Author Topic: Fundamental analysis vs Technical analysis  (Read 20334 times)

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Toshi

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Fundamental analysis vs Technical analysis
« Reply #-1 on: December 17, 2009, 11:06:39 PM »
Hi mates this topic is being started to distiguish between fundamental analysis and Technical analysis.

Pakinvestorsguide

Fundamental analysis vs Technical analysis
« Reply #-1 on: December 17, 2009, 11:06:39 PM »

Toshi

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Re: Fundamental analysis vs Technical analysis
« on: December 17, 2009, 11:07:57 PM »
First of all technical analysis is not better than fundamental analysis and neither is fundamental analysis better than technical analysis .They are tools used for forecasting data. The stock market displays information in numbers and to get a nibble at the pot of money just waiting to be grabbed needs astute understanding of numbers ,which means decoding the numbers back into information in order to make sound financial decisions.

Why compare the two and try to determine which is better than the other ? Its just a matter of how skilled and passionate you are in the analytical tool used by you. At times fundamentals will forecast prices before technical charts support the view and vice versa.

The only subtle difference i can point out is that fundamentals are not of much use when it comes to day trading (perhaps i could be wrong because of lack of adequate skill in analyzing Free Cash Flows). On the other hand technical analysis can be put to good use for day trading.

Toshi

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Re: Fundamental analysis vs Technical analysis
« Reply #1 on: December 17, 2009, 11:11:15 PM »
1. Fundamental Analysis - This is basically analyzing a company by using a suitable valuation approach (DCF, Relative valuation or contingent claim valuation) or by following methodological analysis (top down approach etc ). What you get out of this is whether a stock is trading at a cheap or expensive valuation. Comparing these with its historical levels, one can argue to Buy/Sell the stock. However, this approach is not suitable for trading or speculating. This is most suitable when a participant is looking to invest in the stock (1-5 Years)

2. Technical Analysis - This is basically trying to gauge the market sentiment and study current price action to forecast what lies ahead for the stock. Under this an analyst mainly studies price patterns, reversal patterns, indicator values, price behavior and other valuable data to decide on whether to buy/sell the stock. This is suitable for trading, investing and to some extent speculating (that is if you are an informed speculator).

3. Technical Vs Fundamental - Well, every analyst would have a different perspective on this. My take on this is that both are best when they are put together. This is something that works for me. However, it might be exactly opposite for you. Hence, use and understand both and then decide which method suites your trading style the best.

Offline Learner7

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Re: Fundamental analysis vs Technical analysis
« Reply #2 on: December 22, 2009, 10:49:57 PM »
Fundamental Analysis :  

One has to study every thing beginning from the overall economy of the country, foreign affairs, political condition, law and order situation, central bank's policies and reports etc.

Financial condition, potential future growth of the company and Management of the company should be analyzed minutely before taking the final decision.
 
Financial statements are gold mine of fundamental analysis. It involves looking at historical performance data to estimate future performance. Revenue, Expenses, Assets, Liabilities and all other financial aspects help to understand the future performance of the company.


Annual Report:
Annual report provides an insight to the company's yearly performance. Annual reports include a balance sheet, income statement, auditor's report, and a description of the company's operation. We find most important data in the annual and quarterly reports released by the management.

Financial statements are required by law and must include a balance sheet, income statement, and a statement of cash flows and auditors report and relatively detailed description of the company's operations and prospects for the upcoming year.

Seeing annual reports an investor assesses the company by its profitability, growth, stability and the rate of dividends.


Balance Sheet:
The balance sheet highlights the financial status of a company at a single point in time. This is important, the cash flow and income statements record performance over a period of time. While a balance sheet is a snap shot in time.


Income Statement:
The income statement is the most popular financial statement in an annual or quarterly report. The income statement includes figures such as revenue, net income and earning per share (EPS).


Statement Of Cash Flow:
Cash Flow is similar to the Income Statement in that it records a company's performance over a specified period of time, usually over the quarter or year. The difference between the two is that the income statement also takes into account some non-cash accounting item such as depreciation. The cash flow statement strips away all of this and tells you how much actual money the company has generated. Cash Flow shows us how the company has performed in managing inflows and out flows of cash. It provides a sharper picture of the company's ability to pay bills, creditors, and finance growth.

