All those who are actively involved in trading must be performing either Fundamental Analysis or Technical Analysis to decide on their trading activities.
While both the types are equally important, their utility is different and it is important that we understand which one to apply when. Let's understand how these work with a simple analogy.
I go out to buy ice cream and see some 100 different brands. And I am totally confused as to which one should I buy. I have two options here.
The first option wherein I can try different brands and select the one I like the most. Here, my opinion and taste would matter and I can be sure of my decision but given there are so many options, I might not be able to try all of them and my decision would be based on whatever 3-4 brands I try.
The second option allows me to do a quick research on google to check which amongst those is the most popular brand among people my age and basis the result I can make my decision. But here, my decision would be solely based on others' opinions which might or might not be the best for me.
The first option is where I am making a fundamental analysis and taking my call based on my research whereas, for the second option, I'm relying on the past patterns of other users which is technical analysis.
Technical Analysis is more useful for intraday trading where we buy and sell shares on a daily basis or maybe over a period of 1-2 weeks. Whereas Fundamental Analysis is used when we want to buy and hold for a longer period of time.
Technical Analysis involves reading charts for historical patterns to derive buy and sell price whereas Fundamental Analysis involves understanding the global market, the economy, and industry for that particular sector and making decisions based on global news. Earnings, expenses, assets, and liabilities all come under scrutiny by fundamental analysts.
There are various means you can perform this analysis. I'm going to get you some more stuff that will help you make better trade investments. Trading is a very complex thing, it can lead you down but if done with proper analysis, it can really take you high.
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