Difference Between Fundamental Analysis vs Technical Analysis
Fundamental analysis can be defined as a study that is concerned with the factors that possibly have an impact on the stock prices of an organization in the future. Fundamental Analysis vs Technical Analysis in this, the factors scrutinized in the fundamental analysis are financial statements, industry, management processes, and so on. Fundamental analysis is relevant for investments that are held for a longer duration of time. Fundamental analysis is concerned with the previous as well as current data. The objective of fundamental analysis is to identify the intrinsic value of an organization in order to find out if a particular stock is over-priced or under-priced.
Fundamental analysis is used for investing function only. Technical analysis studies previous patterns, charts, and trends in order to make predictions concerning the price movements of an organization in the future. In other words, technical analysis can be defined as a method used to determine the upcoming price of the securities on the basis of charts in order to identify the trends as well as patterns. Technical analysis is relevant for investments that are held for a shorter duration of time. Technical analysis is only concerned with the previous data and it is used solely for trading function. The objective of conducting a technical analysis is to identify the perfect time for entering or exiting the market.
Head to Head Comparison Between Fundamental Analysis vs Technical Analysis(Infographics)
Below are the Top 12 comparison between Fundamental Analysis vs Technical Analysis:
Key Differences Between Fundamental Analysis vs Technical Analysis
The key differences between Fundamental Analysis vs Technical Analysis are as follows:
- Fundamental analysis is taken into use for the purpose of evaluating the intrinsic value of a particular stock whereas technical analysis is taken into use for the purpose of predicting the upcoming price trends.
- Fundamental analysis is used for investment function whereas technical analysis is used for trading function.
- Fundamental analysis is conducted by analyzing multiple economic factors whereas technical analysis is conducted by analyzing price movements and patterns provided on charts.
- Long-term traders participate in the case of fundamental analysis whereas swing, as well as short term traders, participate in technical analysis.
- Fundamental analysis is not impacted by external news whereas technical analysis gets impacted with external news.
- The data for fundamental analysis is sourced from economic reports, industry statistics, brokerage analysis, financial statements, management processes, news events, etc whereas the data for technical analysis is gathered from chart analysis.
- Fundamental analysis takes the return on assets and returns on equity concepts into its use whereas technical analysis takes price data and dow theory into its use.
- Fundamental analysis focuses on both qualitative as well as quantitative factors whereas technical analysis focuses on price and volume (charts, moving averages, etc).
- Fundamental analysis is used for long term investments whereas technical analysis is used for short term investments.
- Fundamental analysis looks at previous as well as present data whereas technical analysis looks only at previous data.
- Fundamental analysis is used for the calculation of stock value taking use of the economic factors whereas technical analysis is used for the calculation of price movement of a stock in order to forecast upcoming price movements.
Comparison of Table Between Fundamental Analysis vs Technical Analysis
Given below are the major difference between Fundamental Analysis vs Technical Analysis:
| Basis of Comparison | Fundamental Analysis | Technical Analysis |
| Basic difference | Fundamental analysis is used in order to understand the patterns in an entity’s financial performance. In other words, fundamental analysis is used for the purpose of examining the basics of an entity. | Technical analysis is used in order to understand the patterns in an entity’s share price. In other words, technical analysis focuses on data pertaining to stock price and volume. |
| Function | Fundamental analysis is used for investment-related function. | Technical analysis is used for a trading-related function. |
| Relevant for/ Time frame | Fundamental analysis is relevant for investments that are long term in nature. | Technical analysis is relevant for investments that are short term in nature. |
| Data | Fundamental analysis focuses on previous data as well as the present data. | Technical analysis focuses solely on the previous data. |
| Aim | Fundamental analysis is conducted for the purpose of identifying the intrinsic value of a particular stock. | Technical analysis is conducted for the purpose of identifying the perfect time to invest or withdraw investments from the market. |
| Basis of decision making | Available information, as well as evaluated statistics, is the basis of decision making in fundamental analysis. | Market prices and market trends of the stock are the basis of decision making in technical analysis. |
| Methodology | Fundamental analysis helps in the examination of ongoing industry trends, financial data, economic outlook, and the performance of the competitor companies. | Technical analysis is used for examining the market psychology as well as price movements. |
| Data sourced from | In fundamental analysis, data is sourced from economic reports, industry statistics, brokerage analysis, financial statements, management processes, news events, etc. | In technical analysis, data is sourced from chart analysis. |
| Concepts have taken into use | Fundamental analysis uses the following concepts:
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| Type of traders | Fundamental analysis is preferred by the long term position traders. | Technical analysis is preferred by the swing as well as short term day traders. |
| Impact of external news | Fundamental analysis remains un-impacted with external news. | Technical analysis can get impacted due to external news. |
| Indicators | Fundamental analysis studies expenses, revenues, assets, liabilities, debt-equity ratio, return on equity ratio, and so on. | Technical analysis makes use of charts such as price data, etc. EMA, RSI, MACD, Simple moving average, etc are commonly used technical indicators. |
Conclusion
Fundamental analysis is used for long term investments while technical analysis is used for short term investments. The fundamental analysis enables analysts to forecast future performance taking financial reports of an organization into use while technical analysis enables the analysts to ascertain whether previous patterns in stock price would repeat in the coming time or not. Fundamental analysis considers both previous and current data whereas technical analysis considers only past data.
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