Key points on Fundamental Analysis vs Technical Analysis

September 6, 2018

In this article, my objective is to explain the methods of stocks analysis and their limitations. I am not going to say which is the best of these but the logic will lead you to the best way and You will know exactly Which is better to use and many facts about Fundamental Analysis vs Technical Analysis. There are two commonly used methods for stock analysis, the Fundamental Analysis Approach and Technical Analysis Approach.

Fundamental Analysis Approach

If we talk about fundamental analysis, it has the use for the long-term holding of a stock assuming stock will create wealth in your portfolio. As it deals with the balance sheet, P&L statement, management of the company and the new product or revolution promises from the company, based on which you try to predict the value of the company in future. You compare it with the current value to make the buying decision. However, there is a time factor which you have to compromise before buying the stock. As you always estimate the expected return, but you don’t know the duration of the performance you are waiting; often it lasts many years in the period.

Price of stock is another problem because you are dealing itself with the stock. So it is the challenging part of the fundamental analysis. We have discussed timing which is the most defect part of this approach because of the absence of its importance here.

However, Timing is critical in Stock Analysis.

There is an excellent time to buy a bad stock, and there is a wrong time to buy a stock even it is doing well in the market.

Moreover, the condition also varies with the time. You will realize Stock or market itself says you the best time to buy or sell the stock has already passed based on fundamental news. The fundamental approach is the reason people get locked up in with the stock (which they are calling good stock) for the many years without realizing any profit

Technical Analysis approach

The technical analysis deals with the price of the stock itself. It follows supply and demand. So, it regards the right and wrong time with the actual moment and psychology. We say this approach is sometimes a science and sometimes the art of speculation depending upon the way whether it is mechanical or judge-mental.

If you are applying the fundamental for the long-term buying, you can remove the disadvantage of time and price from the technical approach. Technical analysis can give you a right entry based on a breakout or the end correction clue. If we use technical analysis with fundamentally Growth Stock to Swing Trade, we can have better success in carrying a position for a long time unless it gives the signal of the weakening of moment. 

We have discussed so far the fundamental analysis approach, limitation and how can we remove the imitation.So, now you can self evaluate Which is better to use Fundamental Analysis or Technical Analysis.

Technical Approach alone is most useful in short-term (as short as 1 min for Scalping) to medium term (like carrying a Swing Trade Position).

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