How to Go About Market Analysis: Technical or Fundamental?

by Andrew McGuinness  //  mei 02, 2018

In order to invest wisely and use all of the information available to your advantage, it is necessary to analyse the market. The thing is, the market may be analysed in several ways. There are two particular types of market analysis that are used more often than others due to their efficiency and the fact that they just seem to allow the best results to come to fruition.

These two types are technical and fundamental analyses. They are the most broadly used because of how well they have been able to track past market patterns as well as determine the direction the market will move toward in the future. When it comes to market analysis, however, these two types have always competed for the spotlight. So, which type, technical or fundamental, do professionals say provides the best analysis? The truth is, both analyses provide advantages and disadvantages depending on what information you seek to analyse on the market and over what period of time. So, the real question is, which type of market analysis is right for you?

1. Time

If you are looking to analyse the market on a long-term basis, procuring results that will show signs of stability, growth, small dips, and bigger losses throughout the years since a company was first established, odds are that fundamental analysis is best suited to you. If, on the other hand, you are looking for a short-term fix that covers months, weeks, or days (sometimes even minutes), technical analysis is what you should be pursuing.

2. Criteria used

These two types of analysis obviously use different sets of criteria in order to come up with their findings. If you would like to investigate a company’s income statement, balance sheet, or cash flow statement, fundamental analysis is suited to you. If, on the other hand, you would rather look at things like the stock market chart in order to decipher where a given company is going without considering the financial details of this process, you are more of a technical analyst.

3. Stock types suited to each analysis

While technical analysts are prone to go for the more short-term investments that will probably not provide stable profits over an extended period of time, but rather sudden profits soon after investing (if any profits are to be seen at all), fundamental analysts stick to safety. Fundamental analysts are more prudent, carefully analysing the way that companies have fared in the market over a much longer period of time, their ability to procure stability and maintain it.

A convenient way to describe the difference between these two types of analysis and what they aim to do is by comparing them to different types of property buyers. There is one type that does plenty of research concerning houses before making the purchase, and once the home is bought, they will stay in it for years and years. These buyers are similar to fundamental analysts. Then, there are those that do a bit of core research concerning mostly the price of different types of houses as well as their level of popularity among other property buyers. Upon deciding on a home, they will take advantage of it as much as they can by flipping it and putting it right back on the market within a short period of time. These are closely reminiscent of technical analysts.

Conclusion

If you are able to determine what kind of investor you are, what you are pursuing in your market analysis, and what time frame you are looking to cover, it should be an easy task to find the type of analysis that is suited to you. Fundamental and technical analysis are well suited to different people for different goals, you just have to choose the right one for your particular circumstances.





Get unlimited access to our Learning Center,
Broker Insights and Exclusive Promotions for Free!

Open an account