What Is The Difference Between Fundamental & Technical Analysis and Which Is Better?

It is important for you to study and comprehend some trading and investment concepts as a trader or investor.

Today I'll discuss about Fundamental and Technical Analysis, the difference and which is the best.

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Fundamental Analysis

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Fundamental analysis can be defined as a technique for market analysis that is based on information that is more relevant to an asset. The Trader forecasts future market movements based on the present asset price as well as the direct impact that available information can have, such as the project's team, the asset total revenue, the number of users holding the asset, the latest updates, the projects and burning mechanisms, among other things.

_{Myriam Jessier On Unsplash}

For me fundamental analysis is the best and most effective technique to predict or forecast the market movements. For instance, when a large organization makes a positive or negative announcement, it usually has an impact on the value of cryptocurrencies. These are sudden movements that traders may not see coming in technical analysis, much less if everything is in order.

Elon Musk, the CEO of Tesla and SpaceX, influenced a large portion of the cryptocurrency market through his tweets, constantly publishing both negative and positive news, causing a large number of people to sell or buy in accordance with his tweets.

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Performing Fundamental Analysis

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Fundamental analysis is best use for long term investment, Incase you want buy a particular asset and intend to hold for a long term you need to perform fundamental analysis on the asset, some of effective fundamental analysis are;

• It is critical to read the asset's Whitepaper to understand the currency's use case and whether it solves problems or makes changes in the real world or on the internet.

• Evaluate the project's team. It will give them more confidence if they have worked on successful previous projects.

• Follow the project on all social media platform, and join their community page or channel for latest updates and new news

• Check out the asset roadmap to see what moves the team will be making.

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Technical Analysis

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Technical analysis first appeared in the stock market at the end of the nineteenth century, then expanded to the futures market. From there, it grew in popularity and is now used in a variety of markets, including Forex, Cryptocurrencies, and others.

Technical analysis is the study of the market using charts, and it is based on the asset's previous prices to assess or forecast potential market movements and reduce risk in decision-making.

_{Luke Chesser On Unsplash}

We can conduct a successful technical analysis by using technical tools such as indicators. The indicators on the other hand will be able to forecast if the market will go in one of this directions: bullish or bearish.

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Performing Technical Analysis

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Technical analysis is best use for short term investment, Incase you are a swing or day trader and you intent to buy and sell a particular asset to make profit then you need to perform technical analysis on the asset, some of effective technical analysis are;

• Understanding the chart is the first thing to consider before you can perform a technical analysis successfully

• understanding indicators and how to apply and read them is very essential

• Timeframe in chart will help to see the asset previous price movement and help to forecast the asset next movement

• The volume of the asset will help to determine the supply and demand which will assist in forecasting the asset future movement, a high demand and low supply means bullish while a high supply and low demand means bearish.

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The Difference Between Fundamental & Technical Analysis

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In fundamental analysis you don't need to have any skill of studying the chart all you've to do is research on the assets use case, and follow the assets for latest updates and news unlike Technical analysis that requires high knowledge of technical tools and how to apply and read them on charts.

Technical analysis simply evaluates previous data and pattern of the asset, while fundamental analysis evaluates both past and present information concerning the asset.

Fundamental analysis is used for a long term investment while technical analysis is used for short term investment or swing trades

Fundamental analysis determines if an asset is overpriced or underpriced based on its underlying value, whereas technical analysis determines the best time to buy or sell based on price fluctuations.

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Which one is Better?

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Essentially, both are concerned in market analysis, but from different perspectives. The technical analysis uses charts, indicators, and tools, whereas the fundamental analysis evaluates the asset using news or available information. While both can be useful, the best practice is to use them together before making an investment.

Both technical and fundamental analysis are required for effective trading; however, they differ and accompany one another. Technical analysis requires more experience and the use of various tools; making investments without understanding the analysis can result in total losses, while fundamental analysis requires making research about the asset by checking the team behind the asset, the roadmap, the asset white paper and not missing any updates or news from the asset team.

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Conclusion

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If you're keen on investing for a long term I'll recommend fundamental analysis, but if you're a swing trader or a short term trader then technical analysis is the best and a little bit of fundamental analysis will assist you in making the best trading decision.

I hope you enjoyed reading my article, thank you for visiting my blog and God bless you

Cover image made with Canva app, the other images are properly sourced