What is Fundamental Analysis & Technical Analysis in Stock Market?

When it comes to stock market, there are two major schools for analysing the stocks – Fundamental analysis and Technical analysis. However, when we have to decide the worth of an investment or trade this two types of analyses, they totally have a different approach.

Both comprise qualities to appeal specific market players. Therefore, to understand them it is usually critical to develop a conception of each one and then using it to the appropriate occasion.

Fundamental Analysis: It is a process of knowing stocks inherit or intrinsic value by the analysis of various factors. Overall an extensive process where every factor has influence over the price of a security which helps the Analysts to understand the stock pricing. 

Fundamental analysis has both macro and microeconomic factors which influence the price of stocks. It uses qualitative and quantitative metrics to show the performance of the company. This makes it a key difference between fundamental and technical analysis. 

In short, Fundamental analysis is preceded by investors which work on a principle of ‘Buy & Hold’. It means that an investor decides to buy a stock on a comprehensive understanding to hold it for a longer period.

Analysts popularly use some of these indicators to reach the intrinsic value of the stock:

Qualitative indicators-

1. Business Model

2. Corporate Governance

3. Intangible Assets

4. Customer Base

5. Competitive edge

6. Management proficiency

7. Industry-wise Growth

8. Business Cycles

Quantitative indicators-

1. Annual Company’s Revenue

2. Total Profit

3. Accounting Ratios

4. Tangible Assets

Apart from these factors, a Fundamental Analyst is also aware of social economic and political factors which might also impact the stock’s value in future. Also overlooking a single factor in analysis also sometimes lead to an inaccurate value.

Technical Analysis: While the fundamental analysis accounts for intrinsic values of a company, Technical analysis study reads the historical data of a particular stock into account. This is the primary difference between Technical and Fundamental analysis. 

Technical analysts make their calculations based on a historical change in price, return, and volume of trade in a stock. It can be read through different types of chart patterns in attempt to know the future movements in price of a security or market. The function of patterns includes a support and resistance range which is another point of debate for fundamental analysis v/s technical analysis. 

For example if the price of a particular security is moving downwards of its price range or support, then the analyst shall purchase the stock as once the price reaches the lower limit it will shoot up from there. Communicatively, if a stock’s price is towards the upper limit of the price range, it signals the traders to sell it because once it reaches the higher high it will fall from there.

It is usually used in short term trading and earning potential of a stock. It can also be used for long term trading but the analysis is based on short term historical data. Nonetheless, such cases are rare where technical analysis pays off a long term reading of a stock.

Conclusion: It concludes that both of the analyses are fruitful to the investors depending on the nature of a person’s comprehensive idea, where it can be applied best? And if you’re sure about your analysis, it may pay you well irrespective of what you choose.

Also this is just a short summary of the studies as it is vast than any of its topics and for more information you can simply read about it in various platforms.