What is a Trading Systems?
Trading system – is a combination of certain parameters and rules that determine exit and entry point for a given equity. Two types of analysis: fundamental and technical are used to construct the parameters of trading systems.
Both technical and fundamental analyses have one main aim – to “predict” at which direction the prices on the market will move in the nearest future. The main difference between these two analyses is the instruments which are used for predictions.
Technical Analysis – predicts the prices on the market with the help of charts and indicators.
Fundamental Analysis – predicts the prices on the market thanks to financial indicators of the company’s activity as well as calculation of an average price of a company. Thus, having compared internal company’s cost with its market value, one can understand if the company is over or under-priced.
Technical and Fundamental Analyst
Technical analyst thinks the following way: if the price went up, it means that demand has overtaken supply. Whereas fundamental analyst would think: it is time to learn demand and supply and later make a conclusion which change in demand can have an impact on the price in the future.
Unlike technician who is interested in the fact of market’s movement, fundamentalist always tries to understand the reason of market’s direction to whatever side. All a technician should know is that some certain market’s dynamics exists and it doesn’t matter what causes it. Fundamentalist wants to find out why it happened and understand the reasons for these sudden changes.
Which Method is Better?
There always was and still is some kind of “battle” between these two kinds of analyses. To say absolutely positively that technical analysis is more simple for understanding. Having learned all charts with prices, indicators and technical figures – it is possible to predict the price visually / at a glance.
To make a prediction using fundamental analysis one should learn a lot of information about the company itself (profit and loss statement, accounting documents etc). All this will take too much time and efforts. Nevertheless such analysis is always deeper and more precise.
Therefore it is already a matter of personal preferences which type of analyses to choose. As a rule short-term traders and speculators opt for technical analysis, yet long-term traders always choose fundamental one.