This article is general information, not a recommendation to buy or sell anything. Academy articles are prepared by the ETTFOS team and other writers. They make no claim of expertise or accuracy, and they are not kept up to date after they are published.
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Ask two analysts about the same market and they may start from opposite ends. One looks at the price and how it has moved. The other looks past the price, at the business or the economy behind it.
These are the two broad traditions of market analysis, technical and fundamental. This article explains what each one studies and what each one cannot do. It does not teach either as a method for trading.
Fundamental analysis: what lies behind the price
The CFTC’s glossary defines fundamental analysis as the study of basic, underlying factors that will affect the supply and demand of what is being traded.
The SEC describes fundamental data in similar terms: economic, financial, and other qualitative or quantitative data that can affect the value of an investment.
For a company, much of that data is public. Most US public companies must file an annual report on Form 10-K and quarterly reports on Form 10-Q with the SEC, and all of them are available to the public on the SEC’s EDGAR website. The parts an analyst reads first:
- Business: what the company does, its main products and services, and the markets it operates in.
- Risk factors: the most significant risks to the company or its securities, generally listed in order of importance.
- Management’s discussion and analysis: management’s own view of the year’s results, including known trends or uncertainties.
- Financial statements: the audited income statement, balance sheet and statement of cash flows, with the notes that explain them.
The SEC adds a caution of its own: it does not vouch for the accuracy of a 10-K or 10-Q. The company prepares the filings, and its CEO and CFO must certify them.
A currency or a commodity has no annual report. There, fundamental analysis looks at supply and demand and at the economy around them.
Technical analysis: what the price itself shows
Technical analysis starts from the other end. The CFTC defines it as an approach to forecasting commodity prices that examines patterns of price change, rates of change, and changes in volume of trading and open interest, without regard to underlying fundamental market factors.
Its working material is the record of trading: where the price has been, how fast it moved and how much changed hands. A technical analyst who works mainly from graphs of price movements is sometimes called a chartist.
The same glossary entry sets a condition. Technical analysis “can work consistently only if the theory that price movements are a random walk is incorrect.”
Side by side
What fundamental analysis asks
What is this worth, and why? It reads reports and data that arrive quarterly or yearly, so its view changes slowly. Its weakness is time: a price can stay far from any estimate of value for a long while.
What technical analysis asks
What is the price doing, and what has it done before? It reads the trading record, which changes by the moment. Its weakness is the one the CFTC names: past patterns help only if prices are not a random walk.
Many market participants draw on both. Neither removes uncertainty. One can be right about value and early on timing; the other can read a pattern that the next piece of news erases.
What research says about predicting prices
In 2013 the prize in economic sciences in memory of Alfred Nobel went to Eugene Fama, Lars Peter Hansen and Robert Shiller “for their empirical analysis of asset prices.”
The Royal Swedish Academy of Sciences summed up their findings in two sentences: “There is no way to predict the price of stocks and bonds over the next few days or weeks. But it is quite possible to foresee the broad course of these prices over longer periods, such as the next three to five years.”
Fama and his collaborators showed that stock prices are extremely difficult to predict in the short run, and that new information is very quickly incorporated into prices. Shiller found that stock prices fluctuate much more than corporate dividends.
For both traditions the lesson is humility. If new information reaches prices quickly, any reading built on public news or past prices starts from what the market may already know.
Where analysis goes wrong
The SEC warns about a pattern it calls noise trading: buying or selling without the use of fundamental data. Noise traders, it says, generally have poor timing, follow trends, and overreact to good and bad news.
It also warns that real-time discussion platforms and buy/sell indicators driven by social sentiment may lead to emotionally driven or impulsive decisions.
Its advice runs the other way: never feel pressured to invest right away, research the company thoroughly, understand its business, and carefully review what it has publicly disclosed.
Analysis of either kind is a way of organizing information. It is not a promise about what happens next.
The takeaway
Technical and fundamental analysis are two lenses on the same market: one on the price, one on what stands behind it. Each sees something the other misses, and neither sees the future.
A written plan says in advance what evidence a decision rests on, so a reading of the market is checked against rules rather than mood.
Your results will depend on your own decisions, your capital and market conditions, and you can lose money.