Offline Learner7

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Re: Fundamental analysis vs Technical analysis
« Reply #3 on: December 22, 2009, 10:55:21 PM »
Technical Analysis:

Technical Analysis is a method of evaluating securities by analyzing statistics generated by market activity, past prices, and volume. Technical analysts look for patterns and indicators on stock charts that will determine a stocks future performance.

Technical analysis has become popular over the years, as more and more people are convinced that historical performance of a stock is a strong indication of future performance.

The use of past performance should not be a big surprise. People using fundamental analysis have always looked at the past performance by comparing fiscal data from previous quarters and years to determine future growth.

The difference lies in the technical analyst’s belief that securities moves with a very predictable trends and patterns. These trends continue until something happens to change the trend, and until this change occurs, price levels are predictable. Some technical analysts claim that they can be extremely accurate majority of the time. There are many instances of investors successfully trading securities with only the knowledge of its chart and without even understanding what companies do.

Technical analysis is a terrific tool, but most agree that it is much more effective when combined with fundamental analysis.

Every thing that affect market price is ultimately reflected in market price, whether it is underlying forces of supply and demand, fundamentals, political, psychological news etc, it all reflects in the price of the market.

If everything that affect market price is ultimately reflected in the market price, then the study of the market price is all the more necessary. By studying price charts and a number of supporting technical indicators, the chartist can forecast which way the market is likely to go .It is doubtful that any one could trade off the fundamentals alone with no consideration of the technical analysis. The advantage of technical analysis is that one can also analyze stock index, futures, options, currencies etc, without going into fundamentals.

 
Support and Resistance:

Support:
Prices move in a series of peaks and troughs, and the direction of peaks and troughs determine the trend of the market.

The troughs, or reaction lows, are called support. Support is a level or area on the chart under the selling pressure. As a result, a decline is halted and market where buying interest is sufficiently strong to overcomand by a previous reaction low.prices turn back again. Usually a support level is identified beforeh


Resistance:
Resistance is the opposite of support and represents a price level or area over the market where selling pressure overcomes buying pressure and a price advance is turned back. Usually a previous peak identifies a resistance level.


Trend:
Market moves in a trend. The trend is simply the direction of the market. Market moves in zigzags. These zigzags resemble a series of successive waves with fairly obvious peaks and troughs. It is the direction of those peaks and a trough that continues market trend. Whether those peaks and troughs are moving up, down, or sideways tells us the trend of the market. Trend is usually broken down into three categories, i.e. major, intermediate and near term trend.

Major trend is usually for a year or so.

*Intermediate trend is usually for three weeks or more.
*The near term trend is usually defined as anything less than two or three weeks.

Each trend becomes a portion of its next larger trend. For example, the intermediate trend would be a correction in the major trend. In a long term up trend, the market pauses to correct itself for a couple of months before resuming its upward path. Secondary correction would itself consist of shorter waves that would be identified as near term dips and rallies.

 
Trend Lines:
The basic trend line is one of the simplest of the technical tools employed by the chartist, but is also one of the most valuable. An up trend line is a straight line drawn upward to the right along successive reaction lows. A down trend line is drawn downward to the right along successive rally peaks.

Offline Learner7

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Re: Fundamental analysis vs Technical analysis
« Reply #4 on: December 22, 2009, 11:01:47 PM »
Trading Guidelines / TIPs:  

>>>   Trade in the direction of the intermediate trend.

>>>   In up trends, buy the dips, in downtrends, sell the bounces.

>>>   Let profits run, cut losses short.

>>>   Use protective stops to limit losses.

>>>   Don't trade impulsively, have a plan.

>>>   Plan your work and work your plan.

>>>   Use money management principles.

>>>   Diversify, but don't over do it.

>>>   Employ at least a 3 to 1 reward-to-risk ratio.

>>>   When pyramiding (adding position), Follow these guidelines.

>>>   Each successive layer should be smaller then before.

>>>   Add only to winning positions.

>>>   Never add to a losing position.

>>>   Adjust protective stops to the breakeven point.

>>>   Never meet a margin call, don't throw good money after bad.

>>>   Close out losing positions before the winning ones.

>>>   Except for very short term trading, make decisions away from the market, preferably when the
markets are closed.

>>>   Work from the long term to the short term.

>>>   intraday charts to fine tune entry and exit

>>>   Master intraday trading before trying intraday trading

>>>   Learn to be comfortable being in the minority. If you're right on the market, most people will disagree with you.

