As with any craft, if you want to be one of the greats or at least perform decently you will need to do your homework. You will have to put in the reps and the hours to be able to execute at the highest level. If you’re going to war you will need to know the weapons you’re carrying with you. In the case of trading the financial market, you have both fundamental and technical analysis at your disposal.
In our previous articles, we finally discussed a few basic concepts in the realm of fundamental analysis. A lot of us in the community are technical traders, but it also pays dividends to know a few concepts to understand fundamentals as well. Those who have a finance or accounting background may have an advantage since they already know how to read financial statements, but any non-business person can also read these if he/she puts in the time to learn.
In the first place, why is it important to learn at the very least one of these forms of analysis? Here’s another question, would you go to war without any weapons? If your investment process is simply buying stocks you know since you buy the company’s products or you heard that they give out high salaries to their employees, you may be in a world of trouble.
This is what we call BLINDLY INVESTING, simply placing your hard-earned money in a stock you know without doing any homework. This may have worked if you began investing between 2009 to 2012 and held it then sold it at the market top last 2018. However, imagine if you began doing this during 2019, what would’ve happened to your investment? We’re not bashing long term investing, what we’re trying to help you avoid is blindly investing. Long term investing works, as with any strategy, in specific cycles and there’s a little more to it than just simply buying $JFC because you like their Chicken Joy. You have to do your homework!
So now to the main point of discussion in this article:
WHICH IS BETTER? FUNDAMENTAL OR TECHNICAL ANALYSIS?
If you check out some of our older articles here on InvestaDaily and our videos on our YouTube channel, we have already discussed in depth the basics of both Technical Analysis and Fundamental Analysis so you can easily check them out there. So let us give you guys who may not know what these are a quick overview of both.
Technical analysis is basically the study of price and volume behavior to make better investment decisions. You mainly use charts and other tools to know which stocks to buy. Once you study technical analysis, a chart would now not simply look like a bunch of lines. You’ll see patterns that occur over and over again. You’ll learn concepts like Support and Resistance, Breakouts and Breakdowns, Trendlines, Moving Averages, Oscillators, and many more.
On the other hand, the fundamental analysis takes a deeper look at the actual company to make better investment decisions. You dig deep into their financial statements to see if the company is really profitable or if it’s too much burdened in debt. You compare financial statements of different companies across the same industry to see which is a better investment. You try to see if a company is overvalued or undervalued. Once you study more on fundamentals, you’ll learn concepts like P/E Ratio, Book Value, Earnings Reports, and the like.
So now it’s time to answer the question: Which is better? The answer is — IT DEPENDS. Both approaches work fine, the only way to truly answer the question at an individual level is to try both out for yourself. You need to see which approach works better for you as a person; taking into consideration your personality, characteristics, and circumstances.
Is it enough to learn just one? YES! There are countless successful traders around the world who trade using either only fundamental or technical analysis. However, being a specialist at their approach, they most likely put in their 10,000 hours to be a master at their style.
Can you do both at the same time? YES! Technical analysis can tell you WHEN to buy, while fundamental analysis can tell you WHAT to buy. There are also countless market wizards who use a combination of both approaches in their overall investment strategies.
So now it’s up to YOU to decide which works best for you. If you don’t know these concepts yet, again, you can check out our other articles here on InvestaDaily or both our Youtube and Facebook page for informative videos on both topics.