Fundamental vs Technical Analysis
What Is the Difference Between Fundamental and Technical Analysis?
However, their approaches could not be much more opposite.
What Is Fundamental Analysis?
Fundamental Analysis attempts to measure a stock by determining the intrinsic value of the stock.
Which is to say that a holistic financial model is used in favor over the current market value of the stock.
As a result, analysts who subscribe to the fundamental approach will spend their time looking at general economic and industry conditions, company management as well as expenses, assets and liabilities.
The reason being, according to the fundamental analyst, that each of these factors play a key role in how well a business performs.
Types of Fundamental Analysis
The former refers to the characteristics of a business that can be measured numerically.
The latter on the other hand, features less palpable units of measurement such as brand recognition, patents and proprietary technology.
What Is Technical Analysis?
Technical Analysis, on the other hand, is much simpler.
To conduct technical analysis, the only data needed is the company’s stock price and volume.
The idea here is that for technical analysts, all of the other factors focused on by fundamentalists are unnecessary.
The thinking being that the quality of a company’s management, or the status of the industry in which they operate, all show themselves in the stock price.
A popular use of technical analysis can be found in trend lines, which uses stock price to predict the direction a particular company’s stock price will move on the market.
Fundamental vs Technical Analysis FAQs
About the Author
True Tamplin, BSc, CEPF®
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True contributes to his own finance dictionary, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.