Fundamental and Technical analysis and the difference between them

Fundamental and Technical analysis and the difference between them

Has the analysis of stocks a tiring and uninteresting task for you? Do you get confused between the fundamental analysis and technical analysis? Here’s a blog to help you out with the basics of analysis.

When it comes to analyzing a stock, fundamental and technical analysis are the most preferred methods to do so. To analyze a stock, the analyzer has to possess awareness of the market trends, the company profile, the economy of the country, the various economic and statistical indicators, the industry, the historical valuations and many more. Fundamental analysis and technical analysis consider all these parameters and helps the investor in decision making. Fundamental analysis is a method to identify the intrinsic value of a stock. Intrinsic value is the fair value or the actual value at which the stock should be valued in reality. If the fair value is less than the market value of a stock, the stock is overvalued and vice versa. Fundamental analysis studies the historical valuations, the economy, the various parameters used in an economy to study its trade cycle and conditions. Fundamental analysis also studies the financial statements and reports of the company, it’s current position and future forecasts. Technical analysis is a method where the market trends are studied to analyze the market sentiments attached to the stock and how it affects the performance of that particular stock. The technical analysis relies on trends and various indicators that are calculated using the patterns shown in the charts. The
core assumption of this method is that the historical fluctuations in the stock prices reflects the factors associated with the stock and that the past trends are adequate to predict the future trends.

Difference between fundamental analysis and technical analysis:

Although the function of both kind of analysis is the same, fundamental analysis and technical analysis are far apart different from each other. Here are few points to distinguish between them:

Time: Fundamental analysis is carried out for long term investment and for the investors who are interested in investing the money for long run. Technical analysis is used for short term investment and is used for swing or intraday traders.

Data used: Fundamental analysis uses financial reports of the company and economic conditions and parameters of a country to study the stock. Whereas, technical analysis uses charts to identify the stock movements in the market and forecast using historical representations of the data.

Usefulness: Fundamental analysis is used to find the fair value of the stock and compare it with the current market price to make investment decisions. Technical analysis, on the other hand, is used for knowing the right time to buy/sell a stock or the trading decisions.