Fundamental and Technical Analysis
Everyday when you watch TV for Financial news you specially hear couple of terms very frequently aka Fundamental and Technical analysis and today I would try to explain them in very newbie’s terminology here for every one to refer to.
Before I start some short definitions.
Technical analysis is a method of predicting price movements and future market trends by studying charts of past market action which take into account price of instruments, volume of trading and, where applicable, open interest in the instruments.
Fundamental analysis is a method of forecasting the future price movements of a financial instrument based on economic, political, environmental and other relevant factors and statistics that will affect the basic supply demand chain of whatever underlies the financial instrument.
If you are looking for more definitions related to markets refer stock market terms
Main differences between the two types of analysis:
| Fundamental analysis | Technical analysis |
|---|---|
| Focuses on what ought to happen in a market | Focuses on what actually happens in a market |
Factors involved in price analysis:
|
Charts are based on market action involving:
|
Technical analysis
A technical analysis is based on three axioms:
- Movement of the market
- Movement of price or sector.
- History does repeats itself
Bull / Bear Trends
A bull trend is identified by a series of rallies where each rally exceeds the highest point of the previous rally. The decline, between rallies, ends above the lowest point of the previous decline. In short it forms higher highs and higher lows
The start of an up trend is signaled when price makes a higher low (trough), followed by a rally above the previous high (peak):
Start of Bull Phase = higher Low + break above previous High.
The end is signaled by a lower high (peak), followed by a decline below the previous low (trough):
End of Bull Phase = lower High + break below previous Low.
A bear trend starts at the end of a bull trend: when a rally ends with a lower peak and then retreats below the previous low. The end of a bear trend is identical to the start of a bull trend.
In short the Technical Analysis can be summed up as
- A bull trend starts when price rallies above the previous high
- A bull trend ends when price declines below the previous low
- A bear trend starts at the end of a bull trend (and vice versa).
Fundamental analysis
No industry or company can exist in isolation and so there are external factors which determine to an extent growth of a company and so fundamental analysis is a method of forecasting the future price movements based on economic, political, environmental and other factors and statistics that effects the basic supply demand chain.
Some of the factors which can effect Analysis are.
- External factors
- Political condition
- Foreign Exchange
- Government Policies in general
- Government Policies pertaining to the sector
- Inflation
- Interest Rates
- Taxation
- Internal Factors
- The Management
- How a company is perceived by its competitors?
- Is market leader in its products or in its segment
- Company Policies
- Employee / Labour Relations
- Where the company is located and where its factories are?
- Financial Statements like Cash Flow / Balance sheets
How My Technical Analysis eBook Can Transform An Average Investor into A Market Analyst
If you're trying to make money from equity market, you should understand how the market works and not bet on your luck.
Technical analysis and chart pattern can revolutionize your understanding about the market and help you understand when is the right time to get into any stock and what should be your possible target for the stock.
My eBook helps you get equipped to understanding the market from practical point of view which means unlike many other technical analysis books my eBook does not explain all possible technicals and patterns that any student need to know.
In short I have explained technicals that I use when trading and investing in market.
Ronak, I would love to get those questions as they can help me improve on my ebook. 
Hi,
I am a newbie investor and i was looking to learn technical analysis but i saw your e-book looking forward ...
Hi,
I just started reading this book and one immediate feedback is about a correction that is probably needed. The National ...
thanks sir its very useful
It’s very difficult to understand these terms ;(
sir i have visted ur site the site was very informativeand very interesting and one can have good knowledge from ur site.
sir, i am the student of mba i just need some help regarding the project work.my project is on mutual funds.
my project title is
“Performance of MUTUAL FUNDS and its awareness among the patrons in present market.”
i got good information regarding but i just need how to compare two mutual funds and decide which among the two are the best.can u please suggest me where can i get the information or if u have can u provide me
thank u
raja shekhar
raja shekhar,
The best place for mutual fund compare is Return and Risk Factor and you can find good information on sites like valueresearchonline / moneycontrol but remember not to see the comments and other people views but the data of the mutual funds because views and comments can be biased.
Good Afternoon Sir, Can you please suggest me some books on equity research. I have still some time to start my project.
These books can help me in preparing for my summer project.
Also what all things are included in equity research other than technical and fundamental analysis.
One more thing your explanation was excellent and now I have a more clear picture about fundamental and technical analysis.
Thank you for imparting your knowledge.
