Fundamental analysis or Technical analysis?


Author: Nguon Ngealang


Posted on 10-Apr-2018

In order to answer the above question, first, let’s snap summary of what they are.

Fundamental analysis:

  • Look at economic factors and using company’s financial data
  • Look at company past performance as well as company future planning
  • Calculate ratio, such as ROE, P/E, P/B, and dividend yield
  • For stock investment rather than stock trade; it is more for long term investment

Technical analysis:

  • Using price movement gather in chart
  • Wholly based on historical data
  • Look at trend and pattern of price movement
  • For stock trade rather than stock investment.

And each analysis’s pro and con

Fundamental analysis pros

  • Understand fundamental background of the company such as earning, asset, and debt
  • Have an idea of where company is heading to by viewing at its report of planning strategies and management
  • High probability of success

Fundamental analysis cons

  • Lengthy and time consuming
  • Ratio calculation and comparison can be complex
  • A lot of data gathering from general economic perspective to company statements

Technical analysis pros

  • Easy in visualization
  • Once deciding on which indicators to use, process of analyzing can goes quickly

Technical analysis cons

  • Lack in accuracy: biased opinion on pattern or trends
  • There so many chart indicators to choose from
  • Overpassed fundamental background of company

Which one is better?

A lot of investors all over the world have learned to adapt both analyses when it comes to picking up stocks. However, some are using one analysis over another. For example, some investors would briefly look at fundamental background of company then head to use chart and indicators for pricing prediction and some would weight out all the company financial ratios to determine if price is undervalued or overvalued then brief look at price charting just to reassure. On top of this, fundamental analysis is still believed to be the more accurate one. So which one is better is depend on if investors looking for stock investment (long term) or speculation (short term). For long term investors, fundamental analysis seems to be a better option, while technical analysis sounds like a better choice for short term trader. By the way, technical analysis shows the long term investors when to buy and sell.

Despite time frame investment, investors should become a master of one, does not matter fundamental analysis or technical analysis because each type is a style.