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What are technical analysis and fundamental analysis?
Technical analysis and fundamental analysis are two essential ways to evaluate stocks before investing.
Here’s a look at the difference between the two:
Technical analysis focuses on studying charts, market trends, trading volume, and patterns to predict price movements. It's like trying to guess the future based on past price changes. Technical analysis relies heavily on historical data, patterns, and technical indicators to forecast short-term trends.
Fundamental analysis, on the other hand, looks at a company's financial health, management, industry trends, and overall performance. It's like checking a company's balance sheet, earnings reports, market position, and industry trends to see if it's strong. Fundamental analysis helps investors assess a company's intrinsic value, making it ideal for long-term investment strategies.
While technical analysis is more about predicting price movements based on past performance, fundamental analysis aims to understand the true value and potential growth of a business. Therefore, by leveraging both methods, investors can make more informed investment decisions.
Also read: Difference Between Fundamental and Technical Analysis