What's the difference between technical and fundamental analysis?

If you’re wondering whether you should invest in a certain stock, there are two major approaches you can take - technical analysis and fundamental analysis. Both methods are used to forecast the future price of stocks, but they are considerably different.

Technical analysis attempts to predict what a stock’s price will be in the future by analyzing charts and identifying trends in a stock’s behavior. Fundamental analysis, on the other hand, seeks to determine the intrinsic value of a stock.

Technical Analysis

Technical analysis tries to predict how a stock will behave by considering moving averages, support and resistance, trend lines, and momentum-based indicators for example. This approach is based on the idea that if a trader can identify previous market patterns, they can form a fairly accurate prediction of future price trajectories.

Fundamental Analysis

Fundamental analysis strives to identify the intrinsic value and fair price of a stock based on factors such as earnings, expenses, assets, and liabilities. This approach has both quantitative and qualitative aspects.

  • Quantitative fundamentals to consider: balance sheets, income statements, cash flow, and indicators such as price-to-earnings ratio (P/E ratio) and projected earnings growth (PEG).
  • Qualitative fundamentals to consider: business models, competitive advantages, the company's management and corporate governance, for example.

There is no perfect solution

Neither fundamental or technical approaches to investing are guaranteed to deliver results or accurately predict changes in a stock's price. Remember to choose an investment strategy that best suits your personal preferences and investment objectives.

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