Technical vs Fundamental Analysis

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It is common for people to here the term Technical Analysis and misinterprets what it really means. The assumption is based on people understanding the two words apart and thinking they mean the same together, they don't. Yes, it is analysis and it is very technical but the term has been watered down by the media. There is a big difference between Technical and Fundamental Analysis and it would take a book to properly compare and contrast the two. However, there is a reasonable short answer to this question.

Technical Analysis is the study of the internal forces of the stock market. One major component is the traders moving money in and out of stock and one reason why they are able to buy cheap stock. Charts are used to convert the raw data of the movement of a stock to try to see a pattern for possible prediction of future activity. Stock charts are one of the oldest tools for analyzing the stock market and regularly used with other technical indicators. Another popular and dated tool is the moving average. The Simple Moving Average was one of the first to be developed to measure a stock's price action or price movement. There have been tons of variations to the moving average and many still use them today.

Fundamental Analysis is the study of the external factors that influence the movement of a stock's price and what the investor's cost may be when purchasing stocks. Disciples of this discipline will watch weather reports, monitor government policy and many economic reports to determine where prices (of stock) may go in the future. These traders tend to have news feeds that are a few minutes ahead of the general public, as most broadcasts are on a time delay, to gain an edge over the investor. They also study the annual reports of companies they are interested in trading or investing. Most mutual fund managers are into this type of analysis and usually talk about the buy and hold investment philosophy. They will also contact the senior executives of a company for information and analyze the executive's track records. One of the most famous is Warren Buffet who is America's second riches person.

This is a really broad topic to encapsulate in a few hundred words and more information is available about different trading systems. It is important to note that many traders are not complete exclusive to one or the other and they tend to look at each other's data regularly.