In essence, whether you are a trader or an investor there are two ways to approach your trading and investing decisions. Both have very different views in the techniques they use to assess market conditions, and the direction an instrument may take. Needless to say both schools are equally disparaging about the other, and both believe their techniques are infinitely superior. Whilst there is some overlap there are two very distinct methodologies, and you need to be comfortable with one or the other. You will come across this terminology all the time. Whilst there are huge differences in the approach, it is safe to say that most large financial institutions now employ both methods as both have their strengths and weaknesses. Fundamental also applies to the broad economy such as GDP, exports, imports etc

The two schools are called FUNDAMENTAL and TECHNICAL and for the record I am primarily a technical trader. In a nutshell, the fundamental trader believes that a share's performance is based on the fundamentals of the company ( hence the name ) such as PE ratio, profit/loss, balance sheets, management, ratios, business forecasts - the sort of information that is contained in a small forest of paper provided to shareholders.

The technical trader however believes that the future performance is based purely on one simple piece of information, namely the price chart for the instrument. They believe that all the information about a company's performance is encapsulated in this simple chart. This is not an unreasonable assumption since the price reflects past performance, and is dictated by market conditions throughout the trading day. ( You may also hear the term chartist - this is the same thing ) In essence it is the ability to analyse a price chart in order to predict future price movements.

One of the key points to understand is that even though, as a technical trader you will principally be studying charts, fundamental data does play a part, but only on a large scale. You use fundamental analysis to determine what part of the business cycle the economy is in and therefore which industries offer the best growth potential. Then you would use that information to identify groups of target stocks, and finally use technical analysis of the price charts to follow trends and select prospects.

As a technical trader who trades currency for a living, I make virtually all my trading decisions based on the candlestick charts and whether I therefore believe a currency pair is likely to rise or fall. I have assumed that all the relevant information has been factored into the charts by all the other millions of traders around the world. However, I do take account of broad major fundamental economics such as interest rates, GDP, and inflation although the final decision is always based on the analysis of the price charts.