Ask Colin

Do you think that technical analysis is more reliable than fundamental analysis?

I really find this difficult to answer, because I do not think of them in terms of reliability. However, it is an interesting idea.

First, I thought that I had better look up what reliable means to make sure I am talking about what you are asking about. According to the Shorter Oxford Dictionary, reliable means "of sound and consistent character or quality".

My first thought was to consider the data. Clearly both fundamental and technical analysis rely on reasonably reliable data, though there are problems areas in both of them. However, you are asking about analysis, not the data on which the analysis is made.

I wondered what makes analysis reliable? My thought is that reliable analysis should give valuable insights into the subject of the analysis. It is my experience that both fundamental and technical analysis give good insights. Fundamental analysis gives useful insights into the value of a security, while technical analysis gives similarly valuable insights into the ever changing strength of supply and demand in the secondary market.

This is the real problem in your question. Since fundamental and technical analysis are concerned with different aspects of the investment process, it is difficult to make a direct comparison. Indeed, a comparison may not be of meaning in such a situation. It is a bit like asking whether the egg or the flour are more important in the making of a cake.

I would therefore say that I don't know how to answer your question. I know that both are useful. I also know that using both together is better than relying only on one. As to which is more reliable I don't know and I don't think it is really relevant.

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