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To analyze stocks, forex, real estate, projects, cryptocurrencies and other instruments. There are two methods that investors must understand and implement. The two types of methods are fundamental analysis and technical analysis.
Although both are helpful in choosing the best investment tool. But the objects studied in these two methods are different. So does the effect and use. Understand what fundamental and technical analysis is. And what is the difference in the following article?
What is fundamental analysis?
Fundamental analysis is a set of methods used to understand the factors that may affect the price of an investment instrument. Usually, these factors include business conditions and related companies, as well as economic conditions at home and abroad.
Because each investment tool has different characteristics. Therefore, it is not uncommon to study different fundamental factors. To analyze the fundamentals of a stock, for example, investors and traders need to know the financial status of a company. While forex fundamental analysis is not necessary.
Fundamental analysis is often used to examine the financial and business health of an investment instrument or project. good investment tool They are generally quite safe and suitable for long-term investments.
Fundamental Analysis Methods
There are two methods that you can use to check the underlying conditions of the investment tool. (Especially stocks) two approaches are Top-down analysis and bottom-up analysis.
It’s getting closer top-down analysis Investors analyze the economic conditions in the country and abroad first. Then analyze the company’s industry condition and the company’s financial status.
For example, you want to invest in INDF stocks. In this way, you first look at the state of the Indonesian economy. Then look at the conditions of the business sector. fast moving customer products (FMCG) Only Indofood Financial Conditions (INDF)
on the contrary bottom-up analysisYou study the condition of INDF stocks first, then you study the condition of the FMCG industry and the domestic and international economy. You can choose between these two methods as you like.
analytical tools
There are many tools to examine the fundamentals of any investment tool, business or project. Some of them are:
- Return on Investment (ROI).
- Return on Equity (ROE).
- Net Present Value (NPV)
- Benefit/Cost ratio
- Debt to Equity Ratio (DER).
- Debt to Asset Ratio (DAR).
- Price to Income Ratio (P/E).
- Related business news
- Macroeconomic indicators such as inflation, GDP and interest rates
To create a comprehensive and verifiable analysis You should not examine various financial metrics. above in a single account period
What is technical analysis?
Technical analysis is an analysis method that uses the historical price of an investment instrument to assess the future price of that investment instrument.
Because the material used in this method is price history. Technical analysis is therefore often used only for investment instruments in the form of financial assets. not a project
This analysis is based on the assumption that the price movements of financial instruments create certain patterns. And the price patterns of financial instruments will emerge in the future.
analytical tools
You can perform technical analysis with the following tools:
- Charts. The meeting between the supply and demand of an investment tool allows dots and dots to be connected in lines or bars known as charts or graphs. candlestick shape to do technical analysis
- technical indicators. Technical indicators are generally statistical equations. that traders can use to predict price changes. Examples of these technical indicators are: moving average (Moving Average) Fibonacci’s retreat, Bolinger Band and so on
both technical analysis using charts (Price movement) and technical indicators can be automated using software available in investment and trading applications. An investor’s job is to make an effort to understand each technical chart and indicator. And choose the best technical analysis tools to choose the best investment tools as well.
Difference Between Fundamental and Technical Analysis
1. Objectives of the analysis
The objective of fundamental analysis is the financial and business conditions of the company. as well as economic conditions in the country and abroad While technical analysis analyzes the price history and transaction volume of investment instruments. This historical price and transaction volume is used to estimate the future price of an investment instrument.
2. Resources
Resources for fundamental analysis can be found in financial reports. Company annual report Encryption White Paper and economic news Technical analysis data is generally available in trading applications in the form of real-time price charts and is provided in the order book data.
Usually, good trading and investing applications have special features that show basic asset information and economic news. You can access economic news applications such as Yahoo Finance, Bloomberg or Marketwatch to keep up with the latest stock price movements and related news.
3. Usage
Fundamental analysis is often used to analyze a company’s financial health and to assess whether an investment tool is suitable for long-term investment. While technical analysis is often used for short-term and very short-term investment analysis, however, you need to combine these two types to make profitable investments based on your needs, goals, and investment style.
As mentioned above Fundamental analysis of investment instruments may differ from other investment instruments. and can be used to analyze unprecedented investments such as real estate investment projects
This does not apply to technical analysis. Technical analysis is generally used for financial instruments. which coincidentally contains historical price data. In addition, technical analysis tools for stocks, forex or other instruments Quite the same. For example, Fibonacci retracement can not only be used in stock analysis. But can also use forex and cryptocurrencies.
4. Objectives
Fundamental and technical analysis can be used as an indicator to choose the right investment tool. especially Technical analysis can be used as a benchmark for determining when to buy and when to sell investment tools.
Although fundamental and technical analysis differ, it is important to apply them simultaneously to test the feasibility of investing and trading. As an investor or trader Of course, you don’t want to spend your money on investment tools with fundamentals and bad opportunities, do you?
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