InvestorQ : How fundamental analysis differs from technical charting?
Neelam Naik made post

How fundamental analysis differs from technical charting?

Answer
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2 years ago


Fundamental analysis is about understanding the business of the company, its growth prospects, its profitability, its debt etc. Fundamentals are based on the premise that behind every stock there is a company that is doing real business. So to understand the stock one need to understand the company behind it. If the company does well the stock does well and if the company does badly then the stock also does badly. Therefore all that matters is the products of the company, the competitive situation, the financials of the company, the quality of its management etc. Technical analysis focuses more on charts and patterns and tries to find out past patterns to apply for the future.

Technicals are based on the view that the stock price is very smart and it jolly well reflects anything and everything that is there to be known about the stock. So there is no point in trying to second-guess the market and just read the message of the market and trade accordingly. Technicals also believe that since human mind remains the same, their reaction to news will also be the same. So chart patterns will get repeated. Understanding past patterns are, therefore, the key to applying technicals in trading. Fundamentals are used more by investors while technicals are used more by traders. In reality, traders try to get the best of both worlds by using fundamentals to identify value and technicals to time the entry and exit.