Fundamental analysis evaluates securities by trying to measure their intrinsic value. Technical analysis focuses on statistical trends in the stock’s price and volume over time. Both methods are used for researching and forecasting future trends in stock prices.


Fundamental vs. Technical Analysis: An Overview
In trading, investing, and finance, two approaches help investors analyze markets and securities: fundamental and technical analysis. Each helps evaluate investment opportunities, and many traders blend both for a more comprehensive view. Fundamental analysis focuses on the quality of an asset, while technical analysis looks at market trends as an indicator of value


What Is Fundamental Analysis?

Fundamental analysis is used in finance to evaluate the intrinsic value, the real worth, of a security or whole sectors and markets. For a company stock, fundamental analysis is used to scrutinize income statements, balance sheets, and cash flow statements. Fundamental analysis is generally for those looking for long-term value.
Hence, those performing this kind of analysis are trying to calculate how much the company will make in the future against its present net value. A stock trading below the company’s intrinsic value is generally seen as promising, while the opposite is true for those trading below it. The outcome of the analysis can lead to buying, holding, or selling a security.


*The Main Tools of Fundamental Analysis

  • Qualitative information: This includes details about management quality, industry cycle, competitive advantage, and other non-quantifiable factors that affect a company’s stock.
  • News and events: Company news, such as earnings reports, new contracts, and regulatory changes, affect stock prices.
  • Interest rates: Central bank interest rates can significantly affect an investment’s value. Higher interest rates generally lead to lower stock prices, while lower rates boost stock prices.
  • Economic indicators: Macroeconomic indicators like gross domestic product growth, inflation, and unemployment rates are used to understand the economic environment in which a company operates. These indicators can affect consumer behavior and, therefore, a company’s performance.
  • Financial statements: These include a company’s income statement, balance sheet, and cash flow statement, which provide a financial snapshot and help assess its profitability, liquidity, and solvency. Analysts use these to determine financial ratios, multiples, and other mathematical representations of a firm’s financial health.

  • * What Is Technical Analysis? Technical analysis evaluates financial assets, such as stocks, currencies, or commodities, by reviewing the historical price and volume data. Unlike fundamental analysis, which focuses on the intrinsic value of an asset, technical analysis examines the volume and price of shares over time
  • Simplifying more than a little, where those using fundamental analysis portray themselves as the sober-minded investigators uncovering real value in the economy, those who use technical analysis start from the view that markets are inefficient and price patterns and trends in market data can be exploited for potential profit.

  • The Main Tools of Technical Analysis
  • Trend analysis: This is interpreting past and present moves in the market to predict future asset prices. Historical prices and trading volume are the most often used
  • Support and resistance: These are horizontal lines drawn on a price chart to indicate where a security’s price will be unlikely to move beyond.
  • Candlestick pattern analysis: This kind of financial chart used for price movements could indicate investor sentiment, market trends, or reversals of those trends
  • Chart pattern analysis : The study of price movements in a market pinpoints patterns that can suggest future activity.
  • Relative strength: This metric compares the performance of an asset to a benchmark to gauge its momentum
  • Technical analysis indicators: These are mathematical calculations based on price, volume, or open interest to predict future prices. The indicators are generally based on momentum or mean reversion.
  • Volume analysis: This studies the number of shares, lots, or contracts traded in a security or market during a certain period.

  • KEY TAKEAWAYS
  • ▪︎Technical analysis ofocuses on statistical trends in the stock’s price and volume over time.
  • Fundamental analysis evaluates securities by trying to measure their intrinsic value.
  • Both methods are used for researching and forecasting future trends in stock prices

Important : Fundamental and technical analyses are the major schools of thought for approaching the markets.

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