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Technical Analysis Vs Fundamental Analysis: What’s The Best Way to Analyze Stocks?

technical analysis vs fundamental analysis

Your broker sorted some stocks for you. However, before investing, you may consider why these stocks are better than others. The debate of technical analysis vs fundamental analysis is nothing new. But I feel that both are equally important.

If you were thinking something like this and landed here, it’s excellent news.  

I will discuss and debate the two common ways brokers sort or pick stocks.  

Each method deploys a different perspective to analyze stocks. Fundamental analysis discovers stocks with immense growth potential. Therefore, the fundamental analysis of stocks will return reasonable prices.  

Technical analysis helps you to decide if it’s the right time to buy or sell a stock. It also calculates the statistical patterns visible on the stock charts.  

The Main Tools of Technical Analysis

The Main Tools of Technical Analysis

You must know some specialized tools and methods to do technical analysis. I have discussed these tools in detail.  

Technical Analysis Indicators

The leading indicators in technical analysis are the price and volume of the stock. Therefore, you must do the mean reversion of these two parameters. As a result, it shows if a stock is investable.  

You can access all these values from the stock charts. You can also pick any reliable chart with complete info.  

Volume Analysis

The number of company shares traded over time tells you the strength of its volume. But, to do a volume analysis, keep a few things in mind. Here, you study the number of shares traded over a specific time. If the number is more, the stock is reliable.  

Relative Strength

All stocks have some projected trading value. If the stock is not trading at that value, you say it’s undervalued. However, if your stock trades at a higher value, it is called over-valued.  

Chart Pattern Analysis

I have already mentioned that the primary goal of technical analysis is to check the chart pattern. This clears up the debate about fundamental analysis vs technical analysis. You don’t go straight up for chart pattern analysis in fundamental analysis.  

The stock price movements in a specific market show how the stock is performing. Therefore, you can guess how the stock will perform in the future.  

Candlestick Pattern Analysis

You need to know the candlestick pattern for analyzing a stock properly. Here, you also analyze the patterns of price movement.  

In this analysis, there are three things to consider. These are: 

  • The entire body of the stock starts from the opening to the closing range.  
  • The shadow of the candle, which shows the daily highs and lows of the stock.
  • A movement within the range in green color implies price growth of the stock. 
  • A movement within the range in red color shows that the stock price is reducing.

Support And Resistance 

These are two critical parameters for analyzing the stock value from the chart trends. In a chart, there are some horizontal lines. These lines indicate the regions beyond which the stock price does not certainly move.  

So, we see that technical analysis is based on trend data. If you compare the benefits of technical analysis vs fundamental analysis, here’s a brownie point for technical analysis.  

Trend Analysis 

Many of us are caught between technical vs fundamental analysis. However, they should know that technical analysis is only for short-term trend analysis.  

Trend analysis is elementary and effective. You must review the stock chart to interpret the past and present movements. After that, you can predict future trends and prices.  

You can select any of the parameters I discussed above to trace movement. However, experts suggest that you mostly use historical prices and volume.  

The Pros and Cons of Fundamental and Technical Analyses 

The Pros and Cons of Fundamental and Technical Analyses 

Technical trading vs fundamental trading is a never-ending debate. But both have some benefits and limitations. You should get to know both better.  

Pros Of Technical Analysis Vs Fundamental Analysis

In the following table, you will find an elaborate analysis of the pros of fundamental and technical analysis.  

Benefits of Fundamental AnalysisBenefits of Technical Analysis
Fundamental analysis helps in in-depth analysis of the stock by assessing the organizational health of the stock issuing company. You can make timely decisions with technical analysis. For example, you can make real time decisions to buy or sell a stock with technical analysis. You do not need to invest a range of data from different sources like fundamental analysis 
It is better for sustainable investments as it analyzes the intrinsic strengths of the company The simplicity of technical analysis is an added advantage. So, you only must interpret easy graphical representations during technical analysis. 
One of the main benefits of fundamental analysis is risk mitigation.  When you have analyzed the intrinsic values of the company, you know if the stock will give returns in future or not.  You do not have the risk of a downfall even if it is performing good. You know a dip will be followed by a certain rise in value. Technical analysis is better for risk management. So, you can use the tools like stop loss orders anytime. These technical analysis tools are easy to use.  You can repetitively use these tools to check real time risks of trading in a stock. 
The qualitative factors make fundamental analysis beneficial. Here you consider the brand value in the market, brand reputation among customers and the leadership efficiency of the firm. Technical analysis wins here in debate of fundamental analysis vs technical. Fundamental analysis cannot provide psychological insights.  At best, it can show the brand awareness level or reputation of a brand among customers. However, technical analysis involves analysis of the stock charts. The charts show the real time sentiment of traders about a stock.   
Fundamental analysis is highly adaptable. You can do fundamental analysis of stocks, assets, bonds and currencies Technical analysis is equally adaptable. You can also do technical analysis of stocks, assets, bonds and currencies

The table shows that technical and fundamental analysis pros are widely different. So, it means that there should not be a debate about technical analysis vs fundamental analysis. The objective of these two modes of analysis should be different if their benefits are different.

