Should You Trade with Fundamental Analysis or Technical Analysis?

Technical or Fundamental Analysis – That is the Question!

For any newbie or skilled day trader, making the decision when to get in or out of a trade is based on technical analysis or fundamental analysis. Both types typically involve gathering information and making an informed decision about the price of a market at a future point in time. However, the information that each use is very different from one another on one level but very similar on another. It is entirely possible that a day trader will use both technical analysis and fundamental analysis together although it is a far more widespread practice that a day trader will be a technical analyst.

Fundamental Analysis

The importance of fundamental analysis cannot be overstated. Traders that use fundamental analysis constantly gather information about national and global economies and the current & historical financial status of the companies or commodities involved. They also take into consideration current weather information and political certainties.

A trader that relies on fundamental analysis as one of their effective day trading tools will tend to believe that the markets that concern him or she will react to specific events in a predictable way. The information allows them to understand future market prices that are based solely on the outcomes of these events.

As part of their day trading strategy, fundamental traders must have complete access to a huge variety of available information as quickly as possible. Many times, their day trading systems rely on large support teams to gather and analyze the information rather than a single individual. Once left to the minds and hands of individuals, most fundamental analysis traders choose to garner computing power to help produce fundamental information as a way to process all the data automatically. Most traders relying mostly on fundamentals tend to hold longer term positions.

Technical Analysis

Day traders that use technical analysis garner historical information including trading volume and previous pricing, along with the best technical analysis indicators to make their decisions. The data they gather is typically displayed on a graphical chart with real-time updating all throughout their trading day.

Part of their day trading strategy is built on the foundation that accurate data about a market will already be included in the movement of its price. This situation means there is no need to input any fundamental information such as news or market reports. With a large variety of the best technical indicator information, measurable indicators, and charts, the day trader quickly understands that some of the best technical indicators are better suited to produce better results for longstanding trend-following day trading.

At some point, every individual that wants to learn trading must decide whether to rely on technical analysis or fundamental analysis, or both.

For more from Erich, visit the Indicator Warehouse for additional futures resources and NinjaTrader Indicators.