What kind of Investors use Technical Analysis and What Kind of Investors use Fundamental Analysis? Though I am more inclined towards technical analysis I will try to answer this question from a neutral point of view.
When to use Fundamental Analysis
If you are trying to invest into companies business and can remain invested into the stock for few years, you should focus on the fundamentals of the company. Something I did when investing into Hitech Plast about 15 months ago.
When to use Technical Analysis
If you are a day to short term (aka weekly) trader you should focus more on the technicals of the stock because fundamentals of the company has very little impact on the daily or hourly price movement.
When to use both the right way?
The scenario looks pretty clear as to what kind of investors use Technical Analysis and What Kind of Investors use Fundamental Analysis but most of us do not fall into the above categories of trader and investor. We are mostly a positional trader or short-term investor.
- By position trader I mean those who take up position with a time frame for a month or two and expect good news outcome and profit out of that news.
- By short-term investor I mean a positional trader with an investment horizon of 6 month’s to a year’s time frame.
And this is where the actual dilemma of what you should be using – fundamental analysis or technical analysis comes in.
The one that works best for me is I use fundamental analysis and technical analysis both. Fundamentals of the company lead me to the stock and the technicals decide when I get in & when I get out of that stock. You can see how I use my long-term portfolio to trade for profit.
I have seen most people use both the analysis in the wrong way which is they take a technical trading position and keep holding the stock based on good fundamentals or vice versa.
What you do?
So my question is what you use – Technical or fundamental analysis and how? Share your strategy in comments below.
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{ 19 comments… read them below or add one }
Shabbir da,
What’s your take on Infosys at this moment, technically as well as fundamentally. After its Q4 numbers were announced, the stock is down about 13%, I am into capital markets since last quarter of 2009 and have never seen Infy take such a beating in one session. In fact for past couple of quarters, this has become a regular feature with Infy declining at least 3-4% post results, but this time it was over the roof. Currently, at 2400 levels, what’s your take on Infy, keeping in mind the guidance quoted by management and also why so much of a correction in Infy, is it in-line with its Q4 results or do you have a feeling that markets have over reacted ? What are the charts telling ?
Rishi, I am not expert at fundamentals and so I would prefer the downtrend to stop and see a support before taking my head out and buy based only on fundamentals.
Thanks Shabbir da for your view. Thanks a lot for clearing the confusion, i was confused seeing Infy in the last session.
The pleasure is all mine Rishi.
Hi Mr Shabbir
What are your views on JSWISPAT and Reliance industries I am Holding 5000 JSWISPAT @ 19 and 85 RIL @ 1065
Gajanan, It does not matter what my views is and what matters is how do you see them technically. Still my views are Reliance is in a long term down trend forming lower tops, lower bottoms each time. JSWIspat has formed a bottom and if it can cross above 16, it should be go higher.
Gajanan,
Reliance Industries@1065 will be a bit of a long term hold for you probably, reliance i suppose is in a downtrend for medium term. There are concerns over its falling gas output from kg-basin, lower revenues from petro business due to drop in gross refinery margins and also reliance spending money on many things not directly connected to its revenues. It took stake in EIH hotels, bought infratel broadband and also was in news for funding tv18 group to buy out some media network in india (etv i think, though not 100% sure).. All these spendings people are wary of, and to add to that falling kg-basin gas output. All these factors are ringing in bearish outlook of Reliance Industries for medium term. It is fact that Reliance is underperforming for quite some time now. Shabbir da, please correct me if any info is grossly wrong here. Very nice tech analysis by you …
Not at all Rishi, what you have said is fundamental issues of Reliance.
Thanks Rushi, Shabbir Da
Shabbir, I agree with you and I do look at both. but you did sum it up about short term price moves versus long term. good post.
Thanks for the feedback David.
Shabbir da,
To start with, I am a resident of Kolkata and also not from financial services background like you, but I have keen interest in learning about capital markets.
As always, nicely explained. For referring to chart patterns, any software you would recommend (like the ones given in your book) are pretty good.
I am in favour of swing trading, not purely intraday as well as not willing to hold on for years. What specific types of charts can be helpful for swing trading? Also, I feel fundamentals are sometimes deceptive and to gather that amount of information is difficult at times. For example, how could anybody predict that KFA (kingfisher airlines) can come down to 20 something levels from around 70/75. After all, it was Vijay Mallya brand and one of the topline airlines in the country, still this bad fate all of a sudden. Please share your thoughts Shabbir da.
Rishi, good to see your interest in finance. About software you can use anything from Amibroker to Metastock to your brokers desktop application provided it has charts. I personally use Interactive Broker’s Trader Work station but I don’t recommend Interactive Brokers to non-pro investors because there is very little human help you get in trading hours.
Regarding fundamentals of aviation industry, I always had my doubts because I have read it somewhere that there is not even a single airline in the world that makes profit in a route where there are more than one flying career option.
So it is not bad fate all of a sudden and it was always the fate. Air Deccan was the only person who actually pioneered low flying career option and sold its business to make money out of it.
Very nice explanation as always. Its pleasure to read your article dude….
The pleasure is all mine Md Jamil.
Frankly, I am not sure !
Fundamental, coupled with technical if I’m looking to investing in a company now and hope to see my investment grow about 3 times to 5 times in the next 10 years. Technical, if I want to trade a lot of futures during the day, during a week or during an entire month.
Does fundamentals coupled with technicals for a 10 year investment work?
Fundamentals of the company help to decide the strength of the company and its shares whereas technical analysis will help in selecting the right time to enter in the company stock so that u get the stock at the right price of a good company.