Fundamental Analysis Vs Technical Analysis

We have heard numerous analyst on TV or read about their stock picks in newspapers or magazines. Some of them are called fundamental Analyst and some are known as Technical Analyst. Fundamental Analyst are those who refer fundamental analysis of a stock and similarly, those who refer technical analysis are known as Technical Analyst. Now question rises what is the difference between Fundamental analysis and Technical Analysis?

Fundamental Analysis refer to the process of analyzing a stock by looking into the financial health of it. Financial refers to its Profit and Loss statement, its earnings, profit, interest rates, debt, its management and factors like economy and Geo-political situation are also considered. It also involves looking into PE ratio and EBITDA. Fundamental Analyst believe that a stock may trade at a incorrect price in short term but eventually price will correct to achieve the correct level.

Technical Analysis refer to the process of analyzing a stock based upon its historical price movement. They are studied on a chart and various indicators are used in this study to judge the correct stock and its entry and exit points. Some of the popular indicators are MACD, Bollinger band etc. Technical Analyst believe that the markets or stock moves in a particular cycle and they pass through the same stages and cycles for numerous time. These cycles and stages are influenced by the fear,greed and emotional factor of the investors or traders.

But often an average investor is puzzled and gets confused about which one is better than other? And its answer is No one is better than other one. They both have different approach and they seek different aspects of the stock trading. With the emergence of various media tools, it has now become very easy to analyze any stocks.

No one can ignore the fact in today’s era of Business news channel and business news, no company with poor fundamentals can achieve great heights in stock market. But with Fundamental analysis it is extremely difficult to figure out entry and exit points. Technical Analysis is the best tool for short term traders.

Stock markets are all about timing, even a fundamentally good stocks cannot deliver good return if its entry and exit points are not clear to the trader. And with the help of technical analysis, even a fundamentally poor stock can be traded with profit. Fundamental Analysis doesn’t help much in short selling which is a very important and popular form of trading in today’s market.

Technical Analysis helps in forecasting the stock movement in short term. In today’s world where things are extremely dynamic and Geo-political situation keeps on changing, a fundamentally good stock can become a fundamentally bad stock in a very short span of time whereas with Technical Analysis, you can not only trade the rise, you can also make money while stock is falling.

Fundamental Analysis is basically for investors and Technical Analysis can be used by both, Investors as well as Traders.