Fundamental Vs Technical Analysis

October 13, 2021 Trading 6 min read

Technical and fundamental analysis are 2 key methodologies used by traders and investors to analyze the financial markets and make informed decisions. While technical analysis focuses on historical price and volume data to predict future price movements, fundamental analysis looks at the underlying factors that influence the intrinsic value of an asset. This article further explores the differences between technical and fundamental analysis and the strengths and limitations of each. We will also see how they can be used together to make informed investment decisions.

What Is Technical Analysis?

Technical analysis is a method used to evaluate securities by analyzing statistics generated by market activity, such as past prices and volume. The focus is on price movement charts and various analytical tools to evaluate a security’s strength or weakness and forecast future price changes. The underlying assumption of technical analysis is that historical price and volume data can help predict future price movements.

What Are the Main Tools Used in Technical Analysis?

Charts: Visual representations of price and volume data over time such as line charts, bar charts, and candlestick charts are used to identify patterns and trends.

Trend Lines: Lines drawn on a chart connect price lows or highs, helping to identify the direction of the trend.

Support and Resistance Levels: Price levels at which a stock often reverses direction, indicating potential buying or selling opportunities.

Moving Averages: Average prices over a specific period, used to smooth out price fluctuations and identify trend directions.

Relative Strength Index (RSI): A momentum oscillator that measures the speed and change of price movements, indicating overbought or oversold conditions.

MACD (Moving Average Convergence Divergence): A trend-following momentum indicator that shows the relationship between 2 moving averages of a security’s price.

Volume Analysis: Examination of the volume of shares traded, used to confirm trends and identify potential reversals.

Chart Patterns: Repeated formations on charts that indicate potential future price movements, such as head and shoulders, double tops, and triangles.

Fibonacci Retracement: A technical analysis tool that uses horizontal lines to indicate areas of support or resistance at the key Fibonacci levels before the price continues in the original direction.

Bollinger Bands: Bands plotted above and below a simple moving average, used to identify overbought or oversold conditions.

These tools help technical analysts analyze historical price and volume data to forecast future price movements and make trading decisions.

What Is Fundamental Analysis?

Fundamental analysis is a method used to evaluate the intrinsic value (perceived or calculated value) of a security, such as a stock, bond, or commodity, by analyzing various factors that could affect its value. 

This analysis includes studying macroeconomic indicators, industry trends, and company-specific financials to determine whether a security is overvalued, undervalued, or priced fairly. By focusing on the underlying fundamentals of a security, fundamental analysis aims to identify investments that have the potential to provide solid returns over the long term.

What Are the Main Tools Used in Fundamental Analysis?

Ratio Analysis: Calculation and interpretation of various financial ratios, such as profitability ratios (e.g. profit margin, return on equity), liquidity ratios (e.g. current ratio, quick ratio), and efficiency ratios (e.g. inventory turnover, asset turnover).

Earnings Reports: Review of a company’s earnings reports and forecasts to understand its current and expected financial performance.

Industry Analysis: Examination of the industry in which a company operates, including its competitive landscape, growth prospects, and regulatory environment.

Macroeconomic Factors: Consideration of broader economic factors, such as interest rates, inflation, and GDP growth, that can impact a company’s performance.

Qualitative Factors: Assessment of qualitative factors, such as management quality, brand reputation, and competitive advantages, that can affect a company’s long-term prospects.

Valuation Models: Use of various valuation models, such as discounted cash flow (DCF) analysis, price-to-earnings (P/E) ratio, and price-to-book (P/B) ratio, to estimate a company’s intrinsic value.

Peer Comparison: Comparison of a company’s financial metrics and performance against its industry peers to identify relative strengths and weaknesses.

By using these tools, fundamental analysts seek to determine whether a stock is overvalued, undervalued, or fairly valued, helping investors make informed decisions about buying or selling securities.

