Which analysis of stocks is better - Fundamental or Technical?

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Just like a weather forecast, traders and investors have been predicting the future of the stock market for ages. When it comes to minimizing market risks, investors mostly use two major schools of thought - Fundamental & Technical analysis. But, like any other strategy, both of them come with their own advantages and limitations.

What is Fundamental Analysis?

Fundamental Analysis is an extensive method in which the intrinsic value of a security of a company or stock is determined by evaluating the various aspects of the market. In this process both micro and macro-economic factors are taken into consideration. Analysts study the quantitative factors such as company’s annual revenue, total profit, tangible assets, accounting ratios and qualitative indicators such as management competency, corporate governance, business model, customer base and many more to estimate the future of the company.


What is Technical Analysis?


Technical analysis is a method of evaluating securities through data and statistics.  Stock market experts and financial analysts study the data on market activity such as stock prices and price returns to create patterns in the stock movements. These charts and patterns provide deep insights into the market activity and its future prospects.

Investors who study this data are confident about the future performance of a particular stock or company. They study data from a shorter period of time to chart the patterns and predict the future of the market.  This method is mostly used by investors who are interested in short-term investment.

Fundamental Analysis vs Technical Analysis


While Fundamental analysis attempts to evaluate the intrinsic value of the security, both methods are trying to predict the future of the stock of the company. Investors and financial analysts predominantly use fundamental analysis for long-term investments and technical analysis for short-term analysis. The key difference between the two is the fact that fundamental analysis studies various tangible and intangible assets to determine the intrinsic value of the stock and predict the future while the latter only focuses on the price and volume movements of the stock.

To conclude, both methods are equally valid and useful. However, they approach the market economy differently. As long as you are making money, you can use any one or combine them both.