ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Fundamental vs Technical Investing

Updated on August 6, 2010

The two primary styles to go about investing in the stock market are Fundamental and Technical Analysis. They are the basis of rationale in the markets. Whether you are an investor or a trader, these are the two styles of choice to approach the stock market. So if you are ever at a point in your life where you have made the decision to begin investing and want to take hold of your own investment decisions, your choice will be Fundamental or Technical analysis.

Then there's gambling analysis. You grab a dart, stick the stock section of your local newspaper to the wall, take a step back, and throw the dart at the newspaper. Then you check where your dart lands and take the first opportunity to invest in the company the dart lands on! ... kidding of course.

Fundamental Investing

Fundamental Analysts believe in the underlying financial strength of a company. How can you determine financial strength? From the company's financial statements of course! (and past financial statements as well!).

The financial statements contain the Income Statement, the Balance Sheet, and the Cash Flow Statement. These provide the fundamental analyst with a window into the financial health of a company. A fundamentalist uses the information from the financial statements to also determine the P/E ratio, profit margins of the company, the current ratio, return on equity, return on assets, and many other factors which aid the investor in making an investment decision.

If you searched, for example, Yahoo Finance for a stock, it will give you some information such as the P/E ratio, Earnings per Share ratio, and Dividend - all this information is pulled from the company's financial statements! Yahoo Finance doesn't just make these numbers up! Many times, it's better to look at a company's recently released financial statements (publicly traded companies must release their financial statements every quarter) and determine any ratios or margins yourself just to be sure.

The nation's economic climate is also a factor for fundamental analysts and their investment decisions. Many times, fundamental analysts will question why the Federal Reserve might be raising or lowering interest rates. Fundamentalists also keep a close eye on any new regulations or reforms the government may impose on an industry. Economic factors can never be ignored, however, the financial strength of a company has the ability to remove doubts from outside factors.

Fundamental Analysis does not guarantee future results no matter how low a company's long-term debt is or how great the company's net profits are. It is up to the investor to be diligent when making their investment decisions - diligence in the form of financial statements analysis.

Fundamental and Technical Investor Books

Technical Investing

The technical trader believes future performance of a stock is based on one thing: the company's ongoing "charts." Charts can be anything from the company's share price occurring during the day, moving averages, volume, relative strength index, and many more. There are also some really complex charts from really complex formulas as well.  Technical Analysts then use these charts believing that all information about a company's financial performance has already been factored into the company's market price (share price). So, when a technical analyst looks at charts, there's no need to look at financial statements or economic conditions.

In essence, technical analysis is the ability to analyze a stock's charts in order to predict future price moves. These analysts want to take advantage of price moves and turn them into profits.

When you hear of analysts on television talking about breaking points, or double dips, or double tops, or resistance lines, or moving averages, and etc. they are primarily -technical- analysts. They are looking for patterns in order to provide viewers with a forecast.

Technical analysts could be looking at the charts of any company. There are no specific companies they prefer. In fact, most technical analysts do not know the name of the company their even interested in - they see the company as a bunch of letters commonly known as the company's stock symbol. The only thing that matters is how the stock's chart looks and if there is an emerging pattern they can take advantage of. Technical analysts also look for companies with the most volatility in order to try and profit from the price swings, therefore their job can be very tedious and complex. Subdivisions of technical analysis includes swing, momentum, or positions trading.

Technical analysis does not guarantee positive future results.

So which is better?

These two investment styles go into a lot further detail then the short article I've written here. Analysts from each style are sometimes at war with each other over who is more accurate

Some believe one style has more risk then the other. Essentially, both styles carry risks as with all other investments. Some people blend the styles together and try to use both in an attempt to maximize profitability - however this hasn't been tested (I don't think it can) and it may or not guarantee success either.

In the end, it is up to the investor or trader to select their investment style of choice. It depends on whichever style makes you more comfortable. To become comfortable with either style, you  have to read books, read articles, and learn from mentors and coaches. You have to want it enough to read the material or else it will bore you to death!

Again, remember that all investments carry risk, and mitigating that risk can only be achieved by making use of the information you have. 

Good luck!

Technical or Fundamental

Which style of investing do you prefer?

See results

Comments

    0 of 8192 characters used
    Post Comment

    • ilmdamaily profile image

      ilmdamaily 

      8 years ago from A forgotten corner of a dying empire. OK, it's Australia :-)

      Eek! I can never make up my mind. On the one hand, fundamental analysis seems more sensible. After all you're treating the company for what it is - a business.

      Whereas technical analysis is all numbers. But still effective.

      I do love the visual element of technical analysis though. It's easy to spend hours staring at charts drawing mental baselines and such.

      For a twist, try turning your technical analysis skills to analysing web traffic charts.

      The principles underlying each are fundamentally the same. Maybe even simpler actually, considernig all you're really trying to do is predict and up/down swing.

      Maybe useful to predict topics for hubs which are about to trend upwards!

      Just thinking outside the box;-)

      Nice hub!

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)