Investing: Fundamental and Technical Analysis

There are many different investing strategies out there designed to help you make the best investing decisions you can. However, when it comes to investment analysis, there are two main types available: fundamental analysis and technical analysis. Understanding the difference between these two investment analysis techniques, and determining which best fits your investment style and needs, is an important part of building a successful investment portfolio.

The "big picture": fundamental analysis

Fundamental analysis in investing is all about looking at the "big picture." It means that you take a somewhat subjective approach to analyzing investments, whether they are stock investments, bond investments or currency market investments. What you do is look at such items as potential for growth, future factors (such as mergers or interest rate cuts) and the underlying management of a company or strength of an economy. These subjective factors give you an overall idea of how an investment is likely to do now, and in the future. Especially in the future. Fundamental analysis is generally cried up as the way to go by long term traders.

What's the market like today?: technical analysis

Technical analysis focuses on what is happening at the moment, or what happened in the rather immediate past. Technical analysis is about charts and numbers and current and past performance. You need to know about things like "support" and "resistance" in order to make your investment decisions based on technical analysis. Technical analysis is great for short term investors, like day traders, because it allows them to ignore larger issues for what is going on with the current price trend.

How to choose between fundamental analysis and technical analysis

Once you know your investing style (are you risky, or are you more long-term), you can decide which type of investment analysis works for you. For those with higher risk tolerance, and those attracted to the fast pace of investing, technical analysis can help you make frequent trades. However, if you are more "hands off," and interested in a safe way to just let your investment holdings grow, then fundamental analysis will probably suit you better.

Of course, you can combine the two, using elements of both to create a good mix. Even if you favor fundamental analysis, price trends can give you a good piece of the picture. And, even technical analysis is affected by the underlying reasons behind price movements. The idea is to take investing strategies that work for you, and that you are most comfortable with.