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Fundamental Analysis
• Study of economic forces affecting demand and supply which cause prices to either move higher or lower or stay the same.
• Intrinsic value of the security is the basis to determine the likely direction of price movement (If intrinsic value is less than the market price, the security is overpriced and should be sold. If the intrinsic value is higher than the market price, the security is undervalued and should be bought).
Technical Analysis
• Study of market action (price and volume).
• Current market price reflects all known information, hence a study of the current price action suffices.
• Price of a security move in trends and this is the basis to determine the likely direction of price movement.
Both approaches attempt to forecast the likely direction of prices. However, they look at it in a different manner. Fundamental analysts study the cause while technical analysts study the effect.
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