When you take your own finances into your own hands and start managing your own stock investments, you have two main ways to analyze the stock market: fundamental analysis or technical analysis. These two types of analysis can be applied not only to stocks, but also to trading options, futures, Forex, and bonds. Today, a combination of fundamental and technical analysis is often used, and there are plenty of stock market software and websites that make such analysis much simpler. What is the basic difference between the two types of market analysis?

• fundamental analysis it is what most people are familiar with and were probably exposed to in school. Fundamental analysis looks at companies, their businesses, and economic factors that may affect future stock prices. This is most common among investors, who are looking for price earnings growth and valuing stocks for long-term growth.
• Technical analysis, although often unknown to the public, has been around for as long as the markets. It’s not a secret, why not learn to use its advantages? This method assumes that there are non-random patterns and trends in the financial markets, although not necessarily all the time. Technical analysis is more common among traders, who are usually more active and don’t have time to wait for the trade to affect the stock price, so they look for patterns in the stock price itself.

Unlike fundamental analysis, technical analysis focuses on analyzing the price of the stock (or whatever asset you are investing in), time, volume, patterns, and trends. So, simply put, technical analysts study the statistics of the stock itself, not the company behind it. The goal of using technical analysis is to anticipate rather than predict the outcome by looking for clues in stock statistics, much like sports fans look at star player statistics.

Why use technical analysis?

1. It allows you to prepare in advance for the opportunities and dangers of buying and selling. This requires a proactive approach rather than having to wait for company financial reports, compiled only at the end of the quarter and at the end of the year.
2. Spend more time looking for opportunities with various price and volume patterns, which typically takes less time than studying a company’s financial data and business outlook.
3. Best time for buy and sell entries and exits, based on pattern statistics and other data
4. Better insight into what prices to buy and sell, again based on statistics and past records of stock data.
5. Pick better trading opportunities quickly by looking at a chart or even using stock market software that identifies specific patterns that you know give you a statistical advantage

Technical analysis basics for buying and selling (trading)

1. Trade with the trend – simply following the current direction of what you want to buy or sell
2. Support and Resistance – By identifying support prices (where the stock stopped going down and went up) and resistance prices (where the stock stopped going up and went down), traders assume that this pattern will continue and they will buy at support and sell at the resistance.
3. Breakouts: Stocks can stay in a range for a long time, even years, but eventually break out, either higher or lower. Traders can take advantage of this breakout.
4. There are many more mathematical formulas, statistics, patterns, and strategies that investors and traders have been able to use to decipher stock data. Some examples you can research include: Fibonacci, Elliott Wave, Market Timing, and Volume Profiles.

How to use technical analysis as an investor or trader?

1. Position Trading (Medium to Long Term) – Every time you buy or sell, you are “trading”. Both investors and traders “trade”, the difference is how long an investment is and how active it is. Both investors and longer term traders do what is called “position trading”.
2. Swing Trading (short to medium term) – Traders who buy and sell from a couple of hours to a couple of days.
3. Day Trading (also known as Scalping) – Trading that occurs during the day between the open and close of the market only. Day traders do not hold a position overnight, usually to avoid the potential risk of what could happen between today and tomorrow.