What are fundamental and technical analysis techniques?

Updated: Apr 13

Fundamental Analysis

Fundamental analysis is a way of determining the fundamental value of a securities by looking at linked economic and financial elements. Fundamental analysts look at everything that might influence the value of a security, from macroeconomic issues like the state of the economy and industry circumstances to microeconomic elements like the company's management performance. The ultimate aim is to arrive at a figure that can be compared to the present price of an asset to determine whether it is undervalued or overpriced.


It evaluates the value of a stock or any other form of investment using publicly available data. Fundamental analysis focuses on revenues, profitability, potential growth, return on equity, and other statistics. When it comes to evaluating a firm, experts look at four essential elements: the business model, corporate governance, competitive advantage and management. Long-term success is mainly determined by a company's ability to retain a competitive edge. Even the strongest business concept will collapse if the company's executives fail to carry it out. A good firm operates with integrity, fairness, transparency, and efficiency.


Technical Analysis

technical analysis is a trading discipline that uses statistical trends derived from trading activity, such as price movement and volume, to analyze investments and uncover trading opportunities. Technical analysis was first introduced by Charles Dow and the Dow Theory in the late 1800s. It operates from the assumption that past trading activity and price changes of a security can be valuable indicators of the security's future price movements when paired with appropriate investing or trading rules. Technical analysis attempts to forecast the price movement of virtually any tradable instrument. This includes stocks, futures, commodities, fixed-income, currencies, and other securities. Some view technical analysis as simply the study of supply and demand forces as reflected in the market price movements. Technical analysts consider the following main sorts of indications in general:


● Price trends

● Chart patterns

● Volume and momentum indicators

● Oscillators

● Moving averages

● Support and resistance levels


Comparison

If we compare them, Fundamental analysis aims to estimate a security's worth based on business performance such as sales and earnings. While technical analysis focuses on the study of price and volume by analyzing previous market data. These two are believed to be in opposition to each other.


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