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Technical Analysis vs Fundamental Analysis – What’s the difference?
18 Jan

Technical Analysis vs Fundamental Analysis – What’s the difference?

, , Beatriz Costa 0

Technical Analysis vs Fundamental Analysis is a discussion that has been around for a long time regarding trading.
Both analyses are popular methods used by investors and traders to evaluate securities and assets. Also, both approaches have their own strengths and weaknesses, but which one is best?

Let’s start from the beginning!

What is Technical Analysis?

Technical analysis is a method of predicting the future price movements of a security based on its past performance. Technical analysts believe that the market is efficient, meaning that all available information is already reflected in the price of a security. Therefore, technical analysts focus on analyzing charts and other technical indicators to identify trends and patterns that can be used to make predictions about future price movements.

Advantages and disadvantages

One of the key advantages of technical analysis is that it is objective and data-driven. In this type of analysis, technical analysts use a variety of tools and techniques, such as trend lines, moving averages, and oscillators, to analyze historical price data and identify patterns and trends. This can provide a clear and unbiased view of the market and help traders make more informed decisions.

However, technical analysis also has its limitations. One of the biggest criticisms of technical analysis is that it is based on the assumption that past performance is indicative of future performance. This assumption may not always be true, and relying too heavily on technical analysis can lead to inaccurate predictions and potentially costly mistakes.

Technical Analysis chart
Technical Analysis chart

What is Fundamental Analysis?

Fundamental analysis, on the other hand, is a method of evaluating a security based on its underlying value. Fundamental analysts believe that the true value of a security is determined by the underlying factors that drive the performance of the company or asset, such as its earnings, revenue, and management. By analyzing these and other fundamental factors, fundamental analysts aim to determine the intrinsic value of a security and compare it to its market price.

Advantages and disadvantages of Fundamental analysis

One of the key advantages of fundamental analysis is that it takes into account a wide range of factors that can impact the value of a security. This can help investors make more informed decisions and avoid overpaying for a security. Additionally, fundamental analysis can provide valuable insights into a company’s long-term prospects and potential risks, which can be useful for investors with a long-term horizon.

However, fundamental analysis also has its limitations. One of the biggest criticisms of fundamental analysis is that it is subjective and can be subject to interpretation. Different analysts may have different opinions on the intrinsic value of a security, which can lead to disagreement and confusion. Furthermore, fundamental analysis can be time-consuming and require a significant amount of research, which may not be practical for traders who need to make quick decisions.

Fundamental Analysis
Fundamental Analysis

Conclusion: So which one is best?

Both technical analysis and fundamental analysis are valuable tools for investors and traders. Technical analysis provides a data-driven, objective approach to analyzing securities, while fundamental analysis offers insights into the underlying factors that drive the performance of a security. That’s why many investors use a combination of both approaches in their decision-making process, as each can provide valuable insights and help to reduce risk.

Technical Analysis vs Fundamental Analysis: Which one do you think is best? Let us know!

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Amândio Luís

23 Nov

Fibonacci Sequence

, Beatriz Costa 0

Fibonacci Sequence

You may have never heard of the Fibonacci sequence, but it’s a mathematical formula that has been around for hundreds of years and is used to analyse financial markets. This article will explore the Fibonacci sequence and why it’s so important.

What is the Fibonacci Sequence?

The Fibonacci Sequence is a series of numbers that starts with 0 and 1, and each subsequent number is the sum of the previous two. So, the sequence goes 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89… and so on indefinitely.

Where did it come from?

In 1202, an Italian mathematician named Leonardo Fibonacci published a book called Liber Abaci (Book of Calculation). In it, he introduced the Hindu-Arabic numeral system to the Western World. He also popularised a simple numerical sequence in which each number is the sum of the previous two (the Fibonacci sequence).

Why is it so important?

Well, the Fibonacci Sequence appears in nature quite often! 

It can be found in the arrangement of leaves on a stem, the pattern of petals on a flower (typically come in sets of 3s or 5s), or even in spiral galaxies. Also, many animals have body parts that follow the sequence – for example, a rabbit has five toes on its front paws and three on its back paws. 

It also has applications in mathematics, art, architecture and financial markets. For
example, the golden ratio – is characterised by the fact that the quotient between any term in the series and the preceding term always tends to the same value (1.618) as you progress through the series. This proportion occurs often in nature and has been used by artists such as Leonardo da Vinci to create aesthetically pleasing compositions, like Mona Lisa and Vitruvian Man.

Golden ratio calculation/demonstration:

1/1 = 1

2/1=2

3/2=1,5

5/3=1.6666..

8/5=1,6

21/13=1,615348

13/8=1,625

34/21=1,61904

55/34=1,61764

89/55=1,161818

144/89=1,611798

Vitruvian Man by Leonardo da Vinci
Vitruvian Man by Leonardo da Vinci

What are the Benefits of Learning About the Fibonacci Sequence?

If you enjoy maths, then learning about the Fibonacci sequence can be a fun and interesting way to explore a fascinating mathematical concept. Even if you don’t particularly enjoy maths, understanding the Fibonacci sequence can still offer some benefits. Here are a few reasons why learning about the Fibonacci sequence can be beneficial:

1. Help improve your problem-solving skills.

The Fibonacci sequence is all about patterns and relationships between numbers. Understanding it can help you become better at spotting patterns and solving problems in general.

