What is the key difference between fundamental and technical analysis?

fundamental analysis is based on the company profit ,dat etc.and if you are seeing the that the next quarter profit will be higher than you can trade it .On the other hand technical analysis is based on the chart pattern ,volume traded,delivery volume etc.

Fundamental analysis would tell us which stock to Buy.

Technical analysis would tell us when to Buy that stock.

Fundamental analysis and technical analysis are two different methodologies of stock picking. These methodologies are used both for researching and forecasting of the future trends in the stocks growth.

Like philosophy or any other master plan in investment, they both have supporters and opponents. The principles defining these methods of stock analysis are as follows:

Fundamental analysis: a method of securities evaluation by trying to measure the inherent value of a stock. The Fundamental analyst does the overall study of the economy and the conditions of the industry, the financial condition and company management.

Technical analysis: a method of securities evaluation whereby studying statistics that is generated by the moving trends in the market, just as cost and quantity. Technical analysts ignore the measuring fact of the inherent value of the security but replace it by the use of stock charts to recognize the figures and directions suggesting the future probability of a stock.

 In the stock analysis world, fundamental analysis and technical analysis are on complete contradictory poles of the scale. Fundamental analysts concentrate on the benefits and damages, resources and accountability, which are a very critical characteristic to fundamental analysts, on the other hand, technical analysts do not put any importance on these numbers.

There is always a controversy about the working strategy, and many volumes of books have been penned down on both these methods. So, study and decision-making about which strategy will work best with investment are left for you to decide.

Fundamental analysis and technical analysis are on two sides of the spectrum when it comes to approaching the market. Both of these are used for forecasting the future market trends and both have their own set of principles for the same.

Fundamental Analysis

Fundamental analysis evaluates the equities based on their intrinsic value. Intrinsic value is the measure of a company’s worth by using objective calculations and complex financial models. Fundamental analysis uses this term to evaluate the value of the underlying company and its cash flow. Fundamental analysis requires an exhaustive study of the overall economy and industrial conditions along with financial condition and management of companies. Characteristics such as Earnings, expenses, assets, and liabilities are the few of the most important factors for financial analysis.

The corresponding labelling identifies as follows -

  1. Company Information
  2. Stock Information
  3. Annual Earnings
  4. Stock Ratings
  5. Key Financial Stats
  6. Quarterly Earnings

Technical Analysis

Technical analysis uses only 2 characteristics, stock’s price and volume as the input. The assumption that can also be associated with the rule of efficient markets is that all the traders are rational and every new information is incorporated in the stock price, i.e all the fundamentals are factored in the price. It does not use the intrinsic values of the stocks but rather requires the trader to evaluate the market charts and pattern forming and keep an eye for the regular market updates and formation of bases in the market. The most popular forms of technical analysis are simple moving averages, support and resistance, trend lines, and momentum-based indicators. Simple moving averages evaluate the stocks by averaging their prices over fixed periods. Buy and sell signals are generated when a shorter duration moving average crosses a longer duration one.

Here the labelling denotes as follows -

  1. Price
  2. Volume Bars
  3. Moving Average Lines
  4. Relative Strength line

You can learn more about fundamental and technical analysis on our website (MarketSmith India - Stock Market Tips) and make investment decisions based on our in-depth stock analysis and proprietary ratings.