Another step towards basics of Technical analysis is to understand how it is related to Fundamental Analysis and what does market prices represent. So lets look down at few points.
- Technical Analysis considers only past price action to forecast future prices price, while Fundamental Analysis takes into consideration Economic factors of demand and supply that causes price to move higher or lower.
- Fundamental Analysis represents the cause of the current market price of the stock while Technical Analysis studies the effect of such cause.
- Market prices leads to known Fundamentals which means on crucial market reversal Technical Analysis leads the change as its based on market prices.
- Market prices have already discounted known Fundamentals which means it moves in anticipation of unknown fundamentals by which Technical take a call through price patterns.
So this was to explain you guys that how are both school of thoughts related and both are important for research of and stock as it compliments one another always. In next post we shall continue further with the Technical Analysis tenant.