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Shabbir is a developer in the field of Applications, web as well as database designing and is devoted to the optimization and usability of the code. Apart from doing some Share trading he maintains SEO forum and is a C++ addict.

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Fundamental and Technical Analysis

February 12th, 2009 • Related • Filed Under

Image Credit : kevinzhengli

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: Supply and demand Seasonal cycles Weather Government policy	Charts are based on market action involving: Price Volume Open interest (futures only)

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:

Supply and demand
Seasonal cycles
Weather
Government policy

Charts are based on market action involving:

Price
Volume
Open interest (futures only)

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
1. Political condition
2. Foreign Exchange
3. Government Policies in general
4. Government Policies pertaining to the sector
5. Inflation
6. Interest Rates
7. Taxation
Internal Factors
1. The Management
2. How a company is perceived by its competitors?
3. Is market leader in its products or in its segment
4. Company Policies
5. Employee / Labour Relations
6. Where the company is located and where its factories are?
7. Financial Statements like Cash Flow / Balance sheets

What next?

There Are 30 Responses So Far. »

Comment by Hassan Latif Mughal on 23 February 2009:

It’s very difficult to understand these terms ;(
Comment by raja shekhar sharma on 11 April 2009:

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
Comment by Shabbir Bhimani on 11 April 2009:

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.
Comment by SAGAR SHINDE on 19 May 2009:

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.
Comment by Shabbir Bhimani on 22 May 2009:

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
Comment by binod mallik on 30 May 2009:

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.
Comment by Shabbir Bhimani on 11 June 2009:

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.
Comment by binod mallik on 17 June 2009:

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
Comment by Shabbir Bhimani on 18 June 2009:

Binod,

What you would like to know let me know and I would be more than happy to help.

Thanks
Shabbir
Comment by binod mallik on 18 June 2009:

thanks, i want to know about IPO how it works and related to investment on it
Comment by Shabbir Bhimani on 18 June 2009:

IPO ( Initial Public Offering ) is something where company first goes public and floats the shares to be traded in the exchange.
Comment by binod mallik on 19 June 2009:

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.
Comment by Shabbir Bhimani on 21 June 2009:

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.
Comment by binod mallik on 21 June 2009:

shabbir gi, thanks a lot for providing answers to my query.
Comment by Shabbir Bhimani on 22 June 2009:

The pleasure is all mine.
Comment by Sunil Parpade on 4 July 2009:

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.
Comment by Shabbir Bhimani on 5 July 2009:

Fresh MBA Students can get into this and I know some of my friends are into this.
Comment by Sunil Parpade on 5 July 2009:

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.
Comment by Shabbir Bhimani on 5 July 2009:

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.
Comment by prati on 5 November 2009:

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..
Comment by Shabbir Bhimani on 5 November 2009:

I would love to
Comment by Anad on 14 November 2009:

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.
Comment by Shabbir Bhimani on 14 November 2009:

Apart from your broker and advisor you can look at indiaearnings.com
Comment by praveen on 7 January 2010:

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
Comment by aravind on 19 June 2010:

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 ?
Comment by Shabbir Bhimani on 20 June 2010:

What help you want from me?
Comment by jigar on 31 August 2010:

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
Comment by Shabbir Bhimani on 31 August 2010:

Jigar, I am not able to understand your question.
Comment by jigar on 31 August 2010:

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
Comment by Shabbir Bhimani on 31 August 2010:

The one that you like the most.