Fundamental Analysis vs. Technical Analysis

Investing for success, making money from stocks and accumulating wealth is everyone’s ultimate goal. Achieving the ultimate goal of saving for retirement requires an investment strategy that makes your money work hard for you while avoiding undue risk, setbacks, and losses. Technical analysis and fundamental analysis are the two key factors in financial success, but they differ greatly in their investment approach.

Fundamental analysis focuses on the financial statements, the real data, of the company being valued. To assess a stock’s value, fundamental analysis uses its earnings, earnings, future growth, return on equity, profit margins, and other data to determine a company’s underlying value and potential for future growth. While fundamental analysis is important, most investors don’t have the expertise, desire, or time to examine a company’s financials to determine whether or not it’s a good investment. And with accounting tricks some companies have instituted to fudge the books, the basics can seem like worthless.

Technical analysis, on the other hand, is a method of evaluating securities by analyzing the statistics generated by market activity, such as: B. Past prices and volumes. Some technical analysts don’t attempt to measure a company’s intrinsic value, instead using charts and other tools to identify patterns that may indicate future price movements. Technical analysis was introduced more than 100 years ago by Charles H. Dow from a series of Wall Street Journal editorials he authored, and later became known as The Dow Theory. The fundamental factors of his theory have been valid for more than a century and form the basis of technical analysis today. Dow believed that the market discounts everything, and this information shows up in price action not only for the overall market, but also for individual stocks. Instant access to news in today’s world confirms the fact that really everything is discounted in the price of a stock and the movement of the market.

However, the savvy investor should always take a two-pronged approach to success. In other words, use some common sense. A company’s basic, known fundamentals are readily available and are reflected in its price-to-earnings (PE) ratio and earnings per share (EPS). To avoid the fly-by-night ventures with no real profits, make sure the EPS and PE ratio match before risking your hard-earned cash. Then, with the right knowledge of the technical analysis of the company and the overall market, a really smart investment decision can be made.

There’s an old saying, “If you want to know the truth, follow the money.”

It’s true; Charts are the footprint of money. The technical analysis of the charts not only shows the current and past performance of a stock, but also the price action gives the chartist a clear view of the market sentiment and valuable insights into the future direction. All necessary information is displayed in the diagram. Price, volume, support, resistance, trends and much more. It is simply a matter of interpreting the information correctly. Charting and technical analysis use the foundation of Dow Theory and implement modern charting techniques to give the investor a distinct advantage. This allows the informed investor to limit risk and invest at the most opportune time to avoid market downturns, market corrections and bear markets. By using proven analysis, readily available fundamentals, and a little common sense, the individual investor can be successful in any market.