>>>   Technical analysis is a skill that improves with experience and study. Always be a student and keep learning.

« Last Edit: December 22, 2009, 11:04:03 PM by Learner7 »

Offline Karuli

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Re: Fundamental analysis vs Technical analysis
« Reply #5 on: January 20, 2010, 08:25:17 PM »
Very very good Trading Guidelines / TIPs thank you Learner7

Offline Learner7

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Re: Fundamental analysis vs Technical analysis
« Reply #6 on: January 20, 2010, 09:41:36 PM »
Very very good Trading Guidelines / TIPs thank you Learner7

Karuli bhai, pleasure, thanks.

Offline Big Broker

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Re: Fundamental analysis vs Technical analysis
« Reply #7 on: April 11, 2010, 10:58:33 PM »
Select fundamental sound company and enter / exit technically ! - keep it simple.  :banana:
Warning: Confusing ones self with technical analysis may be hazardous for financial health.

Offline Farzooq

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Re: Fundamental analysis vs Technical analysis
« Reply #8 on: January 24, 2011, 12:31:28 PM »
THE CHICKEN (TECHNICALS) AND THE EGG (FUNDAMENTALS)

An interesting question for swing traders is as follows:

"Which comes first: the technicals or the fundamentals?"

In other words, which is the chicken and which is the egg? An analysis of the recent behavior of Emulex (ELX) should help us to answer this question.

The relationship between fundamental analysis and technical analysis can be puzzling. My take on this issue is that the fundamentals are the "cause" and the technicals are the "effect." In other words, important changes in a company's sales and earnings outlook or fundamental changes represent the "cause." Investors then respond to these items by buying or selling the stock. These purchases are reflected in a stock's price chart, which constitutes the "effect." In that sense, the fundamentals are the chicken, since the cause must come before the effect.

Looked at another way, the reverse is true. A stock's chart pattern often anticipates important changes in sales and earnings. In this manner, changes in chart patterns can alert watchful technicians to key changes in fundamental outlooks days (and in some cases even weeks) before they become public knowledge. From this perspective, the one I personally believe, the technicals are the chicken and the fundamentals are the egg
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Offline Farzooq

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Re: Fundamental analysis vs Technical analysis
« Reply #9 on: January 24, 2011, 12:38:28 PM »
Fundamentals vs technicals, which approach is right for you?

the fundamentals are very important. Without fundamentals the markets would not move, they would just stay flat and that’s no fun.

Fundamentals drive the market and that’s true today just as it was true when trading first began.

So what about the technicals, should we just push them aside and forget about them? I think not. The technicals help in timing the fundamentals. More importantly the technicals point to when you should exit a position when a market turns.

Getting the trend right is what’s important in trading. We’ve said this many times before that they don’t ring a bell at the top or bottom of the market. Often times the fundamentals look the most bullish at the top and the most bearish at the bottom market. When a market pulls back, fundamentalists see this as another great buying opportunity and sometimes they are right. However, some of these buying opportunities can turn into disasters when a market makes a major turn

When you look at the markets through technical eyes, you can quickly spot changes in direction that aren’t obvious in fundamental terms. Fundamentalists, much to the detriment of the general public, tend to get married to their analysis and positions and feel obligated to defend their viewpoint at all costs. That’s what happened in the case above. The newsletter writer could not admit to himself that the market had changed and was going down

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Offline Farzooq

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Re: Fundamental analysis vs Technical analysis
« Reply #10 on: January 24, 2011, 12:48:13 PM »
Trader's Corner: Finding The Magic Mix Of Fundamentals And Technicals

Anyone who has relied on "hot" news or company fundamentals to buy a stock knows that this practice often leads to disappointing results. The reason is simple. Fundamental analysis data lags the market. Earnings news can be as much as over a month old when released. In the majority of cases, by the time news announcements are made, the stock has usually already made its move.

Also, what if the fundamentals change? Most fundamental investors maintain the belief that it is better to hold onto a stock through thick and thin and hope the company recovers once better times return. But as we saw through the 2000 – 2002 bear market correction and all bear markets before it, this approach can lead to complete disaster.

The continued popularity of the traditional buy-and-hold strategy is due in no small part to the 18-year bull that ended in 2000. During this market, the buy-and-hold approach to investing worked great, but then so did throwing darts. It was only when the market turned to a bear that the fundamental flaw in this method became obvious.

