Long term investing
As the phrase suggests, long-term investing requires a deeper understanding of the company’s business. Any investor who is ready to park investment for 8 to 10 years or longer in a company’s share will want to know the financial health of the company. Hence, by analyzing different macro and micro data, an investor can identify the intrinsic value or true worth of a stock. With this method, an investor can understand which stock will provide the ideal long-term returns based on their fundamental values.
Short term trading
Technical analysis is a separate branch of study and helps in identifying the short-term earning potential of a stock. The stock price predictions are based on historical data and are purely for short-term objective. This method can’t be used for making long-term purchases.
Comparison/Difference between Fundamental and Technical Analysis
Basis of Comparison |
Fundamental Analysis |
Technical Analysis |
Meaning |
company’s financial health is assessed though data, such as – company’s assets, liabilities, cash reserves, revenue, profitability, etc. |
The pattern of company’s share price is studied on the price charts using various indicators. |
Functionality |
Used for long-term investment |
Used for short-term investment , intraday trading |
Objective |
It is used to check whether the asset is overpriced or under priced |
It is primarily used to find out the right time to enter and exit the market |
Basis of Decision Making |
Financial records and ratios help to decide the financial health of the company and whether it is fit for long term investment |
Market trends and price of the stock are the basis of decision-making |
Conclusion
Both Fundamental and Technical analysis is used by investors around the world for market-related decisions. Fundamental and Technical analysis is both useful and valid, however, they approach the market in different ways. Even though they may come across as different approaches to analyzing securities, still it is seen that investors experience success by combining the two techniques. Which one is to be used is totally dependent on the individual investor’s objective. Investors use fundamental analysis when they want to invest for a longer period, whereas traders use technical analysis when they want to use it for quick decision-making in their short-term investments.