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Fundamental analysis or technical analysis or both?

05 Jan 2023

Every decision we’ve always made, and will make, is based on choices. And as intellectual beings, we tend to go for the choice that we feel is most apt for fulfilling a need. Commodity Trading advice is no exception to this rule. You either rely on fundamental analysis, or technical analysis for the purpose of understanding a stock or a commodity’s value in the market. And for you to be able to do that, we have collated important pointers that you should bear in mind before adhering to one of the schools of thought.
Investors rely on commodity advice derived from fundamental analysis or technical analysis or sometimes both. Fundamental analysis is a long-term approach to analysing the market. It takes empirical data collected over years, and is more commonly accepted as the go-to method for selecting assets that will fetch monies over time. Technical analysis is diametrically opposite to fundamental analysis: it takes a short-term approach and takes empirical data collected over weeks, days or sometimes minutes. Day traders commonly use it as it helps in selecting assets that can be sold at a higher price to someone else.
How is commodity advice derived from fundamental or technical analysis?
Fundamental analysts calculate stock or commodity price movements by looking at economic factors known as fundamentals. Commodity advice from fundamental analysis takes into consideration economic analysis, industry analysis, and company analysis. It considers financial statements, including balance sheets, cash flow statements and income statements for the purpose of calculating a company or commodity’s intrinsic value.  If the price of stock or commodity dips below this intrinsic value, then its purchase is considered as a fruitful investment.
Technical analysts calculate stock or commodity price movements by looking at price movements from the past for the purpose of predicting price movements in the future.  Commodity advice from technical analysis focuses on the market price, rather than factors that affect the market price. It considers trends and patterns resulting from investors’ responses to price movements, and not the value of the stock itself. Technical analysis only looks at charts, as it is believed that a company’s fundamentals are reflected in the stock price. Chat patterns are commonly studied, as they indicate variation in price movement. Some of the common chart patterns are:

Head and shoulders: suggests that as security is about move against the previous trend

Cup and handle: suggests that an upward trend has paused but will continue

Double tops and bottoms: suggests a trend reversal

Can fundamental analysis and technical analysis co-exist?
Though both are the oil and water of investing, many investors have been benefitted greatly by combining the two for commodity advice.  For instance, some market participants leverage technical analysis for figuring out the best time to enter into an undervalued security. This way, the gains on the investment can be improved.  And then there are technical traders who seek fundamentals for the purpose of adding strength to a technical signal.  For instance, if there are indications of selling derived from technical patterns and indicators, a technical trader may confirm his decision by looking at key fundamental data. While mixing components of technical and fundamental analysis is seen as a doubtful move by many market skeptics, there are benefits to at least understanding both schools of thought for the purpose of seeking commodity advice.

Key differences in a nutshell

Fundamental AnalysisTechnical AnalysisDefinitionCalculates value using economic factors, known as fundamentalCalculates value using price movement of security for predicting price movementsSource of dataFinancial statements of the companyChartsStock or commodity boughtWhen price dips below intrinsic valueWhen investors believe that they can sell it at a higher priceTimeLong-termShort-termPurposeInvestingTrading

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