Cons Of Technical Analysis Vs Fundamental Analysis

I have already discussed that both these methods have some disadvantages too. It’s time to see if the cons of technical are greater than fundamental analysis or vice versa.  

Cons of Fundamental AnalysisCons of Technical Analysis
It is time taking. You might take one to two weeks to study a stock with the fundamental analysis method.Some tools may heavily influence traders to make a move. Often you do not consider the other tools. 
It is not a good tool for short term gains. It can raise false signals. As a result, if you invest high value against a false signal, it results in heavy losses
Fundamental analysis is often subjective. The outcome may vary from one trader to another. Technical analysis can be subjective too. However, it is more trend based.  As all traders are analyzing the same trends, it’s less subjective than fundamental analysis. 

How Can Fundamental and Technical Analyses Be More Robust?

How Can Fundamental and Technical Analyses Be More Robust

Traders are always trying to do more precise fundamental or technical analysis. Let’s learn how we can increase the robustness of these methods.  

Ensuring Accurate and Updated Data

The primary step to better fundamental and technical analysis is to get your facts right. Firstly, ensure the company website has the updated data for the financial years 2022, 2023, and 2024. If not, avoid fundamental analysis based on historical data.  

While doing technical analysis, check when the stock chart was last updated. If it shows: “updated few days ago”, avoid it.  

Using Machine-learning Algorithms 

Machine learning is an essential tool for chart data analysis. You can use Q-Learning to get suggestions on trading strategies and advice on buying or selling in real time.  

Rigorous Backtesting 

It’s a method of using technical analysis tools on historical data. If your methods can detect the actual trends of historical chart data, then it might detect future trends accurately, too.  

Assessing The Sensitivity of Models to Changes in Assumptions

 Both fundamental and technical analysis depend on the trader’s assumptions. So, try out different assumptions to see the difference in the prediction results for different assumptions.  

Which Is More Important, Fundamental or Technical Analysis? 

Which Is More Important, Fundamental or Technical Analysis

The debate of technical analysis vs fundamental analysis should not end with selecting one over the other. It is more important to understand when both should be used.  

The Importance of Each Approach in Investment Decision-Making 

The context of the application of each method is entirely different. No method is better for decision-making. So don’t read this blog with a divide of technical analysis vs fundamental analysis in mind. I would recommend you invest in a stock for a more extended period for the best results. But you must keep checking the trends with technical analysis occasionally, too.  

Tailoring Analyses to Individual Goals and Risk Tolerance 

You may want to make quick money. Also, you decide to sell or buy stocks in quick succession. Then technical analysis is best for you. But you should have a high-risk tolerance. Any significant investment against a false alarm can result in substantial losses.

The Bottom Line 

In a nutshell, you need both technical and fundamental analysis at multiple time points. There is no need to debate technical analysis vs fundamental analysis. Both are critical in their way.  

The basic divide is fundamental analysis and is suitable for long-term investment. On the other hand, technical investment is for short-term investment. It gives you quick opportunities to invest.   Fundamental analysis helps you decide on ambitious stocks that will also give future returns. However, technical analysis will inform you when to buy or sell stock.

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Does Twitch Have A Stock?" open="yes" style="default" icon="plus" anchor="" anchor_in_url="no" class=""]There is no such Twitch stock as it is a subsidiary of Amazon. It is not a publicly-traded company. If you want to transfer stocks, then twitch stock is the best option for you as you will get the affiliates of Amazon. [/su_spoiler] [su_spoiler title="Q2. What Company Owns Twitch?" open="yes" style="default" icon="plus" anchor="" anchor_in_url="no" class=""]Amazon owns Twitch stock as it is the subsidiary of that company. Investors can gain more from it in the current year. Owning the Twitch stock today can provide plenty of opportunities like shll stocks provides its users today.[/su_spoiler] [su_spoiler title="Q3. Can You Talk Stocks On Twitch?" open="yes" style="default" icon="plus" anchor="" anchor_in_url="no" class=""]Viewers can buy the simple stocks by placing some simple commands and putting forward their opinion in Twitch stock. 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