2. How is Technical Analysis Different from Fundamental Analysis?
Technical Analysis focuses on price action and patterns, while Fundamental Analysis studies financial statements and business performance. Both aim to help investors make smarter decisions, but they approach it from very different angles.
Fundamental Analysis: Understanding the Business Behind the Stock
Fundamental analysis digs into a company's core business strength, financial health, and growth potential. It determines the intrinsic value of a stock—what it’s truly worth based on fundamentals, not just market price.
What it includes:
Revenue and Profit Growth
Balance Sheets and Cash Flows
Management Quality
Industry Trends
P/E Ratio, EPS, Book Value, Debt Levels
Macro-economic factors like GDP, inflation, interest rates
Used by: Long-term investors, value investors, institutional fund managers
Example:
Before investing in Infosys, a fundamental analyst will examine:
Annual reports, profit margins, future projects, global IT outlook, valuation ratios, etc.
If intrinsic value > current market price → Buy signal
Technical Analysis: Reading the Price & Volume Action
Technical analysis ignores the company's fundamentals and focuses only on price and volume. The core belief:
“Everything that affects the stock is already reflected in its price.”
Instead of analyzing what the company does, technical analysts study charts, patterns, and indicators to predict price movement.
What it includes:
Price Trends (Uptrend, Downtrend, Sideways)
Candlestick Patterns
Support & Resistance Levels
Momentum Indicators like RSI, MACD
Moving Averages and Volume Analysis
Chart Patterns like Head & Shoulders, Triangles
Used by: Intraday traders, swing traders, options traders, algo traders
Example:
A technical trader sees Infosys forming a bullish flag and breaking resistance with volume → Buy signal, regardless of fundamentals.