Fundamental Analysis vs. Technical Analysis of Stocks: Differences to Know

We have covered a vast range of information on investment and trading. This one is on Fundamental Analysis vs. Technical Analysis of Stocks: Difference. This topic can be illustrated as the difference between fishing and bungee jumping. These two sports though varied seek to provide thrill and excitement.

With fishing, our focus is on understanding the water current, the prevalence of fish schools, the direction of the boat, picking the right bait, equipment and a mindset of patience for the right catch. While bungee jumping involves choosing a place, vendor with the best record of safety, and taking the dive with best assurances that we will make it alive. Similarly, let’s understand the approaches that differentiate a fundamental analysis from a technical analysis of stocks.

Fundamental Analysis: 

Fundamental analysis involves research that helps to uncover aspects such as debt, revenue, asset value, financial highlights, a sense of in which direction the people on top (management) are steering the company, growth of its industry and so on. It inclines towards how well we understand a company now and prospect for a fruitful future.

For example, growth in revenue doesn’t always mean a healthy company, if there is also an increase in debt on its profit/loss statement. We seek to understand its asset value, product innovation, history and investment in areas such as human resources, infrastructure which is important for its growth. With fundamental analyses, we try to decipher the foundation on which the company stands and if it can withstand outside the unlikeliest of situations and still thrive.

Technical Analysis

While on the other hand, the premise of technical analysis is based on past data, movement, key indicators in the price chart, patterns, potential support/resistance and outside aspects such as news/rumors which can drive the market.

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For example, based on historical data, if the stock always rebounds when it touches a certain price point, then it becomes its support and as a trader, we bet our money on it. Technical analysis helps to look for trending markets where fluctuations happen instantly and there are patterns created which give us a direction of the stock. However, with few assurances that it will return a handsome profit. Our best bet is to manage risk, cut our losses and let the profits run.

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Fundamental Analysis vs. Technical Analysis: Difference

Both fundamental and technical analysis are significant in their own domain and can be used with respect to if one plans to be in the market for a long or short term.

However, in a few cases, a person with knowledge of both can make a very well-informed decision on his or her bet in the stock market. While fundamental analysis is usually utilized by investors who are looking to wait on their bet to garner profits in the distant future as the company matures and grows in its industry.

Technical analysis helps traders on a day to day basis to bet on the market and create value out of nothing. But, they also are prone to the sudden wave of uncertainty as the market tends to change direction easily without any assurances.

In the end, history has always proven fundamental analysis is the favored option to create wealth in the market and to hold on to it if done with utmost dedication. Rest, it is based on individual interests and requirements!

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Now that, you have an overview of fundamental analysis as well as technical analysis, make sure to act carefully while investing in stocks. Whether you are interested in Intraday trading or Delivery trading, following the correct strategy usually helps.

Disclaimer: A high degree of risk involved in stock trading. The details given on this website are for informational purpose only and cannot be constituted as professional advice in any regard. Please follow due diligence while investing your money.

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