Before buying the shares of any company, it is essential to analyze the company. The company is analyzed in two ways, one is Technical Analysis, and the other is Fundamental Analysis. In this article, we will pen down the Basics of Technical Analysis and Fundamental Analysis?. What are the benefits of Technical Analysis and Fundamental Analysis? How Technical Analysis differs from Fundamental Analysis? What is more trustworthy Technical Analysis or Fundamental Analysis?
Experienced people investing in the stock market always buy or sell a stock only after analyzing it. However, if you are new to the stock market and want to invest, you must study a share market. In the past years, the stock market has given excellent returns to its investors, due to which the enthusiasm of new and old investors has also increased a lot. Seeing this, many new people are looking to invest in the stock market. But before investing in the stock market, it is essential to do Fundamental and Technical analysis.
Technical analysis is used for trading. This means buying and selling shares in the shortest possible time, due to which the share price keeps increasing. Therefore, technical analysis shows the same price. Technical Analysis: The stock price follows a movement as if it were in a trend. There are also three types of that trend. Like uptrend, downtrend, and one sideways trend, these movements remain.
Firstly, let us tell you that Technical analysis in any market does not guarantee success. Still, it gives you confidence that you will invest only after getting all kinds of information related to the market and stock. However, technical analysis is more valuable than just trading in which you buy and sell a stock for a short period. In Technical Analysis, you get to know about the market volatility by getting information related to technical topics of the market.
In technical analysis, many people look at the choice of most traders in the market? To identify this, a stock chart or index chart is seen. By looking at these dates, you can understand the pattern in the market. Then, a Technical Analyst looks at the market graph to understand the practices and make his/her view. If we elaborate more, doing technical analysis is very easy. For this, you need a graph of the market trend.
Technical analysis can be done by external means of the company; how is the company looking, but you have not bought shares after doing technical analysis? After doing technical analysis, you need to do fundamental analysis.
Stock Trend: The stock's direction is called a stock trend. Generally, any stock moves in 3 directions.
- If the stock is going up, then it is called an uptrend.
- If the stock is falling toward the bottom, it is called a downtrend.
- If the stock is neither going up nor down, it is trading in just one range; then it is a side wedge trend.
Stock Pattern: Any stock, when it moves in any direction, keeps forming some patterns with itself, and these patterns always behave the same. Since these stock patterns always behave the same, by identifying these patterns, the direction in which the stock will move can be found.
There are several types of stock patterns, such as
- ABCD Pattern
- Double Bottom Pattern And Triple Bottom Pattern
Cup And Handle Pattern
- Ascending Triangle And Descending Triangle
- Head And Shoulders Patterns etc.
Chart: Charts show the price of a stock through a graph or picture. There are many types of charts, such as Candlestick Chart, Heiken-Ashi Chart, Line Chart, Point & Figure Chart, etc.
Candlestick chart is used the most in trading. The candlestick chart moves forward by forming a new candle in different time frames. And by analyzing these candles, it can be recognized whether the market is in an uptrend or a downtrend. It also helps the trader know when to enter the trade, when to exit, and where to place the stop loss and book profit.
Time Frame: Time frame shows the price movement of a stock during a given period. Choosing the right time frame according to your trading style is very important. Charts of time frames are generally used in Scalping Trading (1 MINUTE), Intraday Trading (5 MINUTE), Swing Trading (1 HOUR), and Positional Trading (1 Day).
Price Action: The movement of a stock is called price action. Whenever a stock moves in one direction, it creates a candle. When a trade is taken after analyzing that candle, then it will be called a trade carried on a price action basis. Price action is a trading strategy in itself. Many people who do scalping or intraday trading in shorter time frames only use price action. He does not use any indicator other than price action.
Indicator: An indicator is a program or software that analyzes the past price and volume and tells in which direction the stock may move further. There are hundreds of indicators in the market which analyze the price, movement, and volume of the stock. It would be best to choose the indicator according to your trading strategy. It is generally appropriate to use 3 - 4 indicators in a trading strategy. The most popular indicators of the market are RSI, MACD, Volume, and Moving Average.
Both technical and fundamental analysis is used to analyze stocks both value stocks in two different ways. In technical analysis, charts are read, whereas fundamental analysis is based on financial statements. Technical analysis versus fundamental analysis is two different considerations when analyzing the financial markets. Below mentioned are points of differentiation-
The technical analysis starts with charts. At the same time, the fundamental analysis starts with the company's financial statements.
Technical analysis focuses on internal market data. However, fundamental analysis focuses on the company, industry, and economic data.
Technical analysis is done with short to medium-term goals, where you can switch stocks. But fundamental analysis is done with a long-term investment perspective.
Technical analysts believe that no stock has any real value. At the same time, Fundamental analysts estimate the intrinsic value of a stock and buy when the market price is less than the intrinsic value.
In a nutshell, we can say that Fundamental analysis emphasizes both quantitative and qualitative factors, whereas Technical Analysis focuses on trends, price, and volume. Typically, the technical analysis begins its analysis with charts. In addition, the fundamental analysis examines the core factors of the business, whereas Technical analysis emphasizes historical payments.