Learn the 3 TYPES of MARKET ANALYSIS
In the today's post, we will discuss 3 types of analysis of a financial market.
🛠1 - Technical Analysis
Technical analysis focuses on price action, key levels, technical indicators and technical tools for the assessment of a market sentiment.
Pure technician thoroughly believes that the price chart reflects all the news, all the actions of big and small players. With a proper application of technical strategies, technical analysts make predictions and identify trading opportunities.
In the example above, the trader applies price action patterns, candlestick analysis, key levels and 2 technical indicators to make a prediction that the market will drop to a key horizontal support from a solid horizontal resistance.
📰2 - Fundamental Analysis
Fundamental analysts assess the key factors and related data that drive the value of an asset.
These factors are diverse: it can be geopolitical events, macro and micro economic news, financial statements, etc.
Fundamental traders usually make trading decision and forecasts, relying on fundamental data alone and completely neglecting a chart analysis.
Price action on Gold on a daily time frame could be easily predicted, applying a fundamental analysis.
A bearish trend was driven by FED Interest Rates tightening program,
while a strong bullish rally initiated after escalation of Israeli-Palestinian conflict.
📊🔬 3 - Combination of Technical and Fundamental Analysis
Such traders combine the principles of both Technical and Fundamental approaches.
When they are looking for trading opportunities, they analyze the price chart and make predictions accordingly.
Then, they analyze the current related fundamentals and compare the technical and fundamental biases.
If the outlooks match, one opens a trading position.
In the example above, Gold reached a solid horizontal daily support.
Testing the underlined structure, the price formed a falling wedge pattern and a double bottom, breaking both a horizontal neckline and a resistance of the wedge.
These were 2 significant bullish technical confirmation.
At the same time, the escalation of Israeli-Palestinian conflict left a very bullish fundamental confirmation.
It is an endless debate which method is better.
Each has its own pros and cons.
I strongly believe that one can make money mastering any of those.
Just choose the method that you prefer, study it, practice and one day you will make it.