The Technicals & Fundamentals
If you are a novice investor, you must get familiar with the terms ‘Technical Analysis’ & ‘Fundamental Analysis’. These two terms will most likely help you make the correct decisions while making any trade or investment related advances in the markets. In this article, I will help you differentiate between Technical Analysis & Fundamental Analysis.
What is Technical Analysis?
Well, as the name suggests; it is a form of security analysis which uses price data & volume data (Technicals), which are mostly graphically represented in the charts. It can be leveraged to figure out how demand & supply for specific security can influence the price, volume & volatility swings.
Technical Analysis is completely based on the historic data. This means, it only suggests that what has happened which can further lead you to speculate on the basis of that data, what your next move should be or can be.
The Use Case
Already wondering, how do individuals use Technical Analysis to make decisions or speculate their trades as well as invest?
Many market participants leverage Technical Analysis based on the price graphs & related (economical) statistics. This helps them to combine the strength of sound Technicals & economics to make their decisions or speculations more effective to produce the desired results. There are a lot of Technical Indicators, one can use & combine with major economical events to produce better results & outcomes. In this article, we will not discuss about what all technical indicators are available, as it is a different topic & requires a separate set of articles to help you understand better (One may follow my Reddit Community to get a brief on the technical indicators, separately, as discussed under the flair; Stock Markets). The previously mentioned combination can be considered for short term trades or investors (typically, TA, alone can be used for intra-day trades). Many participants consider combining Technical Analysis & Fundamental Analysis to make better decisions or speculations for medium term & long term investments.
What is Fundamental Analysis?
It is a more sound method to commit to better investments & many investing moguls suggest or recommend to strictly use Fundamental Analysis for a better long term investment. Fundamental Analysis is a method of assessing value of security by analyzing macro & micro economic factors.
Macro Economics: It is the branch of economics which deals with structure, performance, behavior & decision making whole or an aggregate economy.
Micro Economics: It is the branch of economics which deals with household’s & firms’ behavior & decision making & allocation of resources.
The major goal of Fundamental Analysis is to determine the correct price of a security whereas, Technical Analysis is responsible for forecasting.
Three major components of Fundamental Analysis:
- Economic Analysis
- Industry Analysis
- Company Analysis
To be really good at Fundamental Analysis, an individual must master the skills of accounting, finance & economics.