Lastly, fundamental investors generally do not use stop losses to protect profits. Worse, those adopting a value approach employ the practice of averaging down, using the rationale that the cheaper a stock gets, the greater its value. This only serves to compound losses when a market is in plunge mode.

At the opposite end of the spectrum, technical analysis ignores fundamentals altogether and focuses strictly on technical indicators and chart patterns. While an excellent method of short-term trading, it can lead to losses in longer-term trades unless the trader continually readjusts profit targets and stop-losses. Also, this type of on-going maintenance may not be everyone's cup of tea and can cause unnecessary stress.

In reality, unless you are a pure technical trader employing very short time horizons to day trade or swing trade, using one method of analysis while ignoring the other is like trying to win a boxing match with one hand tied behind your back.

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Offline Poker Face

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Re: Fundamental analysis vs Technical analysis
« Reply #11 on: January 24, 2011, 05:48:04 PM »
THE CHICKEN (TECHNICALS) AND THE EGG (FUNDAMENTALS)

An interesting question for swing traders is as follows:

"Which comes first: the technicals or the fundamentals?"

In other words, which is the chicken and which is the egg? An analysis of the recent behavior of Emulex (ELX) should help us to answer this question.

The relationship between fundamental analysis and technical analysis can be puzzling. My take on this issue is that the fundamentals are the "cause" and the technicals are the "effect." In other words, important changes in a company's sales and earnings outlook or fundamental changes represent the "cause." Investors then respond to these items by buying or selling the stock. These purchases are reflected in a stock's price chart, which constitutes the "effect." In that sense, the fundamentals are the chicken, since the cause must come before the effect.

Looked at another way, the reverse is true. A stock's chart pattern often anticipates important changes in sales and earnings. In this manner, changes in chart patterns can alert watchful technicians to key changes in fundamental outlooks days (and in some cases even weeks) before they become public knowledge. From this perspective, the one I personally believe, the technicals are the chicken and the fundamentals are the egg


two good examples are SHEL and AICL. two bad examples are LOTPTA 6.95 and APL 285.
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Offline saifullahkhan7

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Re: Fundamental analysis vs Technical analysis
« Reply #12 on: October 12, 2012, 09:56:04 PM »
Farzooq Bhai, Poker Bhai, I think in KSE there are three factors that you have to keep in mind while making a decision about a stock:

1- Company Related News (Fundamental Analysis)
2- Reaction of the People to the News (Normally Fear and Greed) (Technical Analysis)
3- Games of the Market Makers (specially AKD and Arif Habib) (Manipulation)

For me it works like that this, Good News will come, people will get greedy, market makers will cause the market to slump initially and will accumulate, than there will be a rally. In event of bad news, the typical pump and dump technique will be used.
Trust in God! & Candle Sticks, Bollinger Bands and looking into  2 Yrs EPS/DPS helps!!!

Offline Dehan

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Re: Fundamental analysis vs Technical analysis
« Reply #13 on: October 12, 2012, 10:12:42 PM »
Farzooq Bhai, Poker Bhai, I think in KSE there are three factors that you have to keep in mind while making a decision about a stock:

1- Company Related News (Fundamental Analysis)
2- Reaction of the People to the News (Normally Fear and Greed) (Technical Analysis)
3- Games of the Market Makers (specially AKD and Arif Habib) (Manipulation)

For me it works like that this, Good News will come, people will get greedy, market makers will cause the market to slump initially and will accumulate, than there will be a rally. In event of bad news, the typical pump and dump technique will be used.

Fundamental and Technical Analysis are not ones u mentioned above. Please search and get the correct definitions. In the gamers the No 1 is missing JS Uncle.
"Suno sab ki, laiken Dehan apna apna"

Offline Sharjeel

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Re: Fundamental analysis vs Technical analysis
« Reply #14 on: March 28, 2013, 05:00:17 PM »
In the hope of learning something about the market... can anybody tell me about the form of KSE market. I mean If I have a news about any company (no matter bad or good)  should I assume that everybody in the market knows the same thing. If yes then How can we benefit from news???

