• Business
  • Finance
  • Banking
  • Education
  • General
  • Law
  • Science
  • IT
  • English

Key Differences

Know the Differences & Comparisons

Difference Between Fundamental and Technical Analysis

fundamental vs technical analysisFundamental Analysis studies all those factors which have an impact on the stock price of the company in future, such as financial statement, management process, industry, etc. It analyzes the intrinsic value of the firm to identify whether the stock is under-priced or over-priced. On the other hand, technical analysis uses past charts, patterns and trends to forecast the price movements of the entity in the coming time.

Stock prices change every minute, and so every investor is keen to know the future price trends of the stocks of a company, so as to make investment decisions rationally. For this purpose fundamental analysis and technical analysis are used to research and forecast price trend of the stock in future.

Content: Fundamental Vs Technical Analysis

  1. Comparison Chart
  2. Definition
  3. Key Differences
  4. Conclusion

Comparison Chart

Basis for ComparisonFundamental AnalysisTechnical Analysis
MeaningFundamental Analysis is a practice of analyzing securities by determining the intrinsic value of the stock.Technical analysis is a method of determining the future price of the stock using charts to identify the patterns and trends.
Relevant forLong term investmentsShort term investments
FunctionInvestingTrading
ObjectiveTo identify the intrinsic value of the stock.To identify the right time to enter or exit the market.
Decision makingDecisions are based on the information available and statistic evaluated.Decisions are based on market trends and prices of stock.
Focuses onBoth Past and Present data.Past data only.
Form of dataEconomic reports, news events and industry statistics.Chart Analysis
Future pricesPredicted on the basis of past and present performance and profitability of the company.Predicted on the basis of charts and indicators.
Type of traderLong term position trader.Swing trader and short term day trader.

Definition of Fundamental Analysis

Fundamental Analysis refers to the detailed examination of the basic factors which influence the interest of the economy, industry and company. It is meant to gauge the actual intrinsic value of a share, by measuring the economic, financial and other factors (both qualitative and quantitative) to identify the opportunities where the value of share varies from its current market price.

The fundamental analysis assesses all the factors that have the capability of influencing the value of the security (including macroeconomic factors and organization-specific factors), called as fundamentals, which are nothing but the financial statements, management, competition, business concept, etc. It aims at analysing the economy as a whole, the industry to which it belongs, business environment and the firm itself.fundamental analysis It relies on the assumption that there is some sort of delay in influencing the share prices by these fundamentals. So, in the short run, the prices of stocks do not match its value, but in the long run, it adjusts itself. It is a three-phase analysis of:

  • The Economy: To analyse the general economic status and condition of the country. It is analysed through economic indicators.
  • The Industry: To determine the prospects of various industry classification, with the help of competitive analysis of industries and industry life cycle analysis.
  • The Company: To ascertain the financial and non-financial characteristics of the firm to find out whether to buy, sell or hold the shares of the company. For this purpose, sales, profitability, EPS, are analysed along with management, corporate image and product quality.

Definition of Technical Analysis

Technical Analysis is used to forecast the price of a share, which says that the price of a share of the company is based on the interaction of demand and supply forces, operating in the marketplace. It is used to forecast the future market price of the stock, as per the past performance statistics of the share. For this purpose, first of all, the changes in the price of the stock are ascertained, to know how the price will change in future.

The price at which the buyer and seller of the share, decides to settle the deal, is one such value which combines, weighs and expresses all the factors, and is the only value which matters. In other words, technical analysis gives you a clear and comprehensive view of the reason for changes in prices of a security.technical-analysis It is based on the premise that the price of share move in trends, i.e. upward or downward, relying upon the attitude, psychology and emotion of the traders.

Tools used for Technical Analysis

  • Prices: The change in the price of securities is represented in the change in the attitude of the investor and the demand and supply of securities.
  • Time: The degree of price movement is a function of time, i.e. the time taken in the reversal of trend will determine the change in price.
  • Volume: The magnitude of price changes can be seen in the transaction volume that characterizes the change. Suppose there is a change in the price of shares, but there is a small change in the transaction volume, then it can be said that the change is not very powerful.
  • Width: The quality of change in price, is gauged by ascertaining if the change in trend is dispersed across many industries or it is specific to a few securities only. It reflects the degree to which changes in the price of securities have taken place in the market as per the overall trend.

