Which is better, Fundamental Analysis or Technical analysis?

Team Veye | 28-Oct-2019 Technical analysis

When analysing a stock, what matters the most is the underlying methodology. Some people totally rely on fundamental analysis while others find technical analysis better. Though fundamental analysis is one of the most effective methods of determining the long-term movements of a stock, technical analysis provides a similar tool for short-term traders.

Fundamental analysis focuses on the economics of supply and demand that causes movement in prices. It is basically a long term investment strategy where analysts try to find the intrinsic value or actual worth of stock. If the intrinsic value is more than the prevailing price the stock is rated as underpriced and should be bought. Similar is the case vice versa. 

Technical analysis is considered far more of a short term methodology. It mainly focuses on internal market data. It relies more on identifying patterns and trends that will repeat and which the trader can capitalize on.

With the help of technical analysis, traders and investors can predict the right time to enter and exit a trade thereby enabling good returns. Chart patterns, candlesticks, moving averages, Elliot wave analysis, and other indicators are very useful for traders to make entry and exit points.

Although technical analysts and fundamental analysts seem to be at odds with one another, there are many ways they can work together for mutual benefit. While technical factors are known to lead the known fundamentals, any significant market move must be caused by underlying fundamental factors. The reaction of the market to any fundamental news can be used as an excellent technical indication.

It is believed that important happenings often get reflected in technical charts. The fundamental analyst can, thus, use technical analysis to confirm an analysis or as a warning that something important might be in the offing.

It is difficult to say which one is best because technical analysis works better for short-term trading and investing, while fundamental analysis is useful for long-term investing. Both approach the same problem of determining the direction prices are likely to move. 

Fundamental analyst tries to find the cause of market movement and the technical analyst its effect. And in real analysis, we want to know both. 



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