Fundamental Research vs Technical Research For Stock Market
To gain better returns from the stock market and avoid losing money, one must research thoroughly before investing. This research would help the investor to decide where and how to invest, so as to get good returns. The research is done extensively on different parameters depending on the requirements. There are two types of research done in the stock market namely: Fundamental and Technical Research. Both of the methods serve the purpose of earning through stock market but are differently implemented and used.
Fundamental research is widely used by the investors. It is used as a beforehand analysis for long term investments. In fundamental research, more emphasis is laid on the value of the stock which is determined by analysing various aspects of the company.
In this methodology, the price of the stock does not hold much importance. Rather, the economic aspects and its effect on the company’s health are analysed. In addition to this, other important factors which could affect the stock directly or indirectly in the long term are also observed. These factors include the following:
- Financial Data: Financial data of the company such as balance sheets, quarterly results etc. are deeply analysed. This is to ensure the company’s performance in the long run. All the details in these documents are studied precisely so as to get a clear idea about the company. Revenue model, assets, and liabilities are also analysed to determine the company as a good or bad stock.
- Industry Trends: All the details related to the industry of stock are analysed. The scope of industry in future, factors affecting it and its growth rate are deeply studied. Patterns are made to predict the performance of the industry, and thereby the future value of the stocks.
- Market Competitions: To determine the hold of the company in the market even its competition is studied so as to make a complete evaluation. This would help in determining the strength of the company and its future growth prospects amidst the competition.
- Economy: The updates of the economic events are also taken into account. The economy affects the company, also affecting the future value of stocks. Thus, a proper track of economy and its effects are maintained and analysed.
Fundamental research uses the concepts of Return on Equity (RoE) and Return on Assets (RoA). The sources of the research data are mainly the financial statements. It oversees both the past history as well as the future aspects. Fundamental Research is crucial for long term investment. It is considered as a traditional approach where the value of the company remains prominent.
Technical Research is widely used by the traders. It is the analysis made before short term investments. In Technical Research more emphasis is laid on the price of the stock. The future trend is determined by rigorously monitoring the past values of the stocks.
A trend is determined by deeply analysing past and current value. Once a trend is confirmed, it helps in predicting near future values. Thus, a trader buys a stock at a lower rate, in an uptrend and sells off as soon as a decent price rise is observed. The factors which are deeply analysed are as follows:
- Price Movements: Price movements are rigorously monitored. Patterns of trends are made using these price movements. These are used to predict fluctuation and near future prices. The stocks are not to be held for a long time. So, more emphasis is laid on the margin obtained between the buying and the selling price. This margin is optimized by using analysis made by studying price movements.
- Market Psychology: Market Psychology plays an important role in short term price fluctuations in the stock. It is always better to analyse it to gain most out of it.
Technical Research is crucial for short term investments. It is a statistical approach where the price of the stock is prominent.
Both the research methodologies are important to gain in the stock market. But their process and objectives remain different in the above manner, which can be used as per the convenience. To gain maximum returns, try to implement both these methodologies before you invest in a stock.
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