Understanding Technical & Fundamental Analysis in the Share Market | Share Market Learning Series | TA, FA in Stock Market

Analysing Stock Market: Popular approaches in practice

• Investing or trading in the stock market isn't just about luck—it's about making informed decisions.
• Two of the most popular approaches used by traders and investors worldwide are Fundamental Analysis and Technical Analysis.
• Let’s break them down to understand how each method works and when to use them.

What is Fundamental Analysis:

• Fundamental Analysis (FA) evaluates a company's intrinsic value based on its financial performance, management quality, industry trends, and macroeconomic factors.
• It focuses on metrics like revenue, earnings, assets, and liabilities to determine if a stock is undervalued or overvalued.
• This method helps long-term investors make informed decisions based on a company’s actual performance and growth potential.
• Key Components of FA are:
• Earnings Reports (Profit & Loss statements),
• Balance Sheets & Cash Flow,
• Financial Ratios like P/E (Price to Earnings), EPS (Earnings Per Share), ROE (Return on Equity)
• Company News & Management
• Industry and Economic Conditions
• Example: If you analyze a company like TCS or Apple, you’d look at their quarterly earnings, market share, upcoming products, and global economic impact.

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2. What is Technical Analysis:

• Technical Analysis (TA) focuses on price movements, charts, and volume patterns to predict future price behavior. It is commonly used by short-term traders.
• It involves using indicators like moving averages, RSI, etc and focuses on patterns, trends, and historical data to predict future price behavior.
• Unlike fundamental analysis, it doesn't assess a company's financial health but relies on market psychology and timing. Traders use it to identify entry and exit points in the short term.
• Key Tools:
• Candlestick Charts
• Trendlines and Support/Resistance Levels
• Indicators like RSI (Relative Strength Index), MACD, Moving Averages
• Chart Patterns like Head and Shoulders, Double Top, Flag, etc.
• Example: A trader might notice a “breakout” pattern on Reliance Industries' stock chart, signaling a potential rise in price in the next few days.

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3. Which One Should You Use:

• Many successful investors use both methods together.
• For example, they may use fundamental analysis to pick strong companies and technical analysis to choose the right time to buy or sell.
• Long-term Investor uses Fundamental analysis, swing trader uses both and Day trader uses Technical analysis.
• Both approaches offer valuable insights, and the best results often come from using them together wisely.
• Whether you're a beginner or an experienced trader, understanding these tools is key to making smarter decisions in the stock market.

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