Technical analysis and fundamental analysis represent two distinct ways of evaluating financial markets and making investment decisions, and they are based on completely different assumptions and types of data.
Technical analysis primarily focuses on examining historical price data, trading volume, and various statistical indicators, such as moving averages, RSI, and MACD, to identify patterns and try to predict future price movements. The basic assumptions here are that market prices already reflect all available information, that prices tend to move in trends, and that historical market behavior often repeats itself.
The tools used include charts, trend lines, support and resistance levels, technical indicators (such as oscillators, momentum indicators, and volume indicators), as well as pattern recognition. This method is often used for short-term to medium-term trading strategies and has the advantage of being able to help identify potential buying and selling points and being useful for spotting trends and momentum in a variety of assets. The limitations lie in the fact that interpretation can be subjective, that the method can generate false signals, and that it does not take into account the underlying value of an asset.
This method is generally preferred by long-term investors and has the strength of providing insights into the long-term potential and value of an investment as well as helping to identify fundamentally strong companies or assets. The limitations are that it can be time-consuming, that it relies on publicly available information that may not always be complete or accurate, and that market sentiment can keep prices separated from the fundamental value for long periods.
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