To predict market movements, traders generally use two main schools of thought: Technical Analysis and Fundamental Analysis. Understanding the difference is crucial for finding your trading style.
What is Technical Analysis?
Technical analysis focuses on price action and historical data. Traders use charts, patterns, and indicators (like RSI, MACD, Moving Averages) to predict future price movements. The core belief is that "history repeats itself" and all information is already reflected in the price.
What is Fundamental Analysis?
Fundamental analysis involves evaluating an asset's intrinsic value.
- For Stocks: It involves looking at earnings reports, revenue, and company management.
- For Forex: It involves looking at interest rates, GDP growth, and unemployment data of a country.
- For Crypto: It involves looking at network activity and project utility.
Which One Should You Use?
Short-term traders (Day traders) often rely more on Technical Analysis because fundamentals rarely change hour-by-hour. Long-term investors rely more on Fundamentals. However, the best traders often use a combination of both.
Disclaimer: No analysis method guarantees 100% accuracy. Always use risk management.