When you take your finances into your own hands and start managing your own equity investments, you have two main ways to analyze the stock market: fundamental analysis or technical analysis. These two types of analysis can be applied not only to stocks, but also to trading options, futures, Forex, and bonds. Today some combination of fundamental analysis and technical analysis is generally used and there are a ton of stock market software and websites that makes such analysis much simpler. What is the basic difference between the two types of market analysis?

• Fundamental analysis it’s what most people are familiar with and were probably exposed at school. Fundamental analysis looks at companies, their businesses, and the economic factors that can affect future stock prices. This is more common among investors, who are looking for price earnings growth and stock valuation for long-term growth.
• Technical analysisAlthough it is often unknown to the public, it has been around for as long as the markets. It’s not a secret, so why not learn how to use its benefits? This method assumes that there are non-random patterns and trends in financial markets, although not necessarily all the time. Technical analysis is more common among traders, who are often more active and don’t have time to wait for the business to affect the stock price, so they look for patterns in the stock price.

Unlike fundamental analysis, technical analysis focuses on analyzing stock price (or whatever asset you are investing in), time, volume, patterns, and trends. So simply put, technical analysts study the statistics for the stocks themselves, not the company behind them. The point of using technical analysis is to anticipate rather than predict the outcome by looking for clues in stock stats, much like sports fans look at star player stats.

Why use technical analysis?

1. It allows you to prepare for buying and selling opportunities and dangers in advance. This requires a proactive approach rather than having to wait for the company’s financial reports, which are compiled only at the end of the quarter and at the end of the year.
2. Spend more time looking for opportunities with various price and volume patterns, which generally takes less time than studying a company’s financial data and business prospects.
3. Best time to buy and sell inputs and outputs, based on statistics from patterns other data
4. Better knowledge of what prices to buy and sell, again based on past statistics and records of stock data.
5. Pick better trading opportunities quickly by looking at a chart or even using stock market software that identifies specific patterns that you know give you a statistical advantage

Technical analysis basics for buying and selling (trading)

1. Trade with the trend: simply following the current direction of what you want to buy or sell
2. Support and Resistance: By identifying support prices (where stocks stopped falling and rose) and resistance prices (where stocks stopped rising and fell), traders assume that this pattern will continue and will buy in support and sell in resistance .
3. Leaks: Stocks can stay in a range for a long time, even for years, but eventually they break, either higher or lower. Traders can take advantage of this breakout.
4. There are many more mathematical formulas, statistics, patterns, and strategies that investors and traders have been able to use to decipher stock data. Some examples you can research include: Fibonacci, Elliott Wave, Time to Market, and Volume Profiles.

How to use technical analysis as an investor or trader?

1. Trading positions (medium and long term): whenever you buy or sell, you are “trading”. Investors and traders alike “trade,” the difference is how old an investment is and how active it is. Both investors and long-term traders do what is called “position trading”.
2. Swing Trading (short to medium term): traders who buy and sell from a couple of hours to a couple of days.
3. Intraday trading (also known as scalping): trading that takes place during the day between the opening and closing of the market only. Daily traders do not hold a position overnight, generally to avoid the potential risk of what could happen between today and tomorrow.