Fundamental Analysis v/s Technical analysis.

People often ask me how they can become a better investor/trader or even a professional one.

Most people think you can make money ONLY when the market is going up.

 However, most don't know how to make money when the market goes down.That art/science is called as short selling(Pl see the video to understand the concept better).

They also ask me the difference between Fundamental and Technical analysis.

The answer also lies in understanding the difference between fundamental and technical investing.


Fundamental Analysis.

A fundamental investor seeks value and growth by looking at the financials of the company.For the fundamental stock investor, the most important consideration for selecting a good stock for investment is the future earnings potential of a company.

A fundamental investor carefully reviews the financial statements of any company before investing in it. He or she also takes into consideration the outlook for the economy as a whole, as well as the specific industry in which the company is involved, and the direction of interest rates.

Technical Analysis.

A technical analyst invests looking at the emotions of the market.The most important consideration for selecting a good stock is based on the supply and demand for the company’s stock.For that, they study the price of the company.

The technical analyst studies the patterns of the price of the company’s stock.Patterns of the price denotes the emotions in the market.Will the supply of the shares be more than Demand or Vice versa?

Large institutions buy/sell stock depending on careful and detailed fundamental analysis of the stock.When  they buy/sell, a demand and supply is created for that stock.Technical analysis detects that demand /supply and helps in decision making.

So,Simply put,

Fundamental analysis will tell you the 'business' of the company and how well that 'business' is conducted.For that you need to read and understand balance sheet/annual report.

Technical analysis will tell you if people in the markets are buying / selling and the emotions of the market.Your decisions then will be based on what others are doing in the market at that point.

Both styles need formal education and learning.

Do mention your comments or questions below and share as needed.Thanks.

- Chetan Potdar
Invest-mints/fb