We have seen that, the Indian share market is quite sensitive and volatile, making it lucrative if you time it right! But, who has ever timed it right? No one in any corner of the world can say they figured out the stock market in the correct direction as it is depending on so many factors with in the country and around the world.
So, what can one get?
Perhaps, just a logical explanation of what could happen next. Depending upon your investment horizon, you could be hopeful that your investments work out in the long run or the short run.
When you are looking to invest in the longer run, you do fundamental analysis. However, for those who are into trading, be it intraday or within a couple of days, you are looking at more technical analysis.
Meaning & Definition
Fundamental Analysis
Fundamental analysis evaluates stocks by attempting to measure their intrinsic value. Fundamental analysts study everything from the overall economy and industry conditions to the financial strength and management of individual companies. Earnings, expenses, assets, and liabilities all come under scrutiny by fundamental analysts.
The below picture shows how Fundamental analysis operates in stock buying process.
The Fundamental Analysis assesses all the factors that have the capability of influencing the value of the security (including macroeconomic factors and organization-specific factors), called as fundamentals, which are nothing but the financial statements, management, competition, business concept, etc. It aims at analyzing the economy as a whole, the industry to which it belongs, business environment and the firm itself.
Technical Analysis
Technical analysis differs from fundamental analysis, in that traders attempt to identify opportunities by looking at statistical trends, such as movements in a stock's price and volume. The core assumption is that all known fundamentals are factored into price, thus there is no need to pay close attention to them. Technical analysts do not attempt to measure a security's intrinsic value. Instead, they use stock charts to identify patterns and trends that suggest what a stock will do in the future.
The below picture shows how Technical analysis operates in stock buying process.
The price at which the buyer and seller of the share, decides to settle the deal, is one such value which combines, weighs and expresses all the factors, and is the only value which matters. In other words, technical analysis gives you a clear and comprehensive view of the reason for changes in prices of a security. It is based on the premise that the price of share move in trends, i.e. upward or downward, relying upon the attitude, psychology and emotion of the traders.
Both methods are used for evaluating the stock and prediction of future stock prices. Still, while fundamental analysis focuses on the intrinsic value of the stock, technical analysis focuses on the past trend of the price movement of stock.
How to Do Fundamental Analysis of a Stock?
Here are some necessary steps to start a fundamental analysis of a company
