Differences between Fundamental analysis and Technical analysis of the Stock Market

Differences between Fundamental analysis and Technical analysis of the Stock Market

In simple words, Share market or Stock market can be defined as a market where shares are publicly issued and traded. The share market lets buyers and sellers negotiate prices and make trades. Companies list the shares of their stock on an exchange through a process called an Initial Public Offering, or IPO. These shares are then purchased by investors allowing the company to raise money in order to grow the business. Buying the share of any company means buying some percentage of ownership in that company, which eventually means that you will get some amount of profit if the company does well and if the company goes into loss, then you will have to bear some percentage of the loss as well.

 

A stock exchange is a place or a building where people buy or sell the shares of different companies. The market can be divided into two types i.e, the primary market and the secondary market. In the Primary market the company directly sell their shares whereas in the secondary market, The people who have bought the shares from the company sell it to other people. There are two types of analysis that are done in the Share/Stock market. These analyses are the Fundamental analysis and the Technical analysis.

 

 

What exactly is Technical analysis ?

In simple words, Technical analysis can be referred to as a term for a variety of strategies that depends upon the interpretation of price action in a stock. It helps to evaluate investments and identifies trading opportunities in price trends and patterns seen on charts. Technical analysis was developed to analyse the price of shares for a short term. This analysis allows you to predict the price movement of any shares by studying the price movement that had already happened before. This theory is based on three primary assumptions. These assumptions are as follows:

  • Market discounts everything

  • Stock prices move in trend

  • History tends to repeat itself

Dow theory is given very much importance in Modern Technical analysis as this analysis is based upon this theory. Traders use technical analysis to predict the movement of share price. This prediction is done with the help of historical data. In technical analysis, different historical data points are studied and future price movements are predicted. For this analysis 

Historical Trends, Candle charts and other many indicators are used. This analysis can only predict the most movable movement of stock price and cannot really predict the actual movement of any stock price. Though this analysis has proven to be helpful, it might not be accurate every time.   

 

 

What does Fundamental Analysis mean ?

In simple words, Fundamental analysis can be defined as an analysis that involves looking at any data that is expected to impact the price or perceived value of stock. This analysis can also be referred to as a method of measuring a security’s intrinsic value by examining related economic and financial factors. It is all about analysing the financial aspects of the company. With the help of this analysis you will be able to study the business, profits and other things that are related to the company. This analysis also helps you to have an idea about the future growth of the company. Any Investors seeks a good, profitable company to invest in and so because of this reason the investor first analyses the fundamental aspects of the company before investing in it. The Fundamental analysis is done by using two primary analyses. These two primary analyses are the Qualitative analysis and the Quantitative analysis. In Qualitative analysis the business model, product/services, competitors, management, future plan for growth and the products and research of the company are studied, whereas in Quantitative analysis the financial statement of the company like the balance sheet, income statement and cash flow statement is studied. Along with this, in Quantitative analysis the financial ratio of a company is analysed. This analysis helps us to know hard facts of the company. To become a successful investor you must have a good knowledge regarding fundamental analysis.

 

 

What are the differences between Fundamental Analysis and Technical Analysis ?

Fundamental analysis is primarily used for investment function whereas Technical analysis is used for trading function. Both of these analyses are different from each other and are made for different people. Technical analysis is for traders whereas Fundamental analysis is for investors. This is the biggest difference between Technical analysis and Fundamental analysis. Technical analysis is usually done for intraday trading and short term trading meaning that Technical analysis is helpful for short term traders. Fundamental analysis is used by investors for long term investment. The time length for the investment is decided by the investors in fundamental analysis. Fundamental analysis allows investors to make a timeless investment. This kind of timeless investment cannot be done with the help of technical analysis. 

Technical analysis helps the traders to earn profit in a small time whereas Fundamental analysis helps the investors to get dividends from the investment for a long time. In Technical analysis the price and volume of shares is determined and for this different types of analysis are done such as Candlestick pattern analysis, Chart pattern analysis, Technical indicator analysis, Trend identity, Study related to the support and resistance and the Breakout and Breakdown of the market. Technical analysis heavily depends upon the assumption that history will repeat. In Fundamental analysis charts are not used. This analysis is based upon the study about the finances of the company. This analysis includes different analyses such as the global economy analysis, Local economy analysis, sector, industries and company business analysis. As mentioned before, fundamental analysis is based on qualitative and quantitative analysis. Technical analysis is done for a short time whereas Fundamental analysis is done for investing in any company for a long time. Thus, these are the major differences between the technical analysis and Fundamental analysis of the stock market.

  • "Created at : 2022-02-09 , Author name : Albina Dhakal"


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    Differences between Fundamental analysis and Technical analysis of the Stock Market