by Technical Analysis vs Fundamental analysis in stock is important because you study everything about the stock market and then make well-informed decisions.
Two ways to approach that are technical analysis and fundamental analysis. In this post, I will help you to understand both of these approaches with some real case studies.
So you will eventually get to know which approach is better for selecting a stock.
Let’s understand which analysis is better and which analysis should be used to pick stocks. Let’s talk about fundamental analysis.
Fundamental Analysis
In Fundamental Analysis, we study the health and operational environment of the company in detail.
This is done by closely studying the company’s income statement, balance sheet, cash flow, the future growth prospect of the company, and the reputation management of the company, the overall health of the industry in which company it operates, the applicable government policies, the overall health of the company, etc.
Based on this factor calculation is done to understand what is the share price worth today and what its should be its future value.
Technical Analysis
In Technical Analysis, It operates differently. It feels that you don’t have to study all of this company. All of this company’s current share price of the company has already factored in for all those parameters.
The current share price and operational volumes are a reflection of the company’s overall health and the investors interested in it.
At a very broad level in technical analysis, we study the current price movement of the stock, its past price movement, its trading volumes, and other technical parameters and then we make a judgment regarding the future price and the direction of the stock.
All of this is done by studying the chart of the company’s share. So friends in technical analysis charts represent the single version of the truth about the company.
Technical analysis vs Fundamental analysis which is better
There is no better analysis than fundamental analysis. If you can do it, nothing like it. But there is a very basic problem in getting fundamental analysis right and what is it? Can you review the company’s management and get to know the Future Plans? Can you judge the future of the company?
You have access to the financial reports of the company but can you read between the lines and extract the truth from it? Can you truly differentiate between what’s right and what’s wrong can you trust the disclosed information?
I knew that fundamental analysis is not an easy job, it’s difficult, it’s time-consuming and it means a lot of effort.
it’s a very specialized skill set and you need to be an expert at it. Let’s try to understand which analysis is better by a small case study by doing fundamental analysis.
You bought the stock of HDFC bank on 2nd April 2007 at 200 rupees and on 22nd July 2010 that is after three years, the stock reached 400 rupees Congratulations. Your analysis proved right.
Using Technical analysis you bought HEG in August 2017 at 600 rupees this stock is fundamentally weak. If you have done fundamental analysis on this stock then you have rejected it.
But in January 2018 the stock hit 3000 rupees, almost 5 times return on your capital just in 5 months.
Amazing congratulations, it’s not that only fundamentally good stocks perform. Some stocks would not be fundamentally great but because they are technically good.
They perform very well in a specific time frame. Remember both these techniques will throw a lot of opportunities for you to make money.
Now if you combine the power of these two techniques and screen stock using both of these techniques, analysis and accuracy will be super and very powerful.
For example, Venky’s in July 2016 at 500 rupees fundamental analysis gave a signal to buy the stock. But we did not recommend the stock to buy until we received a signal from technical analysis too.
In February 2017 we got a signal from technical analysis to enter into this stock at 600 rupees So I got delayed by 7 months to enter in the stock at an expensive 100 Rupees but the moment we bought the stock rallied in no time it doubled and tripled.
So to conclude both fundamental and technical analysis are powerful. You should always use them collectively. That’s the pro tip I am providing to you guys.
These have 2 Advantages:-
1 High Accuracy:- It will increase your accuracy to become profitable in the Stock market.
2 Right Entry time:- your timing of entry will always be right.
In all these years we have learned that when the markets are Bullish and Favourable you should give more weightage to technical analysis around 70%.
When the Market is Bearish not very favorable then you should give more weightage to fundamental analysis again around 70%.
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