameters. This means that there are other important elements that lead to the fact that some speculators earn, while others lose.
What is fashion?
Fashion is only this key element. When I write fashion, I mean a set of elements that are not related to either fundamental or technical analysis. Psychology and sociology describes these elements well. Unfortunately, psychology is the area of science in which humanity has a very large backlog, which creates many difficulties in correct and rational analysis of the situation. Most people who are trying to make money, make decisions influenced by emotions, and these emotions consist of their own schemes, which again consist of other people's schemes. A mixture is being created that we cannot easily analyze, and new schemes are constantly being created.
How to use fashion to make money? First of all, we must begin to consciously and actively observe the world around us, how it is and how it changes. Fashion has that he can quickly come and go as quickly, but he can stay with us for many years. It is not uncommon that this is not the best product that only the one that becomes the most fashionable wins. Therefore, those who use only fundamental analysis may have problems with making money. The same applies to those who use only technical analysis, focusing on some indicators, which, for example, show the purchase of a market for several years, and it is constantly growing and growing, no one knows why. As you probably know, it is fashion and the emotions associated with it that can attract value to space or other damage.
The best solution would be to know the fundamental and technical analysis, but to make decisions mainly on the basis of emotions, but, of course, not only those that are observed in others.
For myself at this stage I singled out one investment company, where there is no need for beginners to use investment analysis. For details, see HERE