Investing in the stock market can be exciting and rewarding, but it also comes with inherent risks. One way to mitigate those risks is by conducting thorough research and analysis before making any investment decisions. Two commonly used methods of analysis in the financial world are fundamental analysis and technical analysis. Fundamental analysis and technical analysis are very crucial in share market as they help us to make intelligent investments for getting fruitful returns in future. Both of these approaches play a crucial role in helping investors make informed investment choices, and understanding their importance is essential for successful investing. Fundamental analysis helps you to understand the company which you are interested to invest and technical analysis helps to understand the perfect entry point for a stock. Both fundamental analysis and technical analysis are very prominent in order to make intelligent investments. Investing can be a complex endeavor, and many investors often find themselves overwhelmed with the myriad of options, strategies, and information available in the financial markets. However, it’s not just the external factors that make investing complicated , the investors themselves can sometimes contribute to the complexity.
Fundamental analysis comprises of qualitative and quantitative analysis of a company. Qualitative analysis includes understanding the business model of the company , Manage background of the company ,business ethics used to sustain the business , interest of the promoters in business , whether the business has a MOAT ,related party transactions , and the industry in which the business is operating .
Quantitative analysis includes understanding the company’s the growth of the company by analysing the qualitative data. It includes understanding the growth and profitability of the company, earnings and total revenue of company , profit margin of company , expenses and debts of the company , assets and liabilities of company ,investments made by the company , understanding the financial ratios and cash flow of the company. Source of data for qualitative and quantitative analysis can be gathered from annual report of the company, websites, media etc.
Technical analysis is a trading discipline that enables us to understand and find intelligent trading opportunities with the help of past market data, volume and price movement of a stock. Technical analysis is relevant as stock market repeats history and technical analysis helps to study and analyse the past data and that provides us the opportunity to make intelligent trades. With the study of chart patterns, technical indicators and other tools technical analysis is very prominent to make intelligent and profitable trades in stock market. By repeating the history market is bound to create support and resistance zones. Technical analysis help to identify the support zones to make a perfect entry for the stock we are interested to buy and hold it for future.
IMPORTANCE OF FUNDAMENTAL AND TECHNICAL ANALYSIS BEFORE INVESTING
- IDENTIFYING THE RIGHT TIME TO INVEST
The most prominent part before investing to any asset class or engaging our hard earned money is to do proper analysis and understand the right time to invest. Fundamental analysis helps investors identify companies with strong financials, competitive advantages, and growth potential. By evaluating a company’s financial health and industry position, investors can identify undervalued or overvalued stocks, which can present investment opportunities. Technical analysis, on the other hand, helps investors identify trends and patterns in stock prices and volumes that may indicate potential price movements. This can help investors identify buying or selling opportunities based on historical price patterns. Both fundamental and technical analysis helps investors to find when the asset class is undervalued and make right investment decisions.
- UNDERSTANDING RISK MANAGEMENT
The actual reason behind every lost story in market can be said as investors poor risk management. Proper risk management and having proper understanding about how much risk an investor is able to take to make a reward. fundamental analysis and technical analysis play a crucial role in managing investment risks. Fundamental analysis helps investors assess a company’s financial strength, stability, and growth prospects, which can help identify risks associated with the company’s financials, competitive positioning, and industry trends. Technical analysis helps investors identify potential price trends and reversals, which can help manage risks associated with short-term price movements. By understanding the risks associated with an investment, investors can make informed decisions about their portfolio allocation and risk tolerance .Proper position sizing and risk management are the key to become a successful investor.
- MAKING INTELLIGENT LONG-TERM INVESTMENT DECISIONS
Doing proper research and analysis before investing into a stock is prominent to understand whether the fundamentals of a company is strong and to understand whether the share price of a company is undervalued. Fundamental analysis is particularly important for long-term investors who are interested in holding stocks for an extended period. By evaluating a company’s financials, management team, and industry position, investors can assess the company’s long-term growth prospects and potential for generating returns. Doing proper technical analysis helps an investor to understand the important price levels of a stock where the investor can consider buying to earn fruitful returns in future.
- MAKING RIGHT INVESTMENT PORTFOLIO DIVERSIFICATION
Portfolio diversification is very significant in investment as it is very prominent when it comes to risk management. Having a well-diversified investment portfolio provides the investors better returns when the index is underperforming, during market uncertainties and even during high inflation period. Fundamental analysis provides insights into different sectors, industries, and companies, which can help investors diversify their investments across different asset classes, industries, and geographies. Technical analysis, on the other hand, can help investors identify different types of stocks, such as growth stocks, value stocks, or dividend-paying stocks, which can provide diversification within a portfolio. Having a well-diversified portfolio also helps the investors to safeguard their investments when the markets is in a bearish trend or in a panic.
Our Indian economy is growing and stock markets and other sectoral indices are giving great returns in the long term. But even though the reason most of the retail investors in India are not able to generate Bank FD returns from the market is because of lack of investment knowledge and proper market research which includes fundamental and technical analysis of any asset class. In the long term perspective markets are generating great returns and the investors are making their investments complicated.