Technical Analysis vs Fundamental Analysis on eToro

As an investor, choosing the right approach to analyze financial instruments on eToro is crucial. This guide will help you understand the differences between technical and fundamental analysis, and how to leverage them for your trading success.

Key Takeaways

→Technical analysis focuses on price movements, trends, and patterns to predict future price behavior.

→Fundamental analysis evaluates a company’s financials, performance, and industry to determine its intrinsic value.

→Both methods have their pros and cons; choosing the right approach depends on your investment horizon and personal preference.

→eToro offers a variety of tools and data for both technical and fundamental analysis.

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📈 Technical Analysis: Unraveling Price Patterns and Trends

🚀 What is Technical Analysis?

Technical analysis aims to predict future price movements by examining historical price trends and trading volumes. It disregards factors like a company’s financial performance and focuses on market dynamics, investor behavior, and supply-demand patterns. Technical analysts believe that all publicly available information is already reflected in an asset’s price.

🔧 eToro’s Technical Analysis Toolbox

eToro offers a range of tools for technical analysis, including:

Moving Average: Reveals the direction of a trend over time, with more weight given to recent results.

Bollinger Bands: Bollinger bands are the two trend lines plotted 2 standard deviations around the values of the simple moving average (SMA) over a 20 day time period of an asset. These are used to identify whether the asset is likely to being currently overbought or oversold by analyzing trend’s strength: price moving above the upper boundary indicates a situation of possible overbuying whereas if it is below the lower boundary the asset is believed to be oversold. These trendlines change in accordance with changes in the volatility of an asset. Note that you can modify the default settings (2 standard deviations and 20 day time period) of this indicator to your own preference. An example is shown below.

Support and Resistance levels: Indicates when to open or close trading positions based on price thresholds.

Fibonacci Retracements: used to identify the price reversal points of an asset to help identify the highest and lowest possible prices. In simple terms they give an indication of when the support and resistance levels are likely to be reached. You can always adjust the position and the width of retracements.

Relative Strength Index (RSI): Measures an asset’s strength against historical values to signal bullish or bearish trends.

Stochastics Indicator: Estimates overbought or oversold periods based on closing prices.

Moving Average Convergence Divergence (MACD): Identifies shifts in price movement, trend strength, and duration.

Ichimoku Clouds: Provides detailed support and resistance levels while indicating trend direction and momentum.

⚠️ Proceed with Caution: Technical Analysis Limitations

Technical analysis results depend on the chosen timeframe and indicators, as well as your understanding of market behavior and investor decision-making. Since it’s subjective and influenced by personal biases, always interpret technical analysis with caution and objectivity.

💼 Fundamental Analysis: Digging into a Company’s True Value

🔍 What is Fundamental Analysis?

Fundamental analysis aims to determine an asset’s intrinsic value by evaluating the issuing company’s financial performance, income, profit, and asset value. It identifies discrepancies between the asset’s trading price and its real value, enabling long-term investment decisions. Fundamental analysts examine financial statements, economic indicators, and industry data to derive their conclusions.

📚 eToro’s Fundamental Analysis Resources

eToro simplifies the fundamental analysis process by providing essential information, including:

• Company profiles, strategies, and industry overviews.
• Key financial metrics,such as earnings per share, return on equity, and stock beta.
• Financial statements, including income statements, balance sheets, and cash flow statements.
• Newsfeed with the latest updates on market and industry conditions.
• Country-specific economic indicators and relevant industry data.

⏳ Time-Consuming and Complex: Fundamental Analysis Limitations

Fundamental analysis is time-consuming and focuses on long-term price performance. It may not be suitable for short-term success-seekers. Additionally, it relies on publicly available data, which can be limited in scope. The outcome of a fundamental analysis depends on the chosen valuation method and key indicators, varying among traders.

🤔 Technical or Fundamental Analysis: Which One to Choose?

The debate between technical and fundamental analysis is ongoing. Your choice depends on your investment horizon and personal preference. Technical analysis is better suited for short-term trading, while fundamental analysis is more appropriate for long-term investments. Combining both methods can be useful for medium-term investments.

Keep in mind that technical analysis is considered riskier due to short-term volatility, investor behavior, and market psychology. On the other hand, fundamental analysis may overlook factors like brand value, patents, and human resources.

🎯 Conclusion: Blending Techniques for Investment

Both technical and fundamental analyses have their merits and limitations, and your choice should be based on your investment goals, risk tolerance, and personal preferences. Understanding both methods can help you make informed investment decisions on eToro.

A balanced approach that combines technical and fundamental analysis can offer a comprehensive understanding of an asset’s potential, enabling you to develop effective trading strategies. As you progress in your trading journey, refining your analytical skills and adapting to market conditions will be key to achieving success. Happy trading! 📈

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Disclaimer And General Risk Warning:

• ► The information provided should not be seen as financial advice and is only intended for entertainment and informational purposes.
• ► Financial asset providers listed offer a variety of financial products and services, including Stocks, Crypto assets, and CFDs.
• ► CFDs are complex instruments with high risk due to leverage. In fact a 77% to 86% of retail investor accounts lose money when trading CFDs. Make sure you understand how CFDs work and evaluate whether you can afford the potential risk of losing your money.
• ► Past performance does not guarantee future results. A trading history of less than 5 complete years may not be sufficient for making investment decisions.
• ► Financial asset providers do not constitute investment advice. The value of your investments can fluctuate, putting your capital at risk.
• ► Cryptoasset investments are highly volatile and may be unregulated in some jurisdictions. Consumer protection may not be available, and taxes on profits could apply.
• ► USA financial asset providers are not affiliated with any specific entity and do not offer CFDs. The platforms take no responsibility for the accuracy or completeness of the content in this publication, which is based on publicly available, non-entity-specific information.

► Trade with caution and be warned!

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Author & Expert Trader - Financial Analyst:

My name is Bart Bregman and I am a full-time professional trader with nine years of experience. I specialize in shorter-term trading using technical analysis, and I have extensive experience with Stocks, CFDs, Options, and Crypto trading. I believe that there is no such thing as a bad trade. I'm currently traveling the world as a digital nomad trader. You can follow my journey on Instagram at https://www.instagram.com/bart_bregman/