When we talk about the stock market, new traders always come across the Fundamental Analysis vs Technical Analysis. While both these approaches have their believers and haters, each system has been proven successful and trustworthy. So which one to follow? How should you choose? Can they Coexsists? Let’s discuss
Table of Contents
What is Fundamental Analysis?
Fundamental analysis is a method of evaluating a security by attempting to measure its intrinsic value. Intrinsic value is the difference between the security’s current market price and its underlying asset value.
There are two general approaches to fundamental analysis: bottom-up and top-down. The bottom-up analysis involves looking at the components that make up security, such as its financial statements. In contrast, the top-down analysis looks at more significant factors that affect an entire industry or market.
The goal of fundamental analysis is to find securities trading below their intrinsic value in the hope that the market will eventually recognize their true worth and push the price up. Fundamental analysts use various tools to help them make investment decisions, including economic indicators, company financials, and political and world events.
What is Technical Analysis?
Technical analysis is a method of evaluating investments that rely on analyzing statistical trends from trading activity, such as price movement and volume. Technical analysts believe they can use this data to identify patterns that predict future market behaviour. While technical analysis is Ideal for short-term and Swing trading, some investors use it as a long-term strategy.
Fundamental Analysis vs Technical Analysis
| Basis | FUNDAMENTAL ANALYSIS | TECHNICAL ANALYSIS |
| Meaning | Fundamental analysis is a method of evaluating a security by attempting to measure its intrinsic value. Intrinsic value is the difference between the security’s current market price and its underlying asset value. | Technical analysis is a method of evaluating investments that rely on analyzing statistical trends from trading activity, such as price movement and volume |
| Commonly used for | Long term investments | Short-term Trades |
| Most Commonly used by | Investors | Traders |
| Objective | To identify the intrinsic value of the stock. | To identify the short-term trading opportunities |
| Subject of study | Industry Data, Company’s Financial Health, and Economic news. | Price Movements, Volume, and Market sentiments |
| Form of data | Finacial reports, news events, and Industrial and Sectoral statistics. | Price Chart Analysis |
| Nature of Investment | Long-term and Positional | Swing and Short term |
Which one should you choose ?
Now, we know what Fundamental Analysis and Technical Analysis are. So which one should you choose? Well, it all comes down to your trading or investing style. Many successful traders and investors use both to their advantage, which is why you should consider both of them. Both of these approaches have been proven to be successful and trustworthy. It’s up to you to decide which does or doesn’t fit your trading system. Finally, it’s essential to backtest every strategy you take decisions on. So whichever approach you try, you should always gain in-depth knowledge and then practise it before using it.
Conclusion
There are two primary schools of thought when it comes to stock market analysis: fundamental analysis and technical analysis. Fundamentalists believe that understanding a company’s financials is key to successful investing. In contrast, technical analysts believe that past price data can be used to predict future movement. Of course, both approaches have their merits. Still, ultimately it is up to the individual investor to decide which method works best for them.