Key Differences Between Fundamental and Technical Analysis

The difference between fundamental and technical analysis can be drawn clearly on the following grounds:

  1. Fundamental Analysis is a method of examining security so as to identify its intrinsic value for long term investment opportunities. As against, Technical Analysis is a method of evaluating and forecasting the price of a security in future, on the basis of price movement and volume of transaction. It identifies what a stock will do in future.
  2. In fundamental analysis, longer periods are used to analyse stocks as compared to technical analysis. Hence, fundamental analysis is employed by those investors who want to invest in stocks whose value will increase in several years. On the contrary, technical analysis is used when the trade is for short term only.
  3. The time difference between the two analysis is not only experienced in their approach but in their objective too, wherein the technical analysis is concerned with trading, fundamental analysis talks about investment. As most of the investors use fundamental analysis to buy or hold stocks of the company, whereas traders rely on the technical analysis, to make short term profits.
  4. While fundamental analysis aims at ascertaining the true intrinsic value of the stock, technical analysis is used to identify the right time to enter or exit the market.
  5. In fundamental analysis, decision making is based on the information available and statistic evaluated. On the contrary, in technical analysis, decision making is based on market trends and the stock price.
  6. In fundamental analysis, both past and present data are considered, whereas, in technical analysis, only past data is considered.
  7. Fundamental Analysis is based on financial statements, whereas technical analysis is based on charts with price movements.
  8. In fundamental Analysis the intrinsic value of the stock can be ascertained by analysing an income statement, balance sheet, cash flow statement, profit margin, return on equity, price to earnings ratio, etc. However, technical analysts rely on the chart patterns (such as continuation pattern and reverse patterns), price actions, technical indicator, resistance and support, to analyse the future price trends. Here resistance is the point where the investor is of the view that price will not rise further and is ready to sell, and support is a point where the investor is of the view that price will not fall further and is ready to buy.
  9. In fundamental analysis, the future price of the security is decided upon the past and present performance and profitability of the company. As opposed, in technical analysis the future prices are on the basis of charts and indicators.
  10. Fundamental analysis is done by long term position trader, while technical analysis is done by swing trader and short term day trader.

Conclusion

In fundamental analysis, the stock is bought by the investor when the market price of the stock is less than the intrinsic value of the stock. As against, in technical analysis, the stock is bought by the traders, when they expect that it can be sold at a relatively higher price.

You Might Also Like:

Investing Vs Trading featured imageDifference Between Trading and Investing Call Option Vs Put OptionDifference Between Call and Put Option bull vs bear marketDifference Between Bull and Bear Market riskDifference Between Systematic and Unsystematic Risk stocks vs mutual-fundsDifference Between Stocks and Mutual Funds futures vs optionsDifference Between Futures and Options

Comments

  1. Sharevidya Consulting says

    November 12, 2020 at 11:46 am

    Thanks for sharing this information because I’m looking for this type of article.

    Reply
  2. Godwin 5brodaz says

    October 15, 2021 at 11:19 am

    Great explanation .. I’ve gotten broad understanding on the difference between fundamental and technical analysis.

    Reply
  3. Barrack Obama says

    June 1, 2022 at 7:40 am

    Thank you my fellow Americans for this article.

    Reply
  4. CHARLES SMITH says

    November 20, 2022 at 6:18 am

    This definitely explains the difference between Fundamental and Technical analysis. Thank you.

    Reply
  5. Jeena k joy says

    December 12, 2022 at 12:03 pm

    Thanks for this Good Explanation. It can easily understanding the differences of fundamental and technical analysis.

    Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Top 5 Differences

  • Difference Between PERT and CPM
  • Difference Between Micro and Macro Economics
  • Difference Between Developed Countries and Developing Countries
  • Difference Between Management and Administration
  • Difference Between Qualitative and Quantitative Research



New Additions

  • Difference Between Deforestation, Reforestation and Afforestation
  • Difference Between Race and Ethnicity
  • Difference Between Customer Service and Customer Experience
  • Difference Between Human Capital and Human Development
  • Difference Between Systems Approach and Contingency Approach
  • Difference Between Industrial Relations and Employee Relations
  • Difference Between Introduction and Executive Summary
  • Difference Between Programmed and Non-programmed Decisions
  • Difference Between Depreciation and Devaluation of Currency
  • Difference Between Consumer Market and Business Market

Categories

  • Banking
  • Business
  • Education
  • English
  • Finance
  • General
  • IT
  • Law
  • Science
fb-follow youtube follow

Copyright © 2025 · Key Differences · Contact Us · About Us · Privacy