I do not follow books when it comes to research on equity because any fundamental book which can help you understand the basics of equity is enough to start on the research
I would like to know how earning per share is calculated. pE ratio as I came to know from the terms mentioned by you is the division current share price with that of company’s earnings.
And how would I get the details of company’s internal factor. Any particular sight do you suggest.How one suggest or advises the resistance & support level of a share.
Say a company has 10 shares and earns 100 Rs total then EPS is earnings per share which is total earnings / Total number of shares.
Dear Shabbir Ji,
I would like to know about IPO & Mutual Fund and like to invest in such. However, I do not know the fundamentals & the basics.AS you have explained in details about the stock market so I would appreciate you if you do provide some tips on the same.
regards
Binod,
What you would like to know let me know and I would be more than happy to help.
Thanks
Shabbir
thanks, i want to know about IPO how it works and related to investment on it
IPO ( Initial Public Offering ) is something where company first goes public and floats the shares to be traded in the exchange.
i would like to know is that mahindra holidays will offer ipo from june 23rd to 26th at a price of 275 to 325. so would i be able to get it at a price of 275 or i have to pay more & if i bought those then when these shares will be available in the exchange to trade. (see i m fresher in this market)
regds.
Any IPO when opens for application people apply for it at the price range. If more people apply for the IPO at the higher price the lower price application would get rejected and amount would be refunded. If less no of people apply for the IPO lower and lower price range would be eligible for the shares.
Normally it takes 21 Days for you to get the shares and after 21 days anybody can trade in the shares.
shabbir gi, thanks a lot for providing answers to my query.
The pleasure is all mine.
Sir, good information and great to see your generosity.
Sir, i am a student, and i am really aiming to become a great financial analyst, what would be your suggestion so that i can achieve my aims, i have got to prepare summer project and i am thinking to prepare a project on fundamental and technical analysis of telecom companies.
And do companies recruit fresh MBA grads for equity research profile.
I have one more year to complete, sir, so what would you suggest to fresh MBA students who want to become financial analyst.
I am waiting for your positive reply.
Sir do answers all the questions.
Thanking you in advance.
Regards.
Fresh MBA Students can get into this and I know some of my friends are into this.
Sir what theoretical concepts should i be well versed with or if u can recommend any books before applying to the job.
Thanks in advance.
When you have a degree of MBA in finance I guess you should have everything related to the information covered and instead of learning new things you should try revising them.
hello sir, 1st of thank you very much for sharing ur knwledge and guiding us. as im going for MBA final project in Finance in 2 months, iam not able to select any topic for dz. i would b beneftd if i do t in invt areas. bt i feel i hav lack of practicl knwldg for this.my stregth is my passion to do ‘smthing best’ and hope you will guide me in this regard..
thank you sir..
I would love to
Dear Sir,
Kindly provide me a good site where i can see UPDATED (current one) PE, EPS, BV and other related fundamental information of a company.
Apart from your broker and advisor you can look at indiaearnings.com
Sub:Project title for marketing in INDBANK merchant banking services ltd
i got project in INDBANK merchant banking services ltd(A subsidiary of Indian bank) which offers services like
* Merchant Banking
* Advisory Services
* Stock Broking
* Depository Participant Activities
* Distribution of Mutual Fund and other Investment products
* Online Trading
or topics in associate with Demat account opening and trading account opening.
please kindly recommend few topics which will helps me learn about merchant banker activities and which also helps me to build my career
sir,I am a final year mba student,now i’m doing a project on fundamental and tehnical analysis,the tools are used by me are simple moving average,exponenetial moving average and roc for techniacl analysis.i don’t know how to do the data analysis and interpretation,i need to submit the project in this week .can you help me ?
What help you want from me?
hello sir
i am jigar
i am an mba marketing student student
my futer interest in forex technical and fundamental analysis
as i not opted finance beacuse i am an engineer and i am an extrovert personality
i am not interested in tax and all dat debit creadit or company financial analysis study so i opted marketing
i am only interested in market(forex stock commodity etc)
i also have 2years experince as sub stock broker
right now having coll final project of 6 months so how can i tie up any stock exchange with marketing.
kindly reply me
Jigar, I am not able to understand your question.
i am marketing student and want2make carrier in stock exchange specially in forex tech analysis
right now having final project of coll
which topic should i choose which help me further in stock exchange field
The one that you like the most.
sir, seen ur site, very nice, thanks for providing ur knowledge. im doing intra day trading for the past 6 years, i know only technical & fundamental analysis, (now MBA (finance)age: 24), what are things, should i know to improve my trading !!!,
i did not concentrate on F&O, and Forex, now i would like to enter, suggestions pls!!!, Books? one more question, i have software, the broker provide to me,(reli) it gives hourly data on equity for one day only, i need past data like historical data, where could i get the data !!!(hourly price for equity script), thanks in advance.
