1. Market investors buy stocks that are expected to rise in future, and sell those that are likely to fall or remain flat, since main purpose of tapping the market is to generate better returns.
2. However, stock identification method differs significantly in Fundamental Analysis (FA) and Technical Analysis (TA).
3. Fundamental Analysis (FA):-
a) studies macro-economic factors like economic growth, sectoral growth rate, inflation rate, interest rate, etc.,
b) studies micro-economic stock-specific factors like sales, costs, profits, assets, liabilities, cash, return on equity, etc. to predict a company's future trajectory,
c) determines its stock's intrinsic value through dividend discount and discounted cash flow methods,
d) compares it with current market price to decide if underpriced,
e) assumes that price will converge to its fair value in long run,
f) is predominantly used for stocks and indices,
g) is mainly concerned with long-term value creation, and
h) is generally useful for medium- and long-term investors.
4. Technical Analysis (TA):-
a) studies past price movements and seeks historical patterns,
b) comprises of their technical charts and technical patterns,
c) considers price and volume uptrend, downtrend and sideways movements to determine market direction,
d) is not concerned with the reasons for these movements,
e) assumes that historical patterns will re-emerge in future,
f) is used for stocks, indices, currencies, commodities and forex,
g) is used for evaluating short- and medium-term movements, and
h) is generally helpful for day-traders and short-term investors.
5. Savvy investors should use FA as their primary filter to identify potential stocks, and then utilize TA to "time" their purchase.
2. However, stock identification method differs significantly in Fundamental Analysis (FA) and Technical Analysis (TA).
3. Fundamental Analysis (FA):-
a) studies macro-economic factors like economic growth, sectoral growth rate, inflation rate, interest rate, etc.,
b) studies micro-economic stock-specific factors like sales, costs, profits, assets, liabilities, cash, return on equity, etc. to predict a company's future trajectory,
c) determines its stock's intrinsic value through dividend discount and discounted cash flow methods,
d) compares it with current market price to decide if underpriced,
e) assumes that price will converge to its fair value in long run,
f) is predominantly used for stocks and indices,
g) is mainly concerned with long-term value creation, and
h) is generally useful for medium- and long-term investors.
4. Technical Analysis (TA):-
a) studies past price movements and seeks historical patterns,
b) comprises of their technical charts and technical patterns,
c) considers price and volume uptrend, downtrend and sideways movements to determine market direction,
d) is not concerned with the reasons for these movements,
e) assumes that historical patterns will re-emerge in future,
f) is used for stocks, indices, currencies, commodities and forex,
g) is used for evaluating short- and medium-term movements, and
h) is generally helpful for day-traders and short-term investors.
5. Savvy investors should use FA as their primary filter to identify potential stocks, and then utilize TA to "time" their purchase.