Over the years, the fundamental vs technical analysis debate has really compared to that of the Mac vs PC argument. Which one is better?
As much as I love technical analysis, the truth of the matter is that there is no better method; rather, the question is which one is better for you?
Some of us our visual/pattern people (technical), while others love to crunch the numbers (fundamental). At the same time, you always have people that enjoy utilizing a little bit of both as well.
Now that I gave fundamentals enough kudos, let me tell you why I love technical analysis…
1. It takes the emotions of out trading.
Regardless of the rules and regulations, companies can always find some loophole or wording to tweak their numbers and related reports. You really just don’t know whether people are telling the truth or stretching it a bit. At the same time, you don’t know what they aren’t telling you. All this brings in more subjectivity and emotion into trading… which isn’t a good thing.
With technical analysis, you can essentially block out the outside news and determine price action solely on previous patterns and indicators. See a great example of that here.
2. Its much easier.
I’ll be honest, part of the reason I love technical analysis is that it is just really easy. As long as you completed 1st grade, then you should already have the tools needed to understand how to read charts and use patterns to predict price movement.
In fact, you can make great trades by simply comparing stock charts with each other. Check out A Stock that Moves with Oil – ATPG.
To really get a good grasp of the fundamental side of things you need to be more familiar with accounting principles and not scared of big numbers… which lot of people tend to be. Experience doesn’t hurt as well.
3. Price prediction is more accurate.
I’m sure this is where most of the arguments for either type of analysis are. Sure there are certain fundamental tools to determine what the stock should be trading at, but through graphs and previous history charts you can see what the actual value has been and where the strong and weak points are… thus executing trades as necessary.
4. Less risk involved
Carrying over from the last reason, technical analysis is much less riskier. As long as you keep the 3 simple tools in place to execute a profitable trade, then you will always prevent yourself from losing big if a trade doesn’t work out.
Truth be told, perfecting any type of analysis into your trading strategy will ultimately prove to be simple and easy; however, it is key to find which one is better for you… and since most of us would rather avoid the numbers and fallacies I prefer to stick with technical analysis.