Why Traders Need A Blend Of Fundamental And Technical Market Analysis

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The stock market has millions of opportunities for one to invest their money. Careful planning is needed to ensure that you make profits from your investments.

While deciding the stock to put your money in, you will need to evaluate the stock’s performance, market sentiments, your risk appetite, capital, and several graphs and charts.

If you think you have no means to do that, think again – blending fundamental and technical analysis is the answer. Let us first see what these technical terms mean.

Types Of Market Analysis

Since you will be investing your hard-earned money in the stock market, you need to have a mental picture of what to expect from it. 

Irrespective of whether you are making an intraday trade or a positional, short-term, or long-term investment, you need to analyze the stock before deciding if it is the right fit for you.

Fundamental Analysis

While talking about the fundamental analysis approach, one’s focus is usually on undervalued or overvalued stocks. You would read up on the company’s management, annual reports, and other financial statements.

You will then put these details against the general industry conditions to evaluate where the different stocks stand. Usually, this type of analysis is used while making a long-term investment.

Technical Analysis

In technical analysis, your focus will be on evaluating the present trade volume and historical price movements to understand the trend line and other momentum-based indicators. 

You can then use these to identify support and resistance, which will help you make trading decisions. It is usually short-to-mid-term investors who use this approach to stock analysis.

Both approaches will help you understand a stock, but neither is sufficient to create an efficient stock quote api on its own. To do justice to this task, you’re required to thoroughly understand technical and fundamental analysis. 

To learn the importance of merging these two forms of stock analysis, you need to have a basic idea about interconnected markets.

Interconnected Markets

In any economic system, markets will always be interconnected, and as a trader or investor, you need to understand these co-relations before you put in any money. 

For example, let us consider the relationship between the livestock market and that of the livestock feed. With a rise in the price of livestock, the price of feeding and raising each animal increases.

As a result, farmers end up liquidating herds quickly, thereby creating a scenario wherein there is a reduction in the future supply. This creates an increase in the price of livestock in the coming days. 

As a trader, you should be able to such complex correlations and understand the different factors that affect your trading environment.

Having a sound technical analysis background will enable you to chart the different commodities you are interested in and form a correlation between the two markets. 

Knowing past trends when the markets move up or down will help you predict future fluctuations. Then, you can take things a notch higher and evaluate the financial statements and reports of the company. 

Fundamental analysis gives you a picture of the company’s values, leadership, and management. Thus, you can gauge the risks associated with your investment and evaluate if it is feasible for you.

The Advantages Of Blending Technical And Fundamental Analysis

The stock market has a certain risk factor associated with it, and any form of analysis aims to identify those risks and plan accordingly.

Combining technical analysis methods with core fundamental statements will help you get a holistic picture of what to expect from the money you are putting in the market. 

Here’s a look at how you stand to benefit when you aim at making the best of both worlds.

Volume Trends

It is an undeniable fact that market sentiments play an instrumental role in deciding stock prices. When you look at the recently traded volumes and see a large spike, it will give you an idea of the market trend

At that point, reading up on the latest news surrounding the stock will tell you whether the stock is under accumulation or distribution, how long the trend is expected to continue, and other relevant factors.

Combining technical and fundamental analysis allows you to identify reversals and corrections and plan accordingly. This is helpful when you venture into intraday trading and are on the lookout for block trades. 

Using an algo trading api based on a combination of fundamental and technical analysis is a smart choice for active traders.

Reaction Tracking

When conducting fundamental analysis, you must first study the charts of a stock, index, or market over a prolonged duration. Thus, you’ll know how the stock reacts to positive and negative news. 

With this knowledge, you can leverage the power of technical analysis to understand what the buying and selling trends looked like.

Since patterns are known to repeat themselves, this will help you anticipate how the stock in question will react to any latest news and be smart with your investments. 

Depending on your capital and risk appetite, you can then decide when to invest and how much money to put in.

Tracking Short-Term Movements

In the conventional sense, fundamental analysis is used to identify long haul stocks. 

However, most long-term investors are open to getting a favorable buy-in or sell price when they liquidate a position. That is when they can use their technical analysis knowledge to identify breakouts.

For example, it is historically established that when a stock punches through its 3-week moving average, the trend continues for a little longer. This holds for positive and negative movements. 

If you are sound in both technical and fundamental analysis, you can identify such situations and make good profits in the short term.

If you are looking for mid-term investments with high returns, evaluating a 50 or 200-day moving average will do the needful. This is helpful for any investor looking to solidify a favorable entry or exit point to a stock.

In Closing

Thus, irrespective of your investment goals, it is important for you to evaluate the different analysis techniques. 

By knowing the strengths and limitations of both methods, you can use them in a way that complements each other. That way, you make better-informed investment decisions and usher in higher profits.

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Shashank Jain
Shashank Jain, founder of good-name, a young and energetic entrepreneur has always been fond of technology. His liking for technology made him go for engineering in computers. During his studies, he learned & worked on different computer languages & OS including HBCD, Linux, etc. He also has a keen interest in ethical hacking.

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