Analysis of Financial Markets

Fundamental and Technical Methods
for Gauging Assets

The analysis of a financial market can be divided into two broad types: fundamental and technical. The former approach explores the prospects for an enterprise in the real economy in order to fathom its securities in the financial arena. In this light, prime examples of corporate assets are found in stocks and bonds.

By contrast, the technical mode examines the past and current behavior of a security in the financial forum. The object is to scrutinize the patterns in the market as a way to divine the future.

Myriads of investors swear by one form of analysis or the other. Depending on the choice, a player in the field may be pegged as a fundamentalist or a technician.

Each school of thought boasts a host of followers in the financial community. Given the difference in focus, though, the two camps are often viewed by the members themselves as well as outside observers to be distinct and opposing sects.

Upon closer inspection, though, the divergent methods are largely complementary rather than conflicting. As a rule, the fundamental mode is most useful in sizing up the direction of the market over the long haul. Meanwhile, the technical scheme shows its mettle in picking out the turning points in the market over the shorter range.

In sizing up an equity, for instance, the fundamental tack involves an appraisal of the underlying company from a commercial standpoint. An example of a business trait lies in the rate of growth in earnings, the level of debt compared to assets, or the share of the market within an industry.

On the other hand, the technical mode deals with the action in the financial ring. For this purpose, the crucial factors lie in the price of the asset and the volume of trading over time.

Simply put, a fundamentalist mulls over the prospects for a business in the tangible economy while a technician picks out pointers from the financial bazaar. To many folks, these two methods appear to be diametrical opposites. For this reason, in tandem with personal tastes, the players tend to concentrate on one methodology or the other with scant regard for the competing scheme.

The lopsided bent shows up not only in the case of stocks, but other types of assets as well. For instance, an investor might sketch out the prospects for a bond by plumbing the financial arena or the real economy. The mainstay of the former tack is the historical pattern of price and volume for the security. Meanwhile, a sample of the latter scheme involves the odds of bankruptcy for the issuer, or the outlook for interest rates in the commercial environment.

Not surprisingly, each approach to profiling the market has its own combo of strengths and limitations. For this reason, there is no need to rely exclusively on one mode or the other. Instead, the adroit player can draw on both methods in a synergistic fashion in order to fix up a wholesome agenda.

In this way, a composite model of fundamental and technical factors can provide a firmer framework for grasping the marketplace. The mojo of the hybrid scheme shows up in the prediction of the market as a whole or any of the securities in particular.

To sum up, the wily investor can take up a medley of techniques from both schools of thought. In this domain as in so many others, the agile player can stand astride two divergent camps and draw on the best of both tracts.

Given this backdrop, there is no need for anyone to lean on a single approach. In fact, a cadre of wily investors does take up both types of analysis to a greater or lesser degree. A case in point is the gamer who selects a stock based on the prospects for the underlying company, then draws on technical cues in order to pinpoint the best times to buy or sell the security.

As a rule, the persona of an investor as a fundamentalist or technician is a matter of degree rather than category. Granted, a lot of folks may rely entirely on one method or the other. But deft players wield a mixture of techniques culled from both niches.

The value of the dual approach stems from the complementary nature of the competing schemes. When the turnout of one procedure happens to be consistent with the outcome of the other, then the investor can vest more confidence in the results.

On the other hand, the distinct methods will at times lead to conflicting cues. In that case, the investor would do well to proceed with a heap of caution.

From a conceptual pose, the fundamental and technical modes can be viewed as contrasting schemes. From a pragmatic stance, however, the long-standing debate between the two schools of thought turns out to be a non-issue.

There is no good reason to stick solely to one approach or the other. Instead, the adept player can draw on both the fundamental and technical modes of analysis in order to build up a rounded view of the market and thereby drum up a sounder program of investment.