Fundamental analysis and technical analysis are two primary methods used to evaluate stocks. Both have their strengths, and many investors use a combination of both.
Fundamental Analysis
Fundamental analysis focuses on a company's intrinsic value. You study financial statements, management quality, industry trends, and economic factors to determine if a stock is overvalued or undervalued.
Key Metrics
- P/E Ratio
- EPS (Earnings Per Share)
- ROE and ROCE
- Debt-to-Equity Ratio
- Revenue and profit growth
Technical Analysis
Technical analysis focuses on price and volume data. You study charts, patterns, and indicators to predict future price movements.
Key Tools
- Moving Averages (20, 50, 200 DMA)
- RSI (Relative Strength Index)
- Support and Resistance levels
- Candlestick patterns
- Volume analysis
Key Differences
| Aspect | Fundamental | Technical |
|---|---|---|
| Focus | Company value | Price trends |
| Time Horizon | Long-term | Short-term |
| Data Source | Financial statements | Price charts |
Which Should You Use?
Investors lean towards fundamental analysis. Traders lean towards technical analysis. Many successful market participants use both — fundamentals to pick stocks and technicals to time entries and exits.
Disclaimer: This article is for educational purposes only.