Fundamental Analysis And Technical Analysis Differences For Traders

It is the most asked question by everyone investing in the stock market. Although it varies for each investor, the answer to this question is the same picture when viewed from a larger perspective.

Technical analysis explains the price fluctuations of the investment product in line with certain indicators. Fundamental analysis interprets the balance sheets and income statements of companies and interprets them with certain ratios.

Technical analysis takes into account the events happening in the market. It kind of performs an autopsy with historical data. Fundamental analysis takes into account events that need to happen in the market.

The technical analyst believes that all he needs to know are the results and that their causes are unnecessary. Fundamental analysts always have to know the reasons.

What Is Fundamental And Technical Analysis?

Investors in the market can be divided into two technical bases. But this distinction is the most important element of the person’s expectations, knowledge and experience, investment maturity, and risk perception.

Since these factors will vary from person to person, it would not be right to polarize this distinction too much. Investor characteristics come to the fore here.

Investors should follow not only data such as technical fundamental analysis but also macroeconomic data because a very important news flow can render both analyses inoperable. Investors should follow both economic data and two analyses and direct their investments accordingly.

Technical analysis is the most used analysis product for instant trading and daily transactions. Fundamental analysis, on the other hand, is a strategy based on researching long-term companies and valuing the company in the future.

Technical analysis can give us a buy signal on certain indicators. However, there may be negative situations in the company’s balance sheets during the same period. So what will the investor use as a criterion here?

In the shortest form, technical analysis shows us time and fundamental analysis shows us which company to invest in. We choose our company using fundamental analysis and invest in the company at the right time with technical analysis.

As a result, both are types of analysis that cannot be separated from each other. Some technical, some basic, and a good story for the company are the concepts that will help us the most.

Here is a great quote from Marty Schwartz. I always laugh at those who say, “I have never seen a technical analyst who was rich.” I have never heard anything so ridiculous and arrogant. After using fundamental analysis for nine years, I became rich as a technical analyst.

Differences Between Fundamental And Technical Analysis For Resource

What is important for fundamental analysis is the situation of the company. When using fundamental analysis, the balance sheet of the company to be invested in contains the first data to be looked at. According to this balance sheet, the assets, debts, and equity capital of the company at a certain time are examined.

Whether the debts are in foreign currency or not and whether the equity capital increases or decreases are important for fundamental analysis. 

Additionally, data such as company revenues, earnings per share, and price-earnings ratio are also taken into consideration. At the same time, the effects of economic and political developments on the company are also examined. 

Those who use technical analysis, on the other hand, refuse to examine the data examined by fundamental analysis and make decisions only based on the company’s stock charts. In these charts, they look at the trends, support resistance levels, and transaction volumes of the stock. They also determine buying and selling points by looking at some developed indicators and formations.

Purpose And Time Differences Of Types Of Analysis

Investors use two types of analysis when trading the market. These are fundamental and technical analyses.

While fundamental analysis is a type of analysis that has existed for a long time, technical analysis is a newer type than fundamental analysis. Technical analysis, which is common in the world, has started to become widespread in our country.

Investors using fundamental analysis try to find the “real value” of the company whose shares they will buy. For example, if the stock price of a company is 10 Dollars and the real value of this share is 30 Dollars as a result of the analysis, investors buy this stock and expect it to increase to its real value.

If the opposite of this situation occurs, that is, if the price of the stock is 30 Dollars but its real value is 10 Dollars, then investors will choose to sell these stocks. 

Those who use technical analysis, on the other hand, are not interested in the actual value of the company or its balance sheets and argue that it is a waste of time. Because according to them, the price of the stock has calculated everything and is correct.

What matters is the current price of the stock and that’s the only thing to focus on. Generally, those who use technical analysis make money from short-term price movements.

Fundamental analysis is used in longer-term investments compared to technical analysis. Traders who buy and sell quickly using technical analysis can sell the stocks they bought even after 5 minutes. However, since fundamental analysis makes value investments, it can keep a stock in the portfolio for up to 10-15 years. 

Therefore, while traders who use technical analysis can spend all day watching the markets and trading without leaving their desks when the stock market is open, investors who invest in value using fundamental analysis do not have to constantly monitor the market.

They can add stocks to their portfolio and ‘forget’ about it for a long time.

Can You Share Examples Of Successful Application Of Fundamental Analysis And Technical Analysis Methods?

Warren Buffett, who uses fundamental analysis in his investment decisions, is now one of the richest people in the world. On the other hand, Paul Tudor Jones, who uses technical analysis in his investment career, is one of the billionaires in the world.

Choosing the analysis to be used varies depending on investors’ knowledge, experience, psychology, and patience. Both types of analysis require serious knowledge and take a long time to master. Now, before comparing fundamental analysis and technical analysis under headings, let’s make a general definition;

Fundamental analysis is a method of examining statistical data and economic and political conditions that will affect the supply and demand of any investment instrument to calculate its future price.

Technical analysis is the management of analyzing the price, trading volume, and market movements of any investment instrument by looking at the charts to determine its future price.

I can recommend you read an article about Dow Theory, which is considered the founder of technical analysis.

Advantages And Disadvantages Of Fundamental Analysis And Technical Analysis

The advantages of fundamental analysis are that by performing fundamental analysis in depth, it is possible to trade in the market using results that other investors do not notice. If the analysis is thought to be sound, downward price movements in the short term will not affect the investor.

The disadvantage is that doing an in-depth fundamental analysis is a tiring task. Because there is a lot of data to review and the data is open to interpretation.

The results found by analysts may sometimes differ. Individual investors do not have the opportunity to access all data and news of the company, unlike large investors.

The advantages of technical analysis are that there is no lack of information as in fundamental analysis. Because stock charts are accessible to all investors. The important thing is to analyze this graph well.

Thus, quick trading decisions can be made. The disadvantage is that there are so many technical tools used in technical analysis that it is difficult for investors to create a strategy. Therefore, investors may catch the signals late and incur losses.

See you in the next post,

Anil UZUN