Difference Between Fundamental Analysis and Technical Analysis

Aspect Fundamental Analysis Technical Analysis
Focus Fundamental analysis focuses on determining the intrinsic value of a security. Technical analysis focuses on analyzing past market data to forecast future price movements.
Data Used Fundamental analysis uses financial statements, earnings reports, and economic indicators. Technical analysis uses price and volume data, along with various technical indicators.
Approach Fundamental analysis takes a macro view, considering factors such as the economy, industry conditions, and specific company data. Technical analysis has a short-term focus, identifying short-term patterns and trends in the market.
Time Horizon Fundamental analysis is used for making long-term investment decisions. Technical analysis is more suitable for short to medium-term trading.
Assumptions Fundamental analysis assumes that market prices will ultimately reflect the intrinsic value of a security. Technical analysis assumes that historical price and volume data can be used to predict future price movements.
Use of Charts Fundamental analysis does not heavily rely on charts. Technical analysis relies heavily on charts and graphical representations of price movements.
Main Goal The main goal of fundamental analysis is to determine whether a security is undervalued or overvalued. The main goal of technical analysis is to predict future price movements to identify trading opportunities.

Which Is Better: Fundamental or Technical Analysis?

The choice between fundamental and technical analysis depends on the investor’s goals, timeframe, and trading style. Both approaches have their strengths and weaknesses, and some investors find success using a combination of both. Here are some key points to consider:

Fundamental Analysis

Strengths: Provides insights into the underlying value of a security, which can be useful for long-term investors. Fundamental analysis can help identify strong companies with solid financials.

Weaknesses: May not be as effective for short-term trading or in rapidly changing markets. It can also be time-consuming to analyze financial statements and economic data.

Technical Analysis

Strengths: Helps identify short-term trends and trading opportunities. Technical indicators can be used to make quick decisions based on price movements.

Weaknesses: Technical analysis alone may not provide a complete picture of a security’s value or future prospects. It can also be subjective, as different analysts may interpret the same chart differently.

Ultimately, the “better” approach depends on the investor’s goals and preferences. Some investors may prefer the long-term focus of fundamental analysis, while others may find success in the shorter-term trading opportunities identified by technical analysis. 

Can  Fundamental and Technical Analysis Work Together?

Yes, blending fundamental and technical analysis is a common approach used by traders and investors to make informed decisions about buying or selling securities. 

By combining these 2 approaches, investors can complement the long-term perspective of fundamental analysis with the shorter-term insights provided by technical analysis. For example, a trader may use fundamental analysis to identify a fundamentally strong stock and then use technical analysis to find an entry point based on short-term price movements.

Overall, blending fundamental and technical analysis can provide a more well-rounded view of the market, helping investors make more informed and potentially profitable trading decisions.


So, it is clear that fundamental and technical analysis both have their own merits and supporters. Technical analysis vs fundamental analysis is not a battle, but rather a comprehensive agreement on where to use which tool. 

A primary difference between fundamental analysis and technical analysis remains the longevity of the shareholding. It is found that technical analytics are more useful for a short-term investment or more like trading. On the other hand, fundamental analytics have indicators more suited for long-term investments. 

However, despite the difference in technical analysis and fundamental analysis, it is usually found that savvy investors use both, irrespective of the horizon of their investments. 

Whether you lean one way or the other, TradeSmart provides a range of tools and resources so that you can make informed trading decisions. Open a free demat account with us and enjoy a brokerage rate as low as ₹15 per executed order, no matter the trade size or segment. 


Q. What is fundamental analysis?

Fundamental analysis is a method of evaluating a security by analyzing various factors that could affect its intrinsic value, such as earnings, assets, and economic indicators.

Q. What is technical analysis?

Technical analysis is the study of past market data, primarily price and volume, to forecast future price movements of securities.

Q. Which method is right for me, fundamental or technical analysis?

There is no definitive answer to this question as both approaches have their strengths and limitations. Some investors prefer fundamental analysis for its focus on the underlying value of a security, while others prefer technical analysis for its ability to identify trends and patterns in price movements.

Q. Can fundamental and technical analysis be used together?

Yes, many investors use a combination of fundamental and technical analysis to make investment decisions. This approach, known as blended analysis, aims to provide a more comprehensive view of the market.

Q. What are the key differences between fundamental and technical analysis?

Fundamental analysis focuses on the intrinsic value of a security, while technical analysis is more concerned with price movements and trends. Fundamental analysis considers factors like earnings, assets, and economic conditions, while technical analysis relies on past market data.

Q. How can I learn more about fundamental and technical analysis?

There are many resources available, including books, online courses, and seminars, that can help you learn more about fundamental and technical analysis. Additionally, practising with virtual trading platforms can help you apply these concepts in a risk-free environment.


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