Technical and Fundamental Analysis of Stocks

There are two main schools of thought in the analysis behind the selection of stocks. One type is called Fundamental Analysis. The other is Technical Analysis. First let’s briefly define Fundamental Analysis so that the reader will be able to understand the difference between the two.

Fundamental Analysis:

Fundamental Analysis revolves around analyzing a companies financial records in order to understand how under or overvalued the companies’ stock price is. This may involve detailed analysis of accounting practices, earnings statements and any other financial disclosures that an analyst may be able to get her hands on. It may also take market and economic conditions into consideration.

Technical Analysis:

Technical Analysis involves the use of statistics generated by past activity, past prices and volume. Technical analysts look at stock charts for patterns and indicators that will determine a stock’s future performance. This can involve many mathematical formulas that when applied to a stocks historical price and volume performance can yield insightful information on patterns and fluctuation that a stock’s price goes through.

Frequently individuals that specialize in one or the other will make criticisms against the other technique. However, good traders know that using both analysis methods leads to a more balanced and informed approach.