Fundamental Analysis Vs. Technical Analysis

 

Fundamental and Technical Analysis are the major methods used for analysis when it comes to the stock markets. Although both the methods are at the opposite ends of the band, but both methods are used for researching and forecasting future trends in stock prices.

To understand the difference between the two methods, let’s dig a bit deeper.

Fundamental Analysis Vs Technical Analysis – An Overview

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

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

Top 10 differences between Technical and Fundamental Analysis

S.No Fundamental Analysis Technical Analysis

1

A method of examining security in order to find its inherent value for long term investment opportunities. A method of evaluating and forecasting the price of a security in future, based on the price movement and volume of transaction. It helps in identifying the potential of stock in future.

2

Longer periods are considered to analyse stocks as compared to therefore, fundamental analysis is most often used by those investors who want to invest in stocks, whose value will increase in several years, and i.e. for long term investments. Used during the trading for short term only.  

3

Talks of Investments. Investors usually, hold for a longer duration Talks of trading. Short-term profits

4

Aims at determining the true core value of the stock Used for identifying the right time to enter or exit the market.  

5

Decisions are based on the information available and statistic evaluated. Decisions are based on market trends and the current prices of the stocks

6

Both Past and present data are taken in account Only past data is considered

7

The analysis is based on financial statements The analysis is based on charts with price movements

8

In fundamental Analysis the intrinsic value of the stock can be determined by analysing an income statement, balance sheet, cash flow statement, profit margin, return on equity, price to earnings ratio, etc. Analysis is relied on the chart patterns (such as continuation pattern and reverse patterns), price actions, technical indicator, resistance and support, to analyse the future price trends. Here resistance is – – the point where the investor assumes that the price will not rise further and is willing to sell the stock And Support is a point where the investor believes that price will not fall further and is open to buy the stock.

9

The future price of the stock is decided upon the past and present performance and success of the company Future prices are depicted on the basis of Charts and Indicators.  

10

Uses Expectations Vs Actual Outcomes For Analysis Uses Trend lines, Support And Resistance Etc. For Analysis

Bottom line

Use of Technical Analysis is an art more than a science. 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.

On the other hand, in fundamental analysis, the stock is bought by the investor when the market price of the stock is less than the basic value of the stock and hold it for a considerable period of time for receiving long term benefits.

Both methods play important roles in a different situation and varied investment goals.

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