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Investing in stock market - technical or fundamental analysis?

Investing in stock market

Technical analysis focuses on the study of market behavior. Fundamental analysis, in turn, tries to explain the reasons for the existence of a specific demand and supply that causes prices to fall, rise or stabilize at a certain level. Which one is better?

Some analysts are enthusiasts of technical analysis, others are lovers of fundamental analysis. Who's right?

Let's look at the allegations against each of them.

Technical analysis in stock market investing

The first objection that comes up against technical analysis is the theory of self-fulfilling prophecy. Some analysts say that investors are acting according to the formation, and that the waves of sales or purchases are triggered by bull or bear formations.

Unfortunately it is quite difficult to agree with this argument. Even the most technically skilled technicians can interpret the formations in a different way. It is most often possible to recognize the formation only after its formation. That is why every investor at the time of formation is quite subjective about what signals he creates.

The second complaint was the fact that historical data could not be predicted to predict the future. If that were true then all possible predictions that are based on the same statistics and forecasts in the technical analysis would have to be wrong.

The third shortcoming is the so-called. the theory of random walk. According to this theory, price movements are accidental. It can not be denied that a few movements are the work of cases. However, if most of these moves would be accidental, trends would not have developed. Trends are the basis of technical analysis, so this is a false assumption.

Technical analysis is also criticized for the excessive universality of the method. I do not think this is a fault. This is even a big advantage because it allows you to analyze many markets with little effort. If the same rules work in different markets then it is a sin to hinder your life and not use it.

Fundamental analysis in stock market investing

Fundamental analysis by many is considered a difficult and complicated method, and at least much more laborious than technical analysis. It is also used in principle only for medium to long-term investment. Technical analysts often accuse her of being a psychologist whose fundamental analysis does not take into account the market.

Which one is better?

Both analyzes work well in slightly different types of investing. Technical analysis works well and in short-term and long-term investing. Fundamental analysis should be applied only in long-term investments.

Personally, I recommend an integrated approach, combining both types and using both types of analysis simultaneously. In particular, this is useful for long-term analyzes. Then using both technical and fundamental analysis at the same time gives you the best results. Fundamental analysis helps to determine the best investment value and technical analysis indicates when to enter the market.


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