Fundamental and Technical analysis

Fundamental analysis

The ‘Fundamental analysis’ involves analyzing the characteristics of the company in order to estimate its value.  Fundamental analysis helps the investor to analysis the various fundamental factors such as industrial indicators, economic aggregate as well as facts related to companies. Every investor interested to know the appropriate timing and best avenue for the investments of funds. The main objective of the fundamental analysis is to find out the intrinsic value of the share.

Intrinsic value is the real value of the share. The intrinsic value is affected by various factors such as- profitability, financial performance, future prospects, industry scenario and economic wide factors.  Intrinsic value helps investors in making investment decisions. Investors make a comparison between the intrinsic value and prevailing market price of the share. It will help in deciding about the scrip’s to be purchased or sold.

An investor will buy the security if the intrinsic value if greater than market value (Intrinsic value> market value). On another hand, investors will sell the securities if the intrinsic value is less than the market value (Intrinsic value< market price).

To find out the intrinsic value, the fundamental analyst needs to forecast the earnings and dividend from the stock. There are two approaches to fundamental analysis- top-down approach and bottom down approach. The fundamental analyst often used top-down approach. This approach described as “inverted triangle”.  This analysis starts with economic analysis and then moves to industry analysis and, then final moves to company analysis.

Technical analysis

Technical analysis is a method used to evaluate the securities by analyzing the statistics generated by market activity, such as past price and volume. In the technical analysis, the technician does not attempt to measure a security’s intrinsic value but instead, use charts and other tools to predict the moments of the share price.

Thus, the use of historical price charts lays the foundation of technical analysis. With the passage of time, there are a number of indicators have been developed to ascertain these moments of the share price. Each indicator has its own strength and weakness. The price of stocks depends on the supply and demand in the marketplace.

Technical analysis helps the investor to forecast the changes in the security price by studying only the market data. Unlike the fundamental analysis, technical analysis does not provide information on whether the stock is undervalued. The technical analysis is providing information about the security past trading data and what information this data can provide about where the security moves in the future.

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