Fundamental analysis involves delving into the financial statements.
Fundamental analysts looks at information to gain insight on a company’s future performance, cash flow statement and how they all fit together.
The main reason of the fundamental analysis is to produce a value that an investor can compare with the current price of an asset, aiming to figuring out what sort of position to take with the data collected.
At the company level, fundamental analysis involve examination of financial data, management, business concept and competition.
At the industry level it’s an examination of supply and demand forces for the products offered.
For the national economy, fundamental analysis focus on economic data to assess the present and future growth of the economy.
To forecast of stock prices, the fundamental analysis combines economic, industry, and company analysis to derive a stock’s current fair value and forecast future value. If fair value is not equal to the current stock price, fundamental analysts believe that the stock is either over or under value and the market price and ultimately will continue towards the fair value.
This method of security analysis is considered to be the opposite of technical analysis.
Technical analysis is the forecasting of future financial price movements based on an examination of past, by price movements and by analyzing statistics generated by the market activity.
Technical analysis can help investors anticipate what is likely to happen to prices over time.
Technical analysis uses a wide variety of charts that show price over time.
Technical analysis is applicable to any instrument where the price is influenced by the forces of supply and demand.
A technician analyst believes that it is possible to identify a trend, to invest or to trade base on the trend and the trend unfolds.
Technical analysis can be applied to many different time frames, it is possible to spot both short-term and long-term trends.
The technical analysis is applicable to all capital market asset whose price is determined by supply and demand (Forex, stocks, options, commodities, etc.)
The technical analysis concentrates on what’s going on now on the chart and what happened in the past as it updated every prevailing market prices.
Technical analysis focusing on prices and offsets all external noises such as feelings.
Sometimes technical indicators indicate of a coming change in the market before the end of significant trend.
Technical Analysis vs Fundamental Analysis
A fundamental analyst looking at the assets profits and the business trends of a company, puts an estimate and if it’s a fair value, for example of a stock.
If the stock price is lower than this expected value, the stock should be bought.
If the stock is trading higher than what the fundamental analyst believes it’s worth, the stock should either not be bought or sold.
The problem with focusing only on valuations is that overvalued stocks can get more over-valued and undervalued stocks can stay undervalued.
Technical analysts doesn’t concern with analyzing the company’s prospects or values of an asset because they assumed that the market is doing that for them.
For example, the stock price reflects everything already publicly known and expected about the company and its prospects.
Technical analysis looking to forecast the future prices of investments and markets by analyzing past trading action.