Difference in Fundamental Analysis and Technical Analysis of Stock

In the stock market, there are two different methods used to assess investments: technical analysis and fundamental analysis. These are the basic differences between the two approaches.

1. Meaning
   In fundamental analysis, the intrinsic value of a stock is evaluated based on financial statements and economic considerations while in technical analysis, past price movements and patterns are analyzed to forecast future performance.
2. Assumption
   Fundamental analysis makes the assumption that examining a company’s fundamentals can predict its growth potential while technical analysis functions under the presumption that all pertinent information is already reflected in the current share price.
3. Objective
   Fundamental analysis seeks to ascertain the intrinsic value of a business or stock whereas technical analysis seeks to forecast future price patterns of assets.
4. Data
   Fundamental analysis depends on financial records and economic statistics whereas technical analysis bases its assessments on previous price and volume data.
5. Time Horizon
   Fundamental analysis is usually used for long-term investing decisions whereas technical analysis is more frequently utilized for short-term trading techniques.
6. Interpretation
   Fundamental analysis advises investors to purchase cheap stocks with room for growth or sell expensive ones whereas technical analysis uses indicators to analyze price movements on charts and determine entry and exit points.
7. Indicators
   Fundamental analysis uses financial indicators like earnings, ratios, and profit margins to analyze stocks whereas technical analysis uses indicators like Moving Averages, RSI (Relative Strength Index), and MACD (Moving Average Convergence Divergence) to determine important price levels.

In conclusion, for long-term investments, fundamental analysis explores the inherent worth of a security based on economic and financial health considerations. Technical analysis, on the other hand, is concentrated on short-term trading and forecasts future price trends by examining past price movements and patterns. While they address different investing strategies and time spans, both approaches provide investors with insightful information.

Image credit- Canva