The Forms of Analysis - Fundamental & Technical

There are two forms of analyzing stocks to buy, those being Fundamental and Technical. Fundamental Analysis is when you take a deep dive into the company and know their ins and outs. This means looking at their products, target audience, competitors, income, etc.. There are some basic forms that will supply this information to you, including Income Statements, Balance Sheets, Cash Flows, 10Q (Quarterly Report), and 10K (Annual Report). Fundamental Analysis is considered to be the “old-school” way of trading that is commonly used by big name investors such as Warren Buffett. 

 

    Above is a quick example of the financial statements already mentioned, including the Balance Sheet, Income Statement, and Cash Flows. When using Fundamental Analysis, an investor is looking for a company's performance and money-management. They want to see that the company is growing and knows what they are doing with their money. In this case, this company has seen steady significant growth over the past 5 years. Also, the company seems to be paying off their debt steadily and increasing their retained earnings. Through these forms, along with some other forms, research into the company's competitors, the products of the company, etc., an investor can determine whether to buy this company's stock or not.

    Technical Analysis is what you are most likely more familiar with and what you think of when you imagine stock trading. This is when you use different indicators that help you gauge which direction the stock is moving and when to buy/sell your shares. 

    Above is a quick example of technical analysis. An investor can use the indicators of their choice to determine whether or not they should by a stock. In this case, this investor is using two Moving Averages, the RSI, and the MACD. These indicators are meant to help determine a stock's relative price (cheapness) and predict the direction of the stock. With this in mind, an investor can try to buy as cheap as possible and then sell when their strategy determines to do so.

    As you can see, Fundamental and Technical Analysis are both very different. Even though they are very different in terms of actual strategy, they have the same goal in mind: Buy a stock when it is cheap and sell when it is expensive. Remember, the goal of every investor is to make a profit and some investors may perform better with one strategy compared to another. Both Technical and Fundamental Analysis have proven to be very successful yet neither is better than the other. It is important when you start investing to choose which form of analysis works better for you and stick with that as you continue your career.