consumers' confidence in the national economy. Usually more (macro) economic variables are needed. That makes fundamental analysis more costly than technical analysis.
An advantage of technical analysis from an academic point of view is that it is much easier to test the forecasting power of well-defined objective technical trading rules than to test the forecasting power of trading rules based on fundamentals. For testing technical trading rules only data is needed on prices, volumes and dividends, which can be obtained fairly easily.
An essential difference between chart analysis and fundamental economic analysis is that chartists study only the price action of the market itself, whereas fundamentalists attempt to look for the reasons behind that action. However, both the fundamental analyst and the technical analyst make use of historical data, but in a different manner. The technical analyst claims that all information is gradually discounted in the prices, while the fundamental analyst uses all available information including many other economic variables to compute the `true' value. The pure technical analyst will never issue a price goal. He only trades on the buy and sell signals his strategies generate. In contrast, the fundamental analyst will issue a price goal that is based on the calculated fundamental value. However in practice investors expect also from technical analysts to issue price goals.
Neither fundamental nor technical analysis will lead to sure profits. Malkiel shows in his book ``A Random Walk down Wall Street'' (1996) that mutual funds, the main big users of fundamental analysis, are not able to outperform a general market index. In the period 1974-1990 at least two thirds of the mutual funds were beaten by the Standard & Poors 500 (Malkiel, 1996, p.184). Moreover, Cowles (1933, 1944) already noticed that analysts report more bullish signals than bearish ones, while in his studies the number of weeks the stock market advanced and declined were equal. Furthermore, fundamental analysts do not always report what they think, as became publicly known in the Merrill Lynch scandal. Internally analysts judged certain internet and telecommunications stocks as `piece of shit', abbreviated by `pos' at the end of internal email messages, while they gave their clients strong advices to buy the stocks of these companies. In 1998 the ``Long Term Capital Management'' (LTCM) fund filed for bankruptcy. This hedge fund was trading on the basis of mathematical models. Myron Scholes and Robert Merton, well known for the development and extension of the Black & Scholes option pricing model, were closely involved in this company. Under leadership of the New York Federal Reserve Bank, one the twelve central banks in the US, the financial world had to raise a great amount of money to prevent a big catastrophe. Because LTCM had large obligations in the derivatives markets, which they could not fulfill anymore, default of payments would