Fundamental analysis and Technical analysis, both are the methodological terms related to Stock Market strategy or how to select the right stock. Both the terms deal with researching and predicting future stock prices. However, according to Ram Chary Everi, there are some differences between both the techniques of analyzing the stock market that makes both of them equally important.
On the one hand, technical analysis deals observing market price ups and downs and with collecting the past data, Charts, and indicators and generating a prediction on future price movement based on those data. The Fundamental analysis, on the other hand, keeps track of the economic factors.
Fundamental analysis is a technique of evaluating the reliable data by trying to decide the intrinsic value of stocks. From the financial conditions and management of a company to the overall industry conditions and economy, Fundamental analysis covers everything. However, technical analysis does not concern the industry condition or overall economy condition. It strictly relies upon the stock charts and data reports and past stock records to identify a possible pattern that will affect the market price in some way.
A fundamental analysis tries to decide a company’s worth and value by going through its records of cash flow, balance sheet, and statements of income. The financial analysis ultimately evaluates a company’s essential or intrinsic values. When the price of a stock goes below the essential value of the company, a profitable investment can be hoped for. Thus it helps to make the investment decisions easy. However, the financial analysis does not restrict itself within these easy fundamental statements.
Technical analysis is done for the trading purposes; however, fundamental analysis is conducted solely for investment purposes. Though the technical and fundamental analysis is considered by many as totally opposite approaches of stock-selecting strategies, by combining the two many has experienced a huge success in both trading and in investment.
In fundamental analysis when the price goes below the intrinsic value, only then the stocks are bought. In contrast to this, in technical analysis, the stocks are only purchased when the traders believe that they can sell it for much higher prices later. As technical analysis predominantly uses Price Data and Dow Theory to predict future price movements, on the other hand, the fundamental analysis uses the concepts of Return on Assets and Equity. Also, technical analysis is a short-term perspective of analyzing the market. Fundamental analysis, commonly used by long-term investors as it is all about a long-term approach in analyzing the market.
By clearly differentiating between the two types of analysis and establishing a relationship between the two approaches, Ram Chary Everi, offers a detailed description that is needed to make effective stock trading decisions. Fundamental analysis focuses on both the past and the future and technical analysis mainly looks backwards and fetches the important data to predict a future price movement in the stock market. Technical and fundamental analysis are both very strong strategies that traders and investors can use to make best trading decisions.