Difference between Fundamental Analysis and Technical Analysis
When it comes to analyzing the stock market, you've got two tools in your toolbox: fundamental analysis and technical analysis. Fundamental analysis is like digging deep into a company's soul, examining all the nitty-gritty financial and economic factors that can make or break a business. Technical analysis, on the other hand, is all about watching those stock prices move and using your Jedi mind powers to predict where they'll go next.
The Securities and Exchange Board of India (SEBI) is the market's big supervisor, controlling and ruling everything like the ultimate stock market superhero. So, if you want to know how to become a financial wizard and analyze the market like a master, keep reading to find out which analysis is better: fundamental or technical.
What is Fundamental Analysis?
When we speak about fundamental analysis, we aren't just looking at the superficial level. We're delving into the heart of a company, investigating its financial statements, economic variables, industry patterns, and even its management process. It's like scrutinizing every nook and cranny of a business with a magnifying lens to see what makes it work.
Why do we do this, you may wonder? It's actually quite straightforward. We want to determine a company's real worth and whether its equity is worth purchasing. Is it too expensive? Is it a good deal? We must be informed! So we calculate the figures, analyze the data, and arrive at a conclusion. It's similar to being a detective in the business realm.
It's as if we're focusing in with a microscope while also zooming out with a camera. We can determine the real value of a stock by taking into account all of these micro and macroeconomic variables. We're like financial archaeologists, unearthing all the secret riches that contribute to a company's value. And believe me, it's no simple task. But once we've dug deep enough, we'll know whether a company is a gem in the rough or just a lump of coal. So, get set to delve deep into fundamental analysis and unearth some money treasures!
Some of the qualitative and quantitative metrics examined in the fundamental analysis are as follows:
- Business Model
- Business Cycles.
- Customer Base
- Management Competency
- Corporate Governance
- Industry-wide Growth
- Intangible Assets
- Competitive Edge
- Total Profit
- Company’s Annual Revenue
- Accounting Ratios
- Tangible Assets
In addition to the foregoing, different socioeconomic variables influence the stock's intrinsic value.
If a stock's inherent worth is less than its present market price, it is said to be undervalued. It's like discovering a treasure map in your garden and discovering it goes to a gold mine!
However, if a company's intrinsic worth exceeds its present market price, we refer to it as an overvalued stock. It's the equivalent of purchasing a luxury purse that is truly a cheap knockoff. It may appear nice, but it isn't worth the money you spent on it. So, when it comes to fundamental analysis, we're all about locating undervalued jewels and averting overpriced lemons.
So, if you're set to join the stock market game, look for undervalued treasures and stay away from overpriced duds!
What is Technical Analysis?
To forecast the future of a company using technical analysis is akin to using a crystal ball. It all comes down to looking at previous patterns, trends, and forecasts to predict what's to come. It's like a time traveler attempting to forecast the future of the financial market!
Not to mention the support and resistance lines, also known as "buy" and "sell" signs. It's like a stock market traffic light: green means purchase and red means sell. If the stock price is about to reach a support level, it's time to purchase because the price will skyrocket!
However, if the stock price reaches a higher limit, it serves as a warning indication that the price is about to plummet. It's like a carousel about to derail - time to get off before it's too late!
Remember that predicting support and resistance levels requires a lot of expertise, and even the most experienced experts can make errors. It's like playing darts with your eyes closed: you might strike the target, but you're more likely to miss the board entirely!
So, if you're thinking about using technical analysis, keep in mind that it's like a short-term fling: thrilling but dangerous. And be prepared for a lot of opinions, because reading tea leaves is similar to deciphering candlesticks in that everyone sees something different!
When should you use Fundamental and Technical Analysis?
Long-term trading requires the fortitude of a sloth and the spirit of a beast. They scrutinize every aspect of the business, including financial statements, economic factors, industry, management, and everything else under the sun. In other words, they go deeper than a deep-sea diver to determine the stock's inherent worth.
Short-term dealing, on the other hand, is best suited to those with the attention span of a goldfish and the reactions of a samurai. They use past data, patterns, and trends to forecast the stock's short-term future as if they were tea leaves. In other terms, they are the stock market's fortune interpreters.
There is an analytical technique for everyone, whether you are a patient sloth or a quick- witted ninja. Remember that when it comes to investing, gradual and steady wins the run, but a fast draw can also do the trick.
The continuing conflict between fundamental and technical analysis is akin to a cat and dog showdown. Both parties have mountains of data to back up their claims, but there is no paw-sitive conclusion to the debate. Despite the fact that many knowledgeable investors use both fundamental and technical analysis to make financial choices, the typical individual favors one.