Technical Analysis Vs. Fundamental Analysis
Successful Share Trading depends on the conceptual ability of trader to predict accurately prices and practical ingenuity to manage efficiently risks. Two techniques are commonly used to forecast prices – Fundamental Analysis & Technical Analysis. Technical Analysis forecasts the direction of prices through the study of past market data of price and volume. On the other hand, Fundamental Analysis determines the intrinsic or true value of the shares. If the intrinsic value is higher than the market price it is recommended to buy the share, if it is equal to the market price hold the share and if it is less than the market price sell the shares. The fundamental analysis consists of four types of analyses, that is, Economic Analysis, Industry Analysis, Company Analysis, & CEO/Top Management Analysis.
Investors can use these different but to some extent complementary methods for stock trading. For example, a fundamental investor may use technical arguments for deciding entry and exit points, while, a technical investor can use fundamentals to limit their universe of possible stock to ‘Well Performing’ companies.