Difference Between Fundamental and Technical Analysis
Author: George Davis
Technical analysis forecasts stock prices based on their historic trading data, while fundamental analysis evaluates a company’s intrinsic value. Read this article to learn the differences between fundamental and technical analysis.
Technical and fundamental analysis are two popular schools of thought in the trading world. Investors use both analysis methods to evaluate the market work of a stock before buying. Like any other trading methodology or philosophy, these analyses have their advocates and adversaries. However, both stock value measurement tools are incomplete without one another. The primary difference between both is that fundamental analysis values a company's intrinsic value while technical analysis evaluates a stock’s worth through historic data. If you are interested to learn more about the differences between technical and fundamental analysis, keep reading below.
Key Differences Between Fundamental and Technical Analysis
Technical and fundamental analysis are both essential for evaluating the stock price of a company. Yet, they lie on different ends of the spectrum. To understand more about these investment tools, let’s dig a little deeper.
The primary difference between fundamental and technical analysis is that the latter uses historic trading data of stocks and represents it in a graphical form. There are different types of technical analysis, and investors use most of them to determine whether a stock is worth the investment. Aside from visual representation, technical analysis is easier than fundamental analysis, and most retail investors use its methods for investments.
The core assumption of technical analysis is that all fundamentals are included in the price; therefore, there is no need to pay attention to them. Using technical analysis alone is not a profitable trading strategy because this analysis alone is not credible enough to rely on. Therefore, professional traders use fundamental analysis alongside.
While technical analysis is centered on historic trading data, fundamental analysis is based on a holistic approach. Fundamental analysis determines the value of a stock and its future prices based on its intrinsic value. Moreover, the fundamental analysis accounts for all factors that influence share prices in the stock exchange.
These factors include economic position, company financials, and political instability. Since the stock market depends on stable GDP, politics, and profits, the prior mentioned factors play a more significant role than most beginner traders anticipate. Nevertheless, fundamental analysis is more concrete yet does not dominate technical analysis in any way. Both trading philosophies have their own charm. However, the fundamental analysis also accounts for a company’s internal workings such as expenses, revenue, assets, and liability, giving it an edge over technical analysis – yet incomplete without it.
This is because a company might have strong financial, but its past trading data determines how the market will respond to its fluctuating share prices. Therefore, both analysis methodologies rely on each other despite their differences, and using them together improves chances for a successful trade.
Fundamental and technical analysis differences are vast, but they are two halves of a full trading strategy. One is incomplete without the other, and professional traders use both analysis methods to win trades and improve their investment decisions.
1. Henry Schein, Inc. (HSIC)
2. LCI Industries (LCII)
3. Altice USA, Inc. (ATUS)
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