Hi Shabbir,
Can you suggest some site or book that explains the fundamental and technical analysis and their associated jargons (like price to book ratio, p/e ratio, stochastic analysis etc) in layman’s term. I am interested in reading that but I do not know where to start from.
thanks
Subal
Subal, Have you seen http://shabbir.in/the-warren-buffet-way-book-review/
Thanks for this one Shabbir. Currently I am reading a book “One up on Wall Street” by Peter Lynch, suggested by one of my friends. While the book is interesting but it talks more about the author’s way of figuring out multibaggers. It is more theoritical, and the backdrop is that of US economy. I am looking for something more concrete (or scientific) like how to analyse the quarterly / annual results of a company .. what numbers should I look for in that report … why is total equity holding vs. long term debt ratio an important factor in judging a company. Since you must have gone through this book, you can tell me beforehand if the Warren buffet book meets my requirements or not.
Subal, Not fully because what you are looking for is more like bookish knowledge but the one I prefer reading is more like patterns and equity trading way.
Thanks Shabbir.
The pleasure is all mine
thanks for ur help
The pleasure is all mine ..
hi sir, my name is nandish now i am doing my mba final year i like to do the project on techincal analysis so which are the stasistical tools can we apply for doing this project. please suggest me the good answer
Tools like what?
Hello sir, im nikki, right now pursuing mba final year and im doing a project under mutual funds in a beverage company whose major investment is in mutual funds (all are gilt-edged securities). Im confused regarding what topic i can give and as it is gilt edged securities it is risk free so i cannot analyse risk and return. could you please suggest me a topic and how can i do a project on it.
I am not sure what you can and want to include in your report but I do not see a risk free business till date. Even an FD can be risky if the bank goes bankrupt.
thank you…but what can i find using the company’s daily investment in five different public sector mutual funds?
can u suggest me some topics tht i can do in a regional stock exchange.
Can u pls tell me what kind of projects i can take up for my summer interns in technical analysis????
Depends on where you are doing your projects.
Sir
i am BE CSE + MBA Finance i am interested in stock markets but the basic salary they are providng is very low.How to overcome this problem.
Who is providing the basic salary in stock market? Are you talking about your some job? If yes you should be looking for a change in Job.
sir , i m doing my summer intership in religare and my topic which i selected is fundamental and technical analysis. but they are not providing much corporation in sitting in terminal,i m doing marketing work much more in this condition.what you will suggest me, i want to change the topic…
You have to be asking your teacher about how you can change the topic.
Hello Shabbir,
high (peak):
Start of Bull Phase = higher Low + break above previous High.
The end is signaled by a lower high (peak), followed by a decline below the previous low (trough):
End of Bull Phase = lower High + break below previous Low.
A bear trend starts at the end of a bull trend: when a rally ends with a lower peak and then retreats below the previous low. The end of a bear trend is identical to the start of a bull trend.
In short the Technical Analysis can be summed up as
Could you please provide the images which suggest bull trends and bear trends.
Regards,
Parashuram
Parashuram, See my book where you will see lot of such explanations.
Dear Sir
I have taken Sip for HDFC top 200 and DSP black rock 100 Equity Fund
i have already given 5 installments
yesterday i have checked about DSPBR performance casually its going down i have invested 5000 and value for it was 4600 do you advise to keep doing it or should i withdraw please advise me best investment gold funds also
Madhavi, market is down 10% and so is your MF and that is expected but the decision to remain invested or withdrawal depends on your risk appetite and so it has to be taken by you.
About gold investment see http://shabbir.in/gold-or-gold-etf/ and http://shabbir.in/best-gold-etf/
hi
i’m an m.b.a student. i would like to know more about technical analysis so that i can take up project in that.
kindly guide me
What more you want to know Kriish
i would like to learn and understand whole about technical analysis whr to find out the study materials?
Kriish, for student I would not recommend my book because it is more practical guide and so I will suggest the following books.
http://shabbir.in/technical-analysis-books/
Especially the Technical Analysis: The Complete Resource and Technical Analysis for Dummies