Fundamental analysis and technical analysis are two of the most frequent methodologies used by investors to assess the advantages and dangers of long-term stock market investing. Both investors and traders can seek for investments/trading transactions that have a higher chance of optimizing their profits over time.
Understanding the distinctions between fundamental research and technical analysis may provide investors and traders with three essential stock-picking tactics for making lucrative investment selections.
1. What is Fundamental Analysis and Technical Analysis?
1.1 What is Fundamental Analysis?
Fundamental analysis is used to assess stocks by attempting to calculate their intrinsic worth. Fundamental analysts research everything from the broader economy and industry circumstances to particular firms’ financial soundness and management. Fundamental analysts scrutinize earnings, costs, assets, and liabilities.
1.2 What are the Different Types of Fundamental Analysis?
Fundamental analysis is classified into two types: qualitative and quantitative. The qualitative approach is influenced by goodwill, market circumstances, brand value, and corporate performance. Quantitative analysis, on the other hand, is based on statistics.
| Qualitative Analysis | Quantitative analysis |
| The examination of a firm’s goodwill, customer behavior, demand, and corporate recognition in larger marketplaces constitutes qualitative analysis. It seeks answers to topics such as how it is seen, how management choices or announcements create market buzz, and how it differs from its competitors. Furthermore, its brand value and other similar elements reflect its socioeconomic and commercial position. | Statistics, reports, and data are common components of quantitative analysis. It is entirely based on its financial statements, quarterly results, balance sheets, debt, cash flow, and so forth. It entails evaluating figures, ratios, and values in order to comprehend the share price and the overall financial health of the organization. |
1.3 What is Technical Analysis?
1.4 What are the Different Types of Technical Analysis?
Technical analysis charts are classified into three types: candlestick, bar, and line charts. They’re all made using the same pricing data but present it in different ways. As a consequence, they employ several forms of technical analysis to assist traders in making educated judgments in the forex, stocks, indices, and commodities markets. While there are many various types of charts, this article will only discuss the top three because they are the most popular.
1.5 What is the difference between Fundamental Analysis and Technical Analysis?
As shown in the table below, Fundamental Analysis and Technical Analysis differ greatly:
2.Which is better: Fundamental Analysis or Technical Analysis?
In trading and investing, neither Fundamental Analysis nor Technical Analysis is completely reliable. Both traders and investors must study these two methodologies based on their advantages and disadvantages to determine which is the most appropriate for them.
The pros and cons of both methods are summarized below:
3. How to Integrate Fundamental and Technical Analytics in Your Trading Strategy?
Fundamental and technical analysis can be combined in a variety of ways. The following are two instances of how three distinct technical analysis methodologies may be used with fundamental analysis to generate better insights:
- Using range bound trading in conjunction with fundamental analysis
- Using oscillators in conjunction with basic analysis
3.1 How to use range bound trading in conjunction with fundamental analysis?
Range bound trading seeks to discover a market’s price channel, which a trader may employ to purchase at lower trendline support and sell at higher trendline resistance.
In a strong up trending market, traders want to enter or purchase at the lowest feasible price to maximize their profits. News developments, on the other hand, can destabilize a range-bound market. In this situation, the trader would avoid open deals near the time of the news announcement (due to low retail sales’ and ‘durable goods orders’ data). The chart clearly demonstrates this disturbance, following which the price level recovers to previous range bound levels.
3.2 How to use oscillators in conjunction with basic analysis?
Oscillators are often used as technical instruments for detecting short-term overbought/oversold circumstances. There is an example of employing an RSI indicator (technical indicator) in conjunction with a Non-farm Payroll (fundamental indicator) data release, one of the most important fundamental indicators in US history, in the chart below.
The NFP result came in lower than expected, causing the USD to fall, as seen by the significant positive move on EUR/USD. When the NFP is set to be revealed, if you expect it to be lower than predictions based on recent developments in the US, EUR/USD may become more volatile, making it a good time to sell, and vice versa.
4. To sum up: Key points about Fundamental Analysis and Technical Analysis.
- Fundamental analysis is a process of studying securities in order to determine their inherent worth for long-term investment prospects. Technical analysis, on the other hand, is a way of analyzing and estimating the price of an asset in the future based on price movement and transaction volume. It predicts what a stock will perform in the future.
- While fundamental analysis seeks to determine the stock’s actual intrinsic value, technical analysis is used to determine the best timing to enter or exit the market.