Investors use different techniques to analyze and understand the risks and rewards associated with short, medium, and long-term investments in the stock market, and most commonly used include fundamental analysis and technical analysis.
Fundamental analysis involves conducting qualitative analysis, that will look at things like the company’s top management, corporate governance, consistency and the quality of earnings, competitive edge in the market, product specification, etc.
Technical analysis is the study of the historic price chart of stock. The analyst will look for patterns in it that will help you ascertain its real value using various technical indicators, chart patterns, candlestick patterns, and trendlines.
Let us look into details of what is Fundamental and Technical analysis.
Fundamental Analysis :
Fundamental analysis refers to analyzing the factors that contribute to a futures contract’s supply and demand related to the companies information.
The fundamental analysis assesses all the factors that have the capability of influencing the value of the security called fundamentals, which are nothing but the financial statements, management, competition, brand name, products, etc.
In the fundamental analysis, we should consider Economy, Industry, and Company. As the company deals will all forms of issues arising from the economy, Industry, and the company.
Investors tend to look into fundamentals if their view is for the long term and the main focus will be on past performance using various financial statements and to forecast the future profitability of the company. The main objective of conducting the fundamental analysis is to understand the stability of the company and also to find out the intrinsic value of the company.
Technical Analysis :
Technical analysis is based only on stock price or volume data available on the chart. Here the main objective is to find out the most likely scenarios in the price movement, whether it will be bullish, bearish, or consolidation.
Price action is one important technique used to under the past and forecasts the possible movement in the future.
Technical analysts use chart patterns and trendlines, support and resistance levels, various indicators, and price and volume behavior to identify trading opportunities either on the buy-side or sell-side.
Technical analysis does not consider the business or the economics that affects the value of a company as the view will be for the short term.
Closing Thoughts: Consider Fundamental if you are a long-term investor and consider technical if you are a swing trader or short-term trader.