Fundamental vs Technical Analysis
Of the various methods, financial ratios, chart analysis which people use for share investment analysis can be categorized as Fundamental Analysis and Technical analysis.
Fundamental Analysis involves financial statement analysis, checking management, financial ratios that are core to the business. Fundamental analysis helps in stock valuation so that we can identify whether the stock is overpriced or under-priced. This method has nothing to do with what others are doing, in fact this methods boasts of contrarian behaviour !
Technical analysis considers historical stock price and volume data of the share to determine when to buy and sell the stock. It uses Price Chart patterns, trends to predict stocks future price movements. Technical analysis does not care what the company does or is it good company or bad company (plz read Small Cap vs Mid Cap vs Large Cap Stocks). In simple terms, it is trying to find what others are doing and going with the mob considering them to be more informed !
Below Table compares Fundamental Analysis vs Technical Analysis
| Fundamental Analysis | Technical Analysis |
|---|---|
| Involves stock company fundamental valuation | Involves Stock price and volume Charts for Technical analysis |
| Trying to find undervalued stocks and buying them for future price correction | Trying to time the market e.g. when to enter and when to exit ! |
| Involves Financial statement analysis, Balance sheet analysis and Financial ratio analysis | Involves stop loss, support levels, trends and Chart related patterns |
| Fundamental analysis have long term views | Technical analysis have short term views |
| Fundamental analysis involves delivery of shares and wait for price to rise | Technical analysis involves Intra-day tradings and Future & Option trading |
VALUE INVESTING STOCK INVESTMENT FUNDAMENTAL ANALYSIS FINANCIAL RATIOS STOCK MARKET COURSE
