If you are investing in the stock market, it is important to know that fundamental analysis and technical analysis are the main tools to analyze the market. Whether you are investing or trading, both will help you analyze the market. In this blog, we will talk about the difference between fundamental analysis and technical analysis.
Difference between fundamental analysis and technical analysis
What is Fundamental Analysis?
Fundamental analysis helps you evaluate the company’s financial health and current stock value with the help of its previous performance.
Fundamentals analysis will start with an analysis of the company’s previous performance, including its financial statements, income proofs, balance sheet, and other important key factors of the company. With the help of these important factors, we will analyse the company’s stock value and future growth.
With fundamental analysis, we also get an analysis of how GDP growth, inflation, and interest rates can affect a company’s growth and stock prices.
What is Technical Analysis?
Technical analysis is different from fundamental analysis. Technical analysis helps you predict the future price of stocks with the help of stock patterns.
It focuses on the patterns and previous trends of the stocks rather than the financial aspects of the company. Stock prices always move in trends, and the trends repeat themselves over time. By identifying these trends and patterns, the future price of the stock can be predicted.
Traders use many different patterns to analyse the future price of the stock. Technical analysis helps traders identify their entry and exit points. Many analysts also use technical indicators to find support and resistance.
What are the main differences between fundamental analysis and technical analysis?
Fundamental analysis and technical analysis are both used to predict the future price of the stock. But they both have a different approach. Both have their own pros and cons. The main differences between fundamental analysis and technical analysis are as follows:
- Fundamental analysis follows the most basic aspects of the business, while technical analysis follows the previous data from the chart and the volume of the stock.
- Fundamental analysis is used for long-term investing, and technical analysis is usually used for short and mid-term trading.
- Fundamental analysis usually works on financial statements and economic data, but technical analysis uses charts and technical indicators to analyse price movements and patterns.
- The goal of fundamental analysis is to calculate a company’s or stock’s intrinsic value. The goal of technical analysis is to predict the future trend of the share.
- In fundamental analysis, decisions are based on the valuation of the financial and economic factors of the company. However, technical analyses are based on price and chart patterns without focusing on the company’s financial condition.
Fundamental analysis and technical analysis are both important and help you analyse the stock market and understand its functions. As already given in the blog, fundamental analysis allows investors to find long-term investing stocks, while technical analysis is used to identify the best entry and exit points as well as for short-term investing.