Many investors and traders fail in the stock market because they do not study the company and industry before investing their money. That is why stock market analysis is very crucial as it helps you get insights and understanding into a company’s stock.
In turn, you can make better decisions in online investing and trading in the stock market. Curious? Read on!
📈📉 What is Stock Market Analysis?
Stock market analysis is the evaluation of a company’s stock, an industry/sector, or the market as a whole. Every market participant does analysis in some way or the other.
The reason? Stock market analysis helps determine the future potential of an instrument, sector, or market. The analysis can help an investor or trader determine whether or not a stock is worth buying or selling.
Above all, it can help a trader or investor determine if there are profits to be made. Notice how we mentioned traders and investors?
That’s because there are broadly two types of analysis i.e Fundamental & Technical.
In this article we will compare Fundamental Analysis vs Technical Analysis and how are they used to evaluate certain factors that can influence the price and performance of a company’s stock. Before comparing let’s understand the basics.
What is Fundamental Analysis?
Fundamental analysis may be described as a study of the elements that may influence a company’s stock prices in the future. These elements include the following:
- Consolidated financial statements
- Industry potential
- Managerial practices
- Macroeconomic factors
For assets that will be kept for a longer period, fundamental analysis is useful. Fundamental analysis takes into account both historical and present data.
You could say that it isn’t forward-looking but helps you look for factors that may be useful in the future.
Fundamental analysis determines an organization’s inherent worth to determine if a stock is overpriced or underpriced.
Fundamental analysis is solely utilized for investment purposes, primarily because it takes a long-term perspective into account.
What is Technical Analysis?
Technical analysis examines prior patterns, charts, and trends using technical indicators in an attempt to forecast an organization’s price fluctuations in the future.
In other words, technical analysis is a strategy for predicting the future price of assets using charts to discover trends and patterns.
For assets held for a shorter time, technical analysis is useful because it helps identify trends or short-term momentum.
The technical analysis primarily considers historical data and is used purely for trading purposes.
The goal of performing technical analysis is to determine the best time to enter or depart the market.
Difference Between Fundamental and Technical Analysis
The following table contains 11 key differences between fundamental and technical analysis.
|Fundamental analysis is used to determine the inherent worth of a specific company.
|Technical analysis is used to forecast future price patterns.
|The investing function is handled by fundamental analysis.
|The trading function is handled by technical analysis.
|Fundamental analysis is conducted by analyzing many economic elements.
|Technical analysis is undertaken by examining price movements and patterns displayed on charts.
|Fundamental analysis is done by long-term traders.
|Technical analysis is done by swing and short-term traders.
|External news has little bearing on fundamental analysis.
|External news influences technical analysis.
|Economic reports, industry stats, financial statements, management procedures, news events are used for fundamental analysis.
|Chart analysis is used for technical analysis.
|The fundamental analysis employs the ideas of return on assets and returns on equity.
|Technical analysis uses price data and DOW theory.
|Fundamental analysis considers both qualitative and quantitative elements (charts, moving averages, etc.).
|Technical analysis focuses on price and volume.
|Long-term investments require fundamental analysis.
|Short-term investments require technical analysis.
|Fundamental analysis looks at both previous and current data.
|Technical analysis just looks at prior data.
|Fundamental analysis is used to determine a stock’s worth based on economic variables.
|Technical analysis is used to determine a stock’s price movement to anticipate future price changes.
To Sum Up
As an investor or a trader, it is important that you perform a stock market analysis before you start investing your money in the stock market.
It can be time-consuming, but having an idea will prevent you from significant losses and make the right trades.
Now that you know the exact difference between the both, here is the list of stocks that you can look at…
- List of Nifty 50 Stocks
- List of Nifty Bank Stocks
- List of Fin Nifty Stocks
- Top 5 Banking Stocks in India
- Top 5 Pharma Stocks in India
- Top 5 EV Stocks in India
You can also read – How to Trade Effectively by Trading Directly from Charts?
Happy Analyzing 📈
Q. Which one is better fundamental or technical analysis?
Fundamental analysis is used for investing while technical analysis is used for trading. That’s the main difference between fundamental and technical analysis. Whether or not one is better than the other is irrelevant as it is entirely up to you on what you choose to help you trade or invest.
Q. Do most traders use technical analysis?
Yes, traders primarily use technical analysis to find entry and exit points. However, some swing traders may turn to fundamental analysis to consolidate their position. In fact, some investors may use technical analysis on top of fundamental analysis to find solid entry and exit points.
Disclaimer: This blog is not to be construed as investment advice. Trading and investing in the securities market carries risk. Please do your own due diligence or consult a trained financial professional before investing.