Some representative opinions are-
'Fundamental Analysis is the only way to deal with the markets'
'Technical Analysis has no base and never works'
'Fundamental Analysis is useless for trading'
'Learn Technical Analysis and make sure money in the markets'
I feel all these opinions are too extreme to consider. Nothing in this world is fully useless and nothing in the world is perfectly useful.
I too have my opinions on both the methods of analysis. Here are some thoughts on the subject-
Both Technical Analysis and Fundamental Analysis have their own advantages and disadvantages.
It depends on you- which one (method) suits your style of investing / trading.
It also depends on your 'type of personality'.
It depends on what strengths you have. Take the Brain Test to understand whether you are Left brained or right brained.
It depends on whether you are a trader or an investor.
It also depends on whether you are short, medium or long term trader/ investor.
While there is no substitute for fundamental analysis when it comes to the right valuation of a scrip. There is not a substitute for technical analysis when it comes to the best risk management tool over a short period of time.
In fundamental analysis with the help of valuations, you can decide how far stock can run in the long term as you can decide whether is stock has very high valuations with the help of ratios like P/E or P/B. On the other hand, with the help of technical analysis, you can judge what market is thinking about the stock, whether the market is still willing to take the stock to a higher price. In short technical analysis tells you about the market sentiments.
Frankly, I feel Technical Analysis is a misnomer and should be renamed as "Sentimental Analysis".
One thing is for sure you cannot do the short term trading with the help of Fundamental Analysis. Technical Analysis helps in understanding the short term trend, the momentum, areas where biggies are placing their buy and sell orders, areas where one should exit out of the position if it is not your favor, etc.
At the same time if you are long term investor there is no alternative than to analyze a company using its fundamentals like balance sheet, P/L, cash flow, management quality, product, etc.
To conclude, I feel the comparison between the fundamental analysis and technical analysis is baseless. Comparisons have to be apple to apple and not apple to oranges.
If you are an Intra-day, Swing or a Positional trader use of Technical Analysis can enhance your chances of winning a trade. It offers you a better risk management tools. It helps you understand markets sentiments. There is also a flip side to it. Some traders fill they will make 'sure' money once they learn the technical analysis. It’s not only about learning the technical analysis, but it’s also about practicing it over a period of time. You cannot become a good cricketer just by learning rules of cricket. You have to practice it hard.
It clearly spells spade a spade and is not designed to show 'rosy' pictures to traders. I don't believe there exists a formula for success in stock markets. Instead, I believe in strict risk management and hence the course contains ways and means of Risk Management and Money Management other than learning the Technical Analysis.
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Disclaimer: The contents produced here are purely for educational purpose. They should not be construed as buy/sell recommendations. I am not a SEBI registered Analyst or Investment Advisor. Readers are advised to consult their Investment advisor before taking any decisions based on the above write-up.