2. Make you appreciate maths more.

Let’s face it: for many people, maths is not an enjoyable subject. However, the Fibonacci sequence is a perfect example of how maths can be beautiful and fascinating. Learning about it may just make you appreciate maths a little bit more.

3. Help you understand nature better.

The Fibonacci sequence is found throughout nature, from the arrangement of leaves on a plant to the spiral of a seashell. Understanding this connection between mathematics and nature can help you appreciate both subjects more.

Fibonacci sequence number in spiral
Fibonacci sequence number in spiral

Fibonacci sequence in financial markets

In economics, several concepts are based on Fibonacci numbers, including Fibonacci retracements/expansion and Elliott Wave Principle.

These concepts help technical analysts to define more precisely the key points of trend changes and movement corrections, for example: if the market is moving up and then suddenly reverses direction, it might be because it has reached a Fibonacci expansion or retracement level. This level could be a support or resistance level that traders watch for clues about where the market is headed next.

Fibonacci levels are especially important to day traders who look for short-term opportunities in the market. By understanding how Fibonacci levels work, day traders can better predict when to enter and exit trades.

Curiosities

1. The use of the golden ratio is the secret of the world’s most resistant structures such as the Great Pyramid of Quéops ( Khufu ) built around 2560 B.C;

2. The seeds of a sunflower are usually arranged in two groups of spirals in the core of the flower: 21 clockwise and 34 counterclockwise;

3. If a person of average stature divides his height by the distance between his navel and his head, the result will be around 1.618;

4. As already mentioned, the Fibonacci sequence is found in Leonardo da Vinci’s “Mona Lisa” in the relationship between the torso and the head of the depicted figure as well as in the elements of the face;

5. Each block of the Egyptian pyramids is 1,618 times smaller than the one below it.

Conclusion

The Fibonacci sequence is a mathematical concept that has many applications in the real world. It can be used to predict population growth, calculate financial risks, and even understand animal proportions. While it may seem like a dry topic, understanding Fibonacci can provide insights into some of the most fascinating patterns in nature. So on this Fibonacci Day, take some time to learn about this incredible sequence and its far-reaching implications.

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Fibonacci Sequence
Technical Analysis
22 Nov

Technical Analysis

, Beatriz Costa 0

Technical Analysis

Technical analysis is the study of past market data in order to help predict future prices. It does this by examining trading volumes and trends, price changes and other events associated with the market. In this blog post, you’ll learn more about technical analysis – including its definition, some of the concepts and who uses it.

What is Technical Analysis?

Technical analysis is the process of using past price data to identify market trends and make future price predictions. The experts in the field believe that prices move in cycles and that these cycles can be identified and used to make trading decisions.
Many different techniques can be used, but some of the most popular include trend line analysis, support and resistance levels, and candlestick charting. Technical analysts will often use a combination of these techniques to make the most accurate predictions possible.
While technical analysis can be used in any time frame, it is most commonly used by day traders or short-term traders who are looking to take advantage of small price movements.
Candlestick chart used in technical analysis
Candlestick chart

Benefits

Technical analysis is a security analysis discipline for forecasting the direction of prices through the study of past market data, primarily price and volume.
The benefits of technical analysis are numerous, but some of the most notable include:
1. The ability to identify trends: One of the primary goals of technical analysis is to identify whether a security is in an uptrend, downtrend, or sideways trend. This information can be used to make informed decisions about when to buy or sell a security.
2. The ability to forecast future prices: Technical analysts use historical price data and other market indicators to try and predict where prices are headed in the future. While no one can predict the future with 100% accuracy, technical analysis can give investors an edge in making investment decisions.
3. The ability to make better-informed decisions: By taking into account factors such as trends, support and resistance levels, and price patterns, technical analysis can help investors make more informed decisions about when to buy or sell a security. This can lead to improved investment returns over time.

Disadvantages

There are a few disadvantages to be aware of. First, past performance is no guarantee of future results – what worked in the past may not work in the future. Second, technical analysis is based on price and volume data, which can be subject to interpretation. And third, even with the best tools and indicators, success in trading still comes down to human factors like psychology and emotion.

Who uses technical analysis?

Technical analysis is used by a wide variety of market participants for different purposes. Some use it to attempt to identify patterns that may indicate a future market direction, while others use it to generate trading signals or develop trading systems. There are also those who use technical analysis as part of a more comprehensive investment strategy that includes other factors such as fundamental analysis and risk management.
The common thread among all users of technical analysis is the belief that past price data can provide insights into future market behaviour. As a result, technical analysts believe that it is possible to identify patterns in past price data that can be used to predict future market movements.
One of the most important things to remember about technical analysis is that there is no one right way to do it. Different analysts may use different methods and indicators, and there is no guarantee that any particular approach will be successful. Technical analysis is an art as much as it is a science, and each analyst brings his or her unique perspective to the table.
Person doing technical analysis in a computor
Technical Analysis

Conclusion

Technical analysis is a powerful tool that can help traders and investors identify opportunities in the market. However, it is important to remember that technical analysis is not an exact science, and there is no guarantee that every signal will result in a profitable trade. Nevertheless, by understanding and correctly applying the concepts of technical analysis, traders and investors can give themselves a better chance of success in the financial markets.

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