Technical Analysis is the most used method by Stock market traders to predict future price movements in different securities. Used by Intraday traders this method primarily focuses on price trends and patterns involving volume which plays a crucial role to determine the future market prices. By closely analysing the volumes traded in the stock market , traders tend to get a clear view of the buying or selling positions created by the market participants.
Technical analysts also called Chartists do the in-depth reading of the past price patterns and predict the future prices as they believe “The past repeats itself” and this gives them trades with high winning probabilities.
On the other hand, Fundamental analysis is the method used to determine the intrinsic value of any selected security using Balance sheets, profit & loss statements and cash flow statements to see the financial health of the company. This method considers analysing macro economics conditions in the country as well as all over the globe. More of, the analysts watch for the securities in the share market which are trading at higher or lower prices compared to their actual prices and invest there funds accordingly.
Key Features :
Technical Analysis :
1.) Charts and Price Trends : Mostly watching the charts to read the past and present share prices. Examine the current price trend i.e Uptrend, Downtrend or side ways trends and take positions accordingly.
2.) Indicators : Using technical indicators like R.S.I , MACD , Moving averages, Volume indicators.
3.) Price action : Intraday trading positions using candlestick charts. Traders have a belief that prices in the security reflect all available information in the open market like news, macroeconomic news, fundamental news and market sentiments.
4.) Stop-loss and Targets : Traders using this method always have an exact point of view on what there target price and stop loss will be before entering the trade.
Fundamental Analysis:
1.) More inclined towards intrinsic or real value of the share using ratios like P/E Ratio, Balance sheets, profit and loss statements.
2.) Macroeconomic factors like Interest rates, GDP growth, Inflation
3.) Used for stocks particularly , but also for bond evaluations.
What is Best for you ?
Technical Analysis :
A.) If you are swing trader ( to carry a position for less than 3 months but more than 1 day) or an intraday trader.
B.) More prefence in analysing the historical prices and trends in the stock market rather than the accounting sheets.
c.) Price action traders who look for small swings in the stock market and are flexible in adapting to the changing conditions.
Fundamental analysis :
A.) Firstly, you are a long term investor and are ready to keep your funds invested for years.
B.) You are more interested in investing in a company based upon its overall performance depending on its revenue and sales .
C.) You prefer to invest based upon the intrinsic value rather than the historical prices .
Both these methods are primarily used in Stock market for trading and investing. They both have there strenghths and weaknesses, Right approach will be to first closely decide as to what are your trading goals, your risk tolerance and how much returns in percentage do you expect from share market .
If you’re looking to deepen your knowledge of technical or fundamental analysis, consider enrolling in MHV Education which is the Best stock market institute in Dehradun for share market courses.