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There are varied techniques and methodologies to analyze Stock market and the philosophy it preaches. There are two basic methodologies that enable the assessment of the market and decisions that influence investments.
Fundamental analysis:
Fundamental analysis is the evaluation of a company or security and the estimation of its fundamental value on the basis of qualitative, quantitative and economic factors. Overall factors encompassing the financial scenario are all taken into consideration. It is all about viewing and reckoning the big picture that includes macro- economic factors and the company specific factors also. Trade strategies are formulated bearing in mind supply- demand relation, trade balance, foreign investment etc. This approach makes it possible for you to attain stability even in a volatile situation.This analysis involves assessing the financial situation of the company with the help of its balance sheets, growth patterns, future projects and cash flow statements and the situation of the industry at that point of time.
Technical analysis:
Technical analysis takes into account the previous records of the company with the help of its statistical data. Charts and other data are considered to be the tools to predict the future potency of the company. Varied types of charts including bar charts, candlestick charts, price charts are all gauged on. Understanding the past trends and patterns of the company becomes a requisite here. The movement of the scrip determines key decisions regarding the entry and the exit of the market. In a nutshell, the past is considered to be the means to forecast the future. Technical analysis is generally capable of granting information regarding momentum, moving averages and trend formation.
Both the analysis has its own pros and cons making it difficult to assert that one is superior to the other. While Fundamental analysis is considered to be more common and extensively used technique, Trade analysis has been considered to be more reliable and time – tested by another section of the population. Fundamental analysis versus Trade analysis is going to be a never ending debate with supporters of each group fighting with the other. The objectives of both the analysis is the same and they surely do not contradict each other’s results is what must be understood.
The efficacy and the application of these two methodologies may vary depending on time horizon and the trader’s interest and purpose. Trade analysis is considered to be a skilled technique in the short term. On the other hand, one can resort to financial analysis in the long run. Short term comprises of Macro trading, day trading and swing trading while long term entails the holding period of more than a year. Bearing in mind both the analyses will be recommended to ensure a sensible decision. Instead of cutting down on one analysis, one can play safe by practicing both the analysis. Comprehensive information can be gathered by considering both the analysis. Since both fundamental and technical analysis has its own applicability and appropriateness, it is advised one gets familiar with both.
Summary:
The two major analysis considered to assess the company‘s strength and value are fundamental analysis and technical analysis. Fundamental analysis is a wider approach of evaluation which takes into consideration varied indicators including the macro economic factors and the industry situation. Technical analysis is a method of forecasting the future of the security by viewing its past with the help of statistical data and charts. There has been an ongoing debate regarding which of these two analyses are more efficient than the other.
About Kotak Securities: Kotak Securities is one of India’s leading share broking firm offering stock trading, mutual fund and IPO investing service’s along with a research division specializing in Sectoral research and Company Specific Equity Research. Express your views on their Facebook Page and Twitter Handle (@KotakSecurities) or you can also browse through their various videos on YouTube and Slide Share.