The two schools of thought in the financial markets are fundamental and technical. If you are looking into active trading, you should have a clear understanding of both concepts.
First, you have to decide whether you are a trader or an investor. The main difference lies in the time horizon.
An investor is the one who has a longer timeline for his investments. He looks at the company as a whole, sees what it does, its balance sheet, quarterly earnings, indicators such as PE ratio, Forward P/E, and EPS growth. Day-to-day fluctuations in the stock prices do not bother them. People like Warren Buffet and Charlie Munger are great examples as investors and they did well for themselves as you all know. Long-term investors usually do not believe in the technical analysis and reject that concept.
A Technical analyst is someone who uses the past price movement of a company’s stock to predict the future price movements. It is based on the following simple concepts,
- Price discounts everything else
- Price movements are not random
- Price trends are likely to repeat themselves
| Fundamental Analysis | Technical Analysis |
Investing | Trading |
Long term | short term |
Chooses the stock based on the calculation of its intrinsic value | Chooses a stock based on charting the price movements |
Looks at financial and economic data | Looks at the stock charts, trends, and various technical indicators |
| Looks at both historic and current data | Looks only into historic data |
This is just an overview of the basic differences between the two concepts. As a website focusing on swing trading, we will soon go into the concepts of Technical analysis, chart preparation, and various indicators/applications.