AUGUST 5, 2024

Fundamental and technical analysis in stock market

Investing in the stock market can be daunting, but understanding the two different methods of analysis can help you make informed decisions.

Fundamental analysis involves evaluating a company’s financial health, business model and market position. 

Fundamental analysis uses a number of financial ratios to analyse the performance, profitability and fair valuation of a company’s shares. Price-to-earnings (PE), price-to-book (PB), and return on capital employed (ROCE) are some of these ratios.

Fundamental analysis helps investors understand whether a stock is undervalued or overvalued in the market, guiding investors to buy, hold or sell the stock. 

Technical analysis evaluates financial assets by examining historical price and volume data. It focuses on identifying patterns and trends in the market to predict future price movements.

Tools such as support and resistance levels, relative strength, volume analysis and chart pattern analysis are used to understand the market movements.

Choosing between fundamental and technical analysis depends on your investment goals and strategy. Therefore, understanding both can enhance your ability to navigate the stock market. 

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