Fundamental Analysis and Technical Analysis

For analyzing the stock markets, Fundamental Analysis and Technical Analysis are the two major methods.

Although, both the methods are at the opposite ends of the band. Still, both of them are used for researching and forecasting future trends in stock prices. Therefore, most of the new investors and traders have lots of questions.

Like, What is Fundamental Analysis and Technical Analysis of Stock? Which is better between Fundamental Analysis and Technical Analysis? So, today let us find the answer to these questions.

Therefore, let us start by understanding the Fundamental Analysis and Technical Analysis.

Definition of Fundamental Analysis:

Fundamental Analysis is a practice of analyzing securities by determining the “basic value” of the stock. So, a detailed inspection of the basic factors has a direct effect on the economy, industry, and the company. In addition, you can identify the opportunities, where the value of the share varies from its current market price.

Definition of Technical Analysis:

Technical analysis is a method of determining the “future price” of the stock. So, with the help of charts, you can recognize the patterns and the trends. So, you can determine the share price on the basis of the interaction of demand and supply forces operating in the market.

Difference between Fundamental Analysis and Technical Analysis

Fundamental Analysis:

1. This method is to examine the security, and to find the inherent value for long term investment opportunities. Investors use this method, so they can increase the value of their stocks in the long term.

2. Fundamental Analysis aims at determining the true core value of the stock.

3. The decisions are based on the information available. And the statistics evaluated are financial statements, management processes, etc. These are some of the factors which may have an impact on the company’s stock prices in the future.

4. You need past and present data for analysis.

5. You can determine the intrinsic value of the stock by analyzing an income statement, balance sheet, return on equity, etc.

6. You can decide the future price of the stock on the basis of past and present performance and success of the company.

Technical Analysis:

1. Technical Analysis is a method of evaluating and forecasting the price of a security in the future. It is based on the price movement and volume of transactions. Therefore helping us in identifying the potential of stock in the future.

2. You can use Technical Analysis method for analyzing short term trading. Because this helps in identifying the right time to enter or exit the market.

3. The decisions are based on market trends and the current prices of the stocks. You can calculate the price movements of the stocks by using past charts, patterns, and trends.

4. Technical Analysis requires only the present data for analysis.

5. Similarly, future price trends are analyzed on the basis of chart patterns, technical indicators, etc.

6. You can use charts and indicators to depict the future prices of the stocks.

Which is better?

• Fundamental Analysis is meant for investments, and
• Technical Analysis is best for day trading.
• Fundamental Analysis is to wait for the prices of the stocks to increase and make a profit, but
• Technical Analysis is to make an instant profit, without waiting for longer-term.

Conclusion

So, let’s check out the conclusion of Fundamental Analysis and Technical Analysis.

In Technical Analysis the trader needs to develop their own strategies. Therefore, they need to be flexible with them based on the situation. Because markets behave differently at a different time and an all-rounder right strategy may not always work.

Investors use Fundamental Analysis so that the value of their stocks increases in the long term. Because there are differences between Fundamental Analysis and Technical Analysis; but both play an important role in investment goals.

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What is the Trade to Trade Segment in Stock Exchanges?

Introduction

In an attempt to curb speculative trading, the exchanges move stocks to the “Trade to Trade”, “T2T” or “T” segment. The NSE and the BSE, do this in consultation with the Securities Exchange Board of India (SEBI).

The move is a part of  preventive surveillance measures taken by the exchanges to safeguard the interest of investors.

Criteria for Shifting Scrips to ‘Trade to Trade’ segment

·         The criteria for shifting scrips to/from Trade for Trade segment are decided jointly by the stock exchanges in consultation with SEBI.

·         This criterion is listed on their respective websites and reviewed periodically.

·         As on the review date, the security should have been in the 5% price filter band for at least 22 trading days. If a scrip does not meet this criterion, it cannot be moved to the “T” segment.

Impact on Trading

1. In this segment, no speculative / intraday trading is allowed.
2. Delivery of shares and payment of the consideration amount are mandatory.
3. Each trade has to result in delivery, even if you have bought and sold the shares during the same settlement cycle.
4. To sum up, in the ‘T2T’ segment:-

• If you buy shares, you have to pay the money and take delivery.
• If you sell shares, you have to give the delivery of shares and you will get the money.
• No netting off is allowed, which means if you buy today and also sell today, the sell position will go into auction, as you will not be able to give delivery, and you will have to pay a very heavy penalty.

Should one invest in stocks in ‘T2T’ segment or stay away?

·         It must be understood by traders, that because of the points listed above, the volume in these scrips is therefore all delivery volume, which is, in fact, a good measure of ‘true interest’ activity, to some extent.

·         A high delivery volume could mean that a large number of investors are willing to buy and hold the scrip.

·         The “T2T’ segment is not the worst segment for a scrip to be in. In fact, you are protected with regard to price movement and complete speculation.

·         The ‘Z’ group and not the ‘” T2T’ the group is the worst, and the one to be avoided. This was introduced by BSE in July 1999 and includes companies that have failed to comply with the listing requirements or have failed to resolve investor complaints or have not made the required arrangements with the depositories for the Demat of their securities.

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