Which Is Better- Technical Analysis vs Fundamental Analysis?
Whether you are an investor or a trader, you may come to a point where you need to be able to know what is and how to use Technical Analysis and Fundamental Analysis.
But the crucial question is, which one is more important in evaluating an asset?
Technical Analysis is the study of the price behavior of a particular asset, accompanied by its volume too in order to predict the upcoming price movement. This analysis often helps traders make better trading decisions.
Fundamental Analysis is a method of evaluating an assest in an attempt to assess its intrinsic value by evaluating its related economy, finance, and other factors.
5 TECHNICAL ANALYSIS TOOLS
1. SUPPORT & RESISTANCE LEVEL
Support Level is a technical analysis tool that represents the lowest price of the digital asset. At the support level, traders could anticipate the price to either stall, break below, or reverse.
Resistance Level is a technical analysis tool that represents the highest price of the digital asset. At the resistance level, traders could anticipate the price value to either stall, break above, or reverse.
Analyzing the support and resistance levels help the investors and traders to anticipate whether the asset value is close to its breakout value and how risky the investment is going to be.
Breakout refers to the action of an asset price breaking through the support or resistance lines. A breakout will help the investor or trader to know the direction of the market.
3. MOVING AVERAGE (MA/EMA/SMA)
Moving Average or also known as MA is an arithmetic method of smoothing price numbers for traders to see and measure a trend. A moving average line describes more accurately with what is going on than a straight line.
This allows investors and traders to filter the short term changes in the market value and see the average across the period.
4. RELATIVE STRENGTH INDEX (RSI)
RSI, or also known as the Relative Strength Index is a momentum indicator. This indicator measures how great are recent price changes in the market. Using this data, it helps traders to understand whether the current market is overbought or oversold.
Volume is the total number of anything that is accumulated over a period and it helps traders understand the general interest of a certain market and the depth of it.
5 FUNDAMENTAL ANALYSIS TOOLS
1. BALANCE SHEET
Balance sheet is a financial statement that reports a company’s assets, liabilities, and shareholders’ equity at a specific point in time. Looking into a company’s balance sheet provides a lot more details how well the company is doing financially and potential risks (from debts and loans) to anticipate that could affect the value of the company’s share/token value.
2. REVENUE (ANNUALLY, QUARTERLY, MONTHLY)
Reviewing the company’s revenue (the amount of money generated through sales) is important to see not only how well they are doing now but also the potential company’s growth. Also, it is not only important to look at the amount of revenue generated but also how consistent it is over time (annually, quarterly and monthly).
3. INTELLECTUAL PROPERTY
Intellectual property (IP) describes the legal ownership of an idea such as trademarks and patents. Having a strong portfolio of IP helps investors understand the unique selling points and competitive edge that the project, asset or company has in the market to perform well.
It is important for investors and traders look into the quality of the team members particularly the management of a company. These members include the chiefs (CEO, CTO, CMO etc), president, board of directors, managers, and directors.
If the team members of the management have a strong success history and relevant years of experiences, it could positively affect the asset value (token, share etc) of the company.
5. MARKET TREND
Although the product of the company is popular and has a competitive edge at present, traders and investors must always investigate the future. How will the product remain in demand as the years pass by?
For example, a lot of products no longer uses battery and have in-charge feature. Sooner or later, products that still need battery to function will no longer be popular and the stock value of that company respectively will begin to decline significantly.
Investors and traders can be updated with the trends of the market sentiments through social media, forums, and news outlets.
WHICH IS MORE IMPORTANT: TECHNICAL VS FUNDAMENTAL
The choice between technical analysis and fundamental analysis depends heavily on the goals and risk sensitivity of the investor or trader themselves.
For an investment that is long term based and have low risk, the fundamental analysis would be the most appropriate approach. Plus, not all investors have the time and technical knowledge to navigate the price charts and its tools to make a firm and clear decision. What if they misunderstand the data from the technical tools and make a wrong investment decision? At least with fundamental analysis tools, they are easier to digest.
But picking up a skill in technical analysis, whether it’s one like volume, can be a powerful tool for investors who are only doing fundamental analysis at the moment. Learning something new, even if it’s at your own pace, will allow you, as an investor, to open up your point of views on your strategies and decisions.
For investors who take up technical analysis as their fundamental approach, these investors have the skill to utilize the tools in an exchange and identify signals efficiently to buy or sell. These investors are comfortable with higher risks and have the time to make analysis and strategies with technical analysis tools.