Chart Education

Fundamental Analysis

Fundamental Analysis is the oldest way of examining the underlying forces of industries or companies. The reason we specify both, industries and companies is that the fundamental analysis differs in both the cases unlike technical analysis though the ultimate goal is to find the future price. In company particular analysis, parameters like competition and financial information are taken in to consideration along with normal price ratios where as in industry particular analysis, supply and demand forces does the work. In FA, analyzing might be done on sector to sector or on company. For example, a reality company may be compared to another reality company or sometimes a reality sector may be compared with telecom sector. Though there are many inputs, some of important potential inputs are cash flow, cash on hand, current ratio, earnings, market share, price/book value, price/earnings, revenues etc. As always, there are strengths as well weaknesses when considering fundamental analysis. Long term trends and value spotting are the strengths whereas long time consuming, sector specific and subjectivity stands as drawbacks

Technical Analysis

Technical Analysis (Pure Technical Analysis) never deals with ratios, earnings or sectors. Mid half of 19th century gave much more importance to technical analysis. Though the ultimate goal is to find the future price, lot of difference involved when compared with fundamental analysis. There is nothing called easy rule/formula neither in fundamental nor in technical analysis. Technical analysis helps investors to predict the future trend using time period on X-axis and price on Y-axis (mostly). Most advantage with technical analysis over fundamental analysis, charts and charting techniques never look whether they are from equity, commodity or forex. In addition, fundamental analysis can not be applied to day trading as they can not influence minor time periods but that’s all not the case with technical analysis. Different charts and charting software provide wide range of technical studies like indicators, overlays, oscillators etc. Using the said instruments, traders can analyze markets for intraday, short term and long term. Various trends, support and resistance levels, historical price movements can be almost easily predicted using technical analysis. Last but not the least, controversies group together as said by many experts, by the time chart identifies a trend, much of the portion will be moved.

Basically there are two types of trading styles – One is going with the market trend and the other being against the market trend. All thousands of studies, techniques or strategies must fall in either of these two styles. Going against the trend is best suited in consolidating markets as over bought markets start falling which is against the trend and oversold markets start rising. Trading with the trend is obviously best suited in good volatile markets as the trend carries for a long period, where a falling markets may fall more and rising markets may rise more. While going through each of our chapters, traders should know the study is of which style as said before; it would be easy to apply different trading methods in different kinds of market.