Fundamental vs. Technical Analysis - which is better?
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same same, but different..
asking the question whether Fundamental Analysis (FA) or Technical Analysis (TA) is better, is like asking someone whether orange or apple is better..
why? coz tho' both are categorised as fruits, we know that oranges and apples are different -- orange packs more vitamins whereas apples contain more fiber and both are good for our health..
in a similar rein, though both FA and TA are used for stock analysis, we need to recognise how they are different and use them correctly..
have you heard someone suggesting to you - to use FA to analyse a stock's fundamentals to check whether it is a good stock or not and/or use TA to find the right timing/price to buy/sell?
FA attempts to identify stocks offering strong growth potential by examining the underlying company's business, as well as the conditions it operates within its industry. FA asks the questions whether the company is generating sustainable profits and how it compares with its peers, how is the management team growing the business, how is it deploying its capital and managing its debts, what factors are influence its profitability, and what business risks are the company exposed to, etc.
TA, on the other hand, looks at the historical trading activity and price movements to predict future price movements. TA attempts to check how the current share price compare with its historical 20/50-day averages, is the price nearing a high point and presents significant risks to continue holding, or is it at a bottom with a good chance of recovery, is there a specific pattern that can explain the buyer/seller concentration, etc.
now, pls dont let anyone tell you that a value investor only needs to be concerned with FA, and doesnt need TA because that's what a trader do.. doesnt both share the same goals of making a profit from investing? Buying a good stock at a bad (high) price does not make a good investment, just as it is highly risky to speculate and buy into any company cheap simply by looking at its price charts withouth understanding how its business operates.. and this is why we need them both..
bottom line is, FA and TA are same same but different different... so dont be too quick to dismiss one or the other.. do take a balanced view and enjoy the best of both methods in your investing for 2023..
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