Fundamental Analysis and Technical Analysis

Fundamental Analysis and Technical Analysis are the two major methods, which are used for analyzing the stock markets.

Although, both the methods are at the opposite ends of the band, and both of them are used for researching and forecasting future trends in the stock prices.

Most of the newbie investors or traders have lots of questions on, What is Fundamental Analysis and Technical Analysis of Stock?

Or, Which is better between Fundamental Analysis and Technical Analysis?

Today, we would be finding the answer to these questions and more which are related to Fundamental Analysis and Technical Analysis.

Let us start by understanding the Fundamental Analysis and Technical Analysis.

Definition of Fundamental Analysis:

Fundamental Analysis is a practice of analysing securities by determining the “basic value” of the stock.

Detailed inspection of the basic factors has a direct effect on the economy, industry, and the company.

You can identify the opportunities, where the value of the share varies from its current market price.

Definition of Fundamental Analysis

Definition of Technical Analysis:

Technical analysis is a method of determining the “future price” of the stock, with the help of charts to recognize the patterns and trends.

Here, you can determine the share price of the company on the basis of the interaction of demand and supply forces, operating in the market.

Definition of Technical Analysis

Difference between Fundamental Analysis and Technical Analysis

After understanding the definition of Fundamental Analysis and Technical Analysis, let us check the difference between both, Fundamental Analysis and Technical Analysis.

Fundamental Analysis:

1. This method is to examine the security, to find the inherent value for long term investment opportunities.

Here, the longer periods are considered to analyze the stocks.

This method is used by investors who want to increase the value of their stocks in the long term.

2. Fundamental Analysis aims at determining the true core value of the stock.

3. The decisions are based on the information available and the statistics evaluated are financial statements, management processes, etc.

These are some of the factors which may have an impact on the company’s stock prices in the future.

4. The past and present data are required for analysis.

5. In Fundamental Analysis the intrinsic value of the stock can be determined by analyzing an income statement, balance sheet, return on equity, etc.

6. The future price of the stock is decided upon the past and present performance and success of the company.

Technical Analysis:

1. Technical Analysis is a method of evaluating and forecasting the price of a security in the future.

It is based on the price movement and volume of transactions, which helps in identifying the potential of stock in the future.

2. This method can be used for the analysis for the short term trading.

Which helps in identifying the right time to enter or exit the market.

3. The decisions are based on market trends and the current prices of the stocks.

Past charts, patterns, and trends are used here to calculate the price movements of the stocks.

4. Technical Analysis requires only the present data for analysis.

5. Technical Analysis relies on the chart patterns, price actions, technical indicator, resistance, and support, to analyze the future price trends.

6. Here, future prices are depicted on the basis of charts and indicators.

Which is better?

Everyone asks, which method is better between Fundamental Analysis and Tehcnical Analysis – answer below:

  • Fundamental Analysis is meant for investments.
  • Technical Analysis is best for day trading.
  • Fundamental Analysis is to wait for the prices of the stocks to increase and make a profit.
  • Technical Analysis is to make an instant profit out of the stock market, without waiting for longer-term.

Conclusion

Let’s check out the conclusion of Fundamental Analysis and Technical Analysis.

In Technical Analysis the trader needs to develop their own strategies and be flexible with them based on the situation.

Markets behave differently at a different time and an all-rounder right strategy may not always work.

Fundamental Analysis is used by investors who want to increase the value of their stocks in the long term.

There are differences between Fundamental Analysis and Technical analysis; both play an important role in investment goals.

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