Fundamental vs. Technical Analysis: What’s the Difference?
According to SIFMA Capital, global equity market strength reached US $126.7 trillion in 2024. It is a clear signal that showcases how large and dynamic the stock market is.
Investment in the stock market is one of the great and preferred ways to build wealth and increase savings for the retirement period. Starting early at a younger age is crucial to get enough time to make a stock market investment.
Fundamental and technical analysis is one approach to transform your stock strategies into actual buying or selling decisions. While the fundamental analysis involves the stock share analysis based on the company’s market strength. On the other hand, technical analysis is about the stock patterns to make fruitful decisions.
What Is Fundamental Analysis?
Fundamental analysis is about a company’s share price value at a specific point in time. In simple words, the analysis is based on the company’s strengths and numbers in a specific economic position.
You should check the organisation’s financial performance to get a better idea of the share’s fair value. In addition, fundamental analyst experts need to keep a keen eye on the corporate vertical and the overall economy.
Usually, the fundamental analysts include earnings per share (EPS), dividend yield, price-earnings (P/E) ratio, and return on equity to evaluate assets, liabilities, and expenses.
What Is Technical Analysis?
Technical analysis of stocks involves the study of their performance, with the analysis of security prices and traded share volumes. These key pillars play a crucial role in evaluating the movement of a stock’s price.
Volume of the stocks is another crucial component of technical analysis. It can provide the data on average trading volume to assess if the stock is going up or down.
However, technical analysis should also focus on the stock’s actual price along with the financial health of the organisation. While doing the technical analysis, it is mandatory to check if all relevant information is already linked to the pricing history.
Fundamental Analysis vs. Technical Analysis: Which Is Better?
Fundamental analysis has been a quite old and credible method to assess stocks and make the right investment. With the advancement in the technology space of the stock market, you can have more ever-changing insights easily accessible.
While most of the stock market investors used to leverage black-box trading, now there are computer models and algorithms combining both technical and fundamental aspects to make ideal predictions.
Some stock investors focus on either of the two strategies, while some would prefer to combine them. If we believe Money Control, as much as 60% of the trading in India is now taking place via algorithms or High Frequency Trading (HFT).
Both fundamental and technical analysis will contribute to an ideal buying decision. For instance, let’s say there is an investor who focuses on the company’s continuous growth. In such a case, the investor will evaluate the company’s performance in the long run with the help of fundamental analysis.
On the contrary, technical analysis is helpful in evaluating quick wins over a short period of time. Identify patterns and predict performance with data collected in the short-term duration. One of the major differences between the two is that fundamental analysis is more about long-term investment, while technical analysis highlights insight for short-term duration.
Now, the key to making a great portfolio is to keep a combination of both long-term and short-term stocks and follow the ideal practices to make significant profits.
Final Comments
Hence, fundamental analysis depends on several quantified metrics to assess and evaluate the stock investment in the long run. On the other hand, technical analysis is helpful in presenting price trends, trading volumes, and patterns to invest in the right stocks. Once the stock performs well based on both fundamental and technical analysis, you’re likely to make profits.
The success in the stock market investment purely relies on the analysis and expectations based on the same. However, since the stock market is always unpredictable, both fundamental and technical analyses are just two approaches to making a guess.
Disclaimer: This analysis is for informational purposes only. Consult your financial advisor before investing.
Chandan Pathak
Equity Research Analyst