Technical vs Fundamental Analysis
Technical analysis and fundamental analysis are the two schools of thought that are used to make predictions about the future value of the shares. These two techniques are very different from each other, while one is more facts driven and complex, on the other hand, the other is less fact-driven, easy to use for the beginners but offers less accuracy. Enough of creating suspense now, let’s understand about each of these methods and how they are different from each other.
Fundamental analysis is a method of evaluating a security to find out its intrinsic value by examining various factors like economic, financial and other qualitative and quantitative factors. It deals with the long term goals and low risk securities. On the other hand, Technical analysis is an analysis for forecasting the direction of the prices through the study of past market data, price and volume to extract the trend. It is a short-term, quick decision making who aims to invest high frequency.
Methodology & the basic difference
The technical analysis uses charts and tables to achieve their goal of extracting trends from the data while the fundamental analysis uses the financial statements of the company to check the intrinsic value of the company. Both works on different techniques and aims for different goals. The reason behind the examining of company’s financial statements in fundamental analysis is that it favors the intrinsic value of the company and if the stock price is valued below the company’s intrinsic value then only it is considered as a good investment while on the other hand there is no use of financial statements in technical analysis instead only stock prices are studied as they already contains all the relevant facts. The Fundamental analysis is generally used for long term while the technical analysis is considered best for intra-day and short-term investments. Even the goals of both the houses are very different, on one hand the technical analysis aims for shorter goals and identify many short-term and medium-term trades to flip a stock quickly and on the other hand the fundamental analysis looks to invest in the stocks of the company for a long-term prospect.
Conclusion and can they co-exist?
Though, these two approaches are totally different from each other to analyze the securities and follow opposing techniques to achieve their goals but a blend of both of the approaches is the best mix when it comes to investing or trading in stock exchange. People have been benefitted from this mix, as this serves as a complete purpose packed approach to trade and invest both in long and short term securities. A mix of both the techniques shall be used to predict the future values of the stocks to gain the maximum profits.