Fundamental analysis refers to the 'hard facts' that affect the underlying investment vehicle. For stocks, the trader would be interested in the profitability and basic type of business in which the company is involved, the financial data that is available about the company itself and any current news that could affect the company positively or negatively.
The fundamental analysis of commodities such as gold or oil or other resources would relate to calculated supply and demand, the efficiencies of production and again relevant news reports that may impact future production and consumption.
So what is the definition of technical analysis? Technical analysis on the other hand, basically ignores 'news' and looks at past price activity in an effort to forecast future price movement. The presumption for the technical analyst is that all of the relevant news is distilled into the actual price of the underlying security whether it is gold, a stock or a countries currency.
Technical analysis can be broken down into four broad categories of analysis.
1. Chart pattern interpretation.
2. Price action interpretation.
3. Timing.
4. Indicator interpretation.
Chart pattern interpretation involves looking at specific visual patterns within a price chart. Head and shoulders formation, double top, pennant, and various breakout patterns are commonly studied and used as predictors of future price action.
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