1. What is fundamental analysis
Fundamental analysis is a method of assessing assets or securities. It attempts to assess its intrinsic value by examining relevant economic, financial, and other qualitative and quantitative factors. Fundamental analysts study any factors that may affect the value of securities, including macroeconomic factors (such as economic and industry conditions) and microeconomic factors (such as financial conditions and company management). The ultimate goal of fundamental analysis is to produce a quantitative value that investors can compare with the current price of the security, thereby indicating whether the security is undervalued or overvalued.
2. Analysis of fundamental
Fundamental analysis determines the health and performance of related companies or entities by looking at key data and economic indicators. The purpose is to identify fundamentally sustainable companies or industries. This analysis method is considered to be the opposite of technical analysis, which analyzes historical market data (such as prices and trading volumes) to predict price trends.
3. The basis of fundamental analysis
Fundamental analysis uses real public data when assessing the value of security and asset. Although most analysts use fundamental analysis to evaluate price of stocks and assets, this method of evaluation can be used for any type of security. For example, investors can perform a basic analysis of the value of bonds by looking at economic factors such as interest rates and overall economic conditions. Additionally, information about bond issuers can also be looked upon, such as potential changes in credit ratings.
For stocks and other equity instruments, fundamental analysis uses revenue, earnings, future growth, return on equity, profitability, and other data to determine the company's potential value and potential for future growth. For stocks, fundamental analysis focuses on the financial statements of the company being evaluated. One of the most famous and successful fundamental analysts is Warren Buffett, who is known for his successful use of fundamental analysis to select securities.
4. What is technical analysis
Technical analysis is a trading tool used to evaluate securities and asset, identify trading opportunities by analyzing statistical data collected from trading activities (such as price changes and trading volume). Unlike fundamental analysts who try to assess the intrinsic value of securities, technical analysts focus on price movements, charts and various analytical tools to assess the strengths or weaknesses of securities and assets
5. Analysis of Technical
Technical analysts believe that the security’s past trading activities and price changes are indicators of future security price changes that may be better than the security’s intrinsic value. Technical analysis is based on the basic concepts collected by Dow Theory, which is a theory of changes in the trading market in Charles Dow's early works. The two basic assumptions of Dow Theory are the basis of all technical analysis:
1) Market price discounts may affect every factor of securities prices;
2) Market price changes are not purely random, but recognizable patterns and trends that recur over time.
6. How to use technical analysis
Technical analysis is used to predict the price changes of almost any tradable instrument usually affected by supply and demand, including stocks, bonds, futures and currency pairs. In fact, technical analysis can simply be seen as a study of the supply and demand forces reflected in changes in the price of the securities market. It is usually applied to price changes, but some analysts may track data other than price, such as trading volume or open contract numbers.
Over the years, analysts have developed many technical indicators in order to accurately predict future price changes. Some indicators focus mainly on determining the current market trend, including support and resistance areas, while others focus on determining the strength of the trend and the possibility of its continuation. Commonly used technical indicators include trend lines, moving averages and momentum indicators, such as the moving average convergence divergence (MACD) indicator.
Technical analysts apply technical indicators to charts of various timetables. Short-term traders may use charts ranging from one-minute schedules to hourly or four-hour schedules, while traders analyzing long-term price changes review daily, weekly or monthly charts.