Technical analysis can be understood as a form of security analysis that uses price and volume data, which is generally graphically displayed whereas, Fundamental analysis refers to analyzing the financial position of the company by analyzing its financial statements, audit report, future prospects, etc.
There are different requirements of different group of people, for example: some investors are more focused towards trading and some are focused towards long term investing.
Let’s understand more about them through following comparison:
|
Particulars |
Technical analysis |
Fundamental analysis |
|
Focus |
Solely on analyzing markets and trading of financial instruments |
Much wider field combining financial economic societal as well as political trends |
|
Derivation of data |
Derived solely from price and volume data |
Analysis of company, incorporate external data |
|
Reliability |
More reliable data is available for analysis although while analyzing it becomes subjective i.e., based on analyst skills and knowledge. |
Less reliable data is available as compared to technical chart because financial statements are based upon management’s assumptions and principles |
|
Price projection |
Technicians tries to project prices where it will be according to the trading practices and market actions |
Fundamental analysts try to project prices where it should be according to the market information and financial statements |
|
Assumptions |
Less assumptions included as decisions are made from market data available in charts. |
More assumptions are included because financial statements which are used by the analyst are prepared by management and analyst never know the projections of the management. |
|
Practicality |
More practical |
More theoretical |
Conclusion:
From the above comparison we found that both of the techniques plays their own role in decision making which brings us to conclusion that both are useful for their respective requirements and none of them is inferior or superior to each other, it is just a matter of choice about what kind of analysis an analyst want to do. So, one can choose technical analysis if he wants to trade and if he want to invest for a long time horizon he has to consider fundamental analysis.
