Fundamental vs Technical Analysis In Trading Stocks

Let us look at the difference between Fundamental and Technical analysis of the stock market. Fundamental analysis predicts future prices by using certain financial tools to measure a share’s real worth.

This may have little to do with the current quoted share price in your financial paper. Fundamental analysis first look at prospects as a whole on the total stock market and individual companies are subjected to scrutiny.

Thereafter an estimate of the company's future earning is made. This incorporates future earnings and future sales, overheads, accounting policies and many more factors that might influence the profit of a company and the value of it shares.

Technical analysis on the other hand makes use of historic price and volume patterns represented in chart form to determine the possible future price trend of a share. In the precious metals markets e.g. gold follows a definite historical pattern, which is, say a 41 week cycle, so every 41 weeks, more or less, gold will hit a low point and then start to trend up again.

Traders who make a intensive study of the stock markets have a lot more faith in fundamental analysis than in technical analysis, because fundamental analysis deals with all the in-dept data of the listed companies. It examines how companies look at a company's cash flow position in order to determine whether or not is shares will be a good buy.

Fundamental analysts get better results because they are better informed. So the secret lies in finding a balance between fundamental and technical analysis.