Mr. Hari Prasad, the Chief Financial Trainer of Livelong Wealth explains in detail the difference and importance of technical analysis and fundamental analysis in detail. Since Mr. Hari is both a trader and investor, therefore he understands the need and application of both. He also guides individuals for both trading and investing with different backtested strategies.
What is Technical Analysis?
Technical analysis involves analyzing the charts and looking for information like prices, volumes, levels, patterns, and open interest in order to predict the future price movements based on the previous behavior of stocks. Technical analysis can be carried out upon any period or interval of time as per your requirements. An investor who is looking forward to parking his money for the long run might consider the 1 day or 1-week candles while an intraday trader might be interested in the 1 min,5min,15 min, etc intervals based on his trading setup.
We use technical analysis to get an estimation of where the price of a particular stock, index, or index is heading based on calculations performed on the prehistoric data.
A good understanding of price action, levels, and application of technical indicators with a proper risk rewards rations and control over your emotions are all that is need to be successful at day trading.
What is Fundamental Analysis?
Fundamental analysis is the process of evaluating the company based on its financial data, socio-economic factors, competitor analysis, management track record, goodwill, etc to calculate the expected price targets for the long run. Fundamental analysis helps us to derive an intrinsic value for the stock and helps undertake an informed decision before getting invested in it.
Most of the time, the market price of a stock tends to adjust itself towards the intrinsic value.
If the market price of a stock is below its intrinsic value, then an investor would consider purchasing the stock if he believes that the company would overcome the present pricing and to rise up and move towards its intrinsic value and vice versa.
Technical analysis is a tool that gives you signals for entry and exit based on prehistoric prices and levels.
It is more suitable for trading purposes and for finding good entry points while investing.
Fundamental analysis as the name says helps to identify the potential pricing that can be achieved by the stock based on its past performance, financials, socio-economic conditions, etc.