Technical Analysis Basics
Technical analysis is the study of past market data, mainly price and volume, to predict future price movements. Traders use charts, trends, and indicators to identify patterns that help make decisions about buying and selling stocks. The goal is to understand market behavior and anticipate future price changes, all based on historical data rather than company fundamentals.
Difference Between Technical Analysis and Fundamental Analysis
| Criteria | Technical Analysis | Fundamental Analysis |
|---|---|---|
| Definition | Focuses on analyzing price charts, patterns, and indicators to predict future price movements based on historical data. | Examines a company's financial health, performance, and economic factors to determine its true value. |
| Approach | Relies on charts, trends, and volume to study market behavior. | Evaluates financial statements, earnings, revenue, and economic conditions. |
| Data Used | Uses trading volume and historical price data. | Uses company reports, economic news, and industry performance. |
| Time Frame | Focuses on short-term trading (days, weeks, or months). | Aims for long-term investments (months to years). |
| Tools Used | Charts, moving averages, RSI, MACD, and candlestick patterns. | Financial ratios (P/E ratio, EPS), balance sheets, income statements, and market news. |
| Purpose | To identify exit and entry points for trades. | To find undervalued or overvalued assets for long-term growth. |
| Example | A trader buys a stock because its price breaks above a resistance level on the chart. | An investor buys a stock because the company has strong earnings and growth potential. |
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