Now we know that technical analysis uses past data of a stock to predict future price movements. Fundamental analysis instead looks at economic and financial factors that influence a business. So, let’s get deeper into the details of how fundamental analysis and technical analysis differ.
1. Charts vs. financial statements: The first step in technical analysis starts with the charts, whereas in fundamental analysis it starts with the company’s financial statements. In fundamental analysis, you will have to determine a company’s intrinsic value by looking at its income statement, balance sheet, and cash flow statement. You can determine the intrinsic value of a stock by discounting the value of future projected cash flows to a net present value. If the stock trades below the company’s intrinsic value, you can invest in it. But, technical analysts believe that a stock’s price already reflects everything that has or could affect a company.
2. The time horizon in fundamental analysis is often long-term, as opposed to a short-term approach taken by technical analysts. By the approach of fundamental analysis, you should wait for a long time before a company’s intrinsic value is reflected in the stock market. In technical analysis, stock charts can be delimited in weeks, days, or even minutes.
3. Technical analysts and fundamental analysts have very different goals in their minds. Technical analysis will demand that you identify many short- to medium-term trades where you can earn a profit, whereas fundamental analysis demands you to make long-term investments