Technical Analysis V/s Fundamental Analysis- Which is the best?
There are two approaches to analyze capital markets- Fundamental & Technical Analysis. Everyday prices move up and down making it complex to predict future movements. By the end of this article, you should be in a position to understand the core concepts of technical and fundamental analysis and how they are mutually related to each other.
Lets first begin with Fundamental Analysis
It is used to analyze the long-term value of securities, so basically, any fundamental analyst would suggest investing for a long-term say one to three years. Long-term investors usually end up buying growth stocks yielding high dividends and hold it for many years weathering any kind of fluctuations. A fundamental Analyst will play a key role in identifying securities that are overvalued and undervalued. Past prices have no significant bearings on future prices.
Key Studies involved in Fundamental Analysis
- Political Economic Analysis
- Economic Cycles
- Industry Analysis
- Company Analysis
- Annual Report
- Directors Report
- Financial Statement Analysis
- Ratio Analysis
- Cash Flow Analysis
Intrinsic Value-Why it is so important?
An intrinsic value is the actual price of the asset. If the stock is trading well below the intrinsic value, it’s time to accumulate them and sell them when the market value is more than the intrinsic value and earn profits.
Technical Analysis is used to analyze short-term price movements of the securities, A technical analyst buys and sells securities for a short span of time. Unlike a fundamental analyst, he does not believe in buying and holding securities for longer time periods.
As per technical analyst, a stock does not have any real value, in general, the prices depend on demand and supply which are governed by rational and irrational factors. Past prices are an indication of future prices meaning that prices tend to keep meeting at their previous levels which we call it as support and resistance levels. Technical Analysis is all about timing, where and when to enter and exit.
Key Studies involved in Technical Analysis
- Demand & Supply Analysis
- Support & Resistance Levels
- Indicators- MACD, RSI, Bollinger Bands, ADX, Moving Averages
- Key Pattern Analysis- Double Top, Head & Shoulders etc..
- Fibonacci Retracements, Elliot wave analysis
- Japanese Candlesticks
I am trainer and research analyst at CapitalVeda Financial Research, Apart from writing research reports on technical and fundamental analysis of stocks, I am very passionate to teach and impart knowledge on capital markets to deserving candidates willing to learn and make profits. I am also a farming enthusiast and love to work on real life farming challenges. Enjoy travelling a lot. Trading, Investing and Travelling makes a great career combination. Isn’t it!