Analysts who adopt fundamental analysis believe in intrinsic value of a stock. They buy stocks when their market value is less than that of the intrinsic value and do the waiting exercise hoping to sell it at a higher price. Long-term investors don’t believe in buying an undervalued stock and keeping it on hold, hoping that the stock price reaches its intrinsic value.
Short-term analysts that employ technical analysis to forecast stock prices, have a different viewpoint on stocks. Technical analysis is a powerful tool in an investor’s tool kit. However, you must consider its assumptions and restrictions before diving in.
Combining Fundamental Analysis and Technical Analysis
It is debatable whether technical analysis can be used as a substitute for fundamental analysis. Also, the combination can tote up value as far as managing risk. According to Colin Nicholson, a popular Australian investor, both the forms of analysis complement each other and you should use the strengths of both. The best of both worlds used together, as part of the overall investment plan, can provide supplementary information to the investors such as volume trends
When you are thinking of buying a stock, it is important that you know that many others are eying for it. They might know additional information about the company that you don’t know. Also, the stocks might have grabbed much attention from the investment community, attracting a lot of buyers. Most traders use volume indicators to know what other traders are thinking about the same stock. It is a good sign when the volume is increasing while if it decreases all of a sudden, it indicates that the stocks’ value is reducing and can undergo a change in the opposite direction.
Conclusion: Fundamentals will make your trading better, making consistent profits. They will tell you when you should use a strategy and also help you understand why you should trade at a particular time. Fundamental analysis, in tandem with technical analysis, helps determine the best possible trades. The object of both the approaches is to forecast the value of a stock that will help in the decision-making process, after all. For learners, combining technical analysis gives them clear guidelines that are to be followed in trading and understand key concepts.