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.
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.
Related
Course: Macro
Fundamentals Trading Course
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.
1.3 What is Technical
Analysis?
Technical
analysis varies from fundamental analysis in that traders seek to
spot opportunities by examining statistical trends such as price and volume
changes in a stock. The underlying premise is that all known fundamentals are
priced in, hence there is no need to pay careful attention to them. Technical
analysts do not attempt to calculate the inherent worth of a securities.
Instead, they utilize stock charts to spot patterns and trends that indicate
how a stock will perform in the future.
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.
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.
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?
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.
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.
- 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.
- Decisions
in fundamental analysis are based on the information provided and the
statistics examined.
- Fundamental
analysis considers both past and present data, whereas technical analysis
solely considers historic data.
- Fundamental
analysis is founded on financial statements, whereas technical analysis is
founded on price movement charts.
- There
are two typical ways to combine fundamental analysis and technical
analysis:
·
Using range bound trading in conjunction with fundamental analysis
·
Using oscillators in conjunction with basic analysis
Source: https://libraryoftrader.net/fundamental-analysis-and-technical-analysis