Offline 007

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Re: Fundamental analysis vs Technical analysis
« Reply #15 on: July 20, 2013, 10:47:48 PM »
In the hope of learning something about the market... can anybody tell me about the form of KSE market. I mean If I have a news about any company (no matter bad or good)  should I assume that everybody in the market knows the same thing. If yes then How can we benefit from news???

kse is not an efficient market, sari game inside news ki hee hai

Offline 07585

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Re: Fundamental analysis vs Technical analysis
« Reply #16 on: July 26, 2013, 07:06:43 AM »
I agree partly. Those satta stocks ki game inside news hai baki the fundamentally sound stocks, it takes both a fundamental analysis and a trend analysis with common sense, because believe me i dont know anyone in the market who tells me inside news, i just sit and trade from home just looking at stocks fundamentally and general news eg political etc.
The stock market is an organism.

Offline Analyst Group

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Re: Fundamental analysis vs Technical analysis
« Reply #17 on: April 25, 2015, 05:02:12 PM »
There are  many people who asked in loud voice to sell PAEL at the price of 55 and then at 50 and now I am sure they will recommend people to buy at 65-66 level. I can never understand the mentality of those people. People who sold at 55 and buy at 65-66 are the winners or people who kept it at 50 and did not sell & still keeping it at 63-65 level for future growth are the winners? If you say to avoid unrealized loss, so as everyone know unrealized loss is nothing If someone knows and have faith that the price will go to lets say 80. Then a wise thing is to keep it even in temporary dips or buy it at 65. If you keep it from 50 level, it means total profit is Rs 30. If you buy at 66, profit is Rs 14 and loss is Rs 16 for not keeping it between 50 to 66 level. Brokerage cost in buying and selling and capital gain tax is other expenses. If you do not believe on your buying, then you have this kind of decisions or if you are purely a day trader and fear of 1 week unrealized loss.

Yes If you have a plan to exit from a share at some point and re-enter if it goes down to certain level. This is quite understandable. But if you buy some share at 57 and it goes to 61 and then due to market crash it takes a dip and you ask those people to sell at 50 and make loss and buy at 65 is totally beyond any investor understanding. Why to keep a realized loss when they can avoid this realized loss by keeping it with patience. But this one can only do if they have believe according to the financial that this is temporary dip and its fair value is much higher than this.

I am not talking particularly people on this forum, I am talking in general. Please people on this forum do not take it personal. If they want to debate on this one, they are welcome. But my this post is not particularly about any person. Apart from pakinvestorguide, I have seen a lot of people doing this during that market crash. I think those people cannot read financial or cannot understand financial of any company.

Offline SBM

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Re: Fundamental analysis vs Technical analysis
« Reply #18 on: April 25, 2015, 05:14:31 PM »
There are  many people who asked in loud voice to sell PAEL at the price of 55 and then at 50 and now I am sure they will recommend people to buy at 65-66 level. I can never understand the mentality of those people. People who sold at 55 and buy at 65-66 are the winners or people who kept it at 50 and did not sell & still keeping it at 63-65 level for future growth are the winners? If you say to avoid unrealized loss, so as everyone know unrealized loss is nothing If someone knows and have faith that the price will go to lets say 80. Then a wise thing is to keep it even in temporary dips or buy it at 65. If you keep it from 50 level, it means total profit is Rs 30. If you buy at 66, profit is Rs 14 and loss is Rs 16 for not keeping it between 50 to 66 level. Brokerage cost in buying and selling and capital gain tax is other expenses. If you do not believe on your buying, then you have this kind of decisions or if you are purely a day trader and fear of 1 week unrealized loss.

Yes If you have a plan to exit from a share at some point and re-enter if it goes down to certain level. This is quite understandable. But if you buy some share at 57 and it goes to 61 and then due to market crash it takes a dip and you ask those people to sell at 50 and make loss and buy at 65 is totally beyond any investor understanding. Why to keep a realized loss when they can avoid this realized loss by keeping it with patience. But this one can only do if they have believe according to the financial that this is temporary dip and its fair value is much higher than this.

I am not talking particularly people on this forum, I am talking in general. Please people on this forum do not take it personal. If they want to debate on this one, they are welcome. But my this post is not particularly about any person. Apart from pakinvestorguide, I have seen a lot of people doing this during that market crash. I think those people cannot read financial or cannot understand financial of any company.

everyone has their own trading system
Just because other people cannot understand their system doesnt mean it doesnt work
If it works for them, it shouldnt bother us.
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