Fundamentals Or Technicals!!

Anyone who has relied on "hot" news or company fundamentals to buy a stock knows that this practice often leads to disappointing results. The reason is simple. Fundamental analysis data lags the market. Earnings news can be as much as over a month old when released. In the majority of cases, by the time news announcements are made, the stock has usually already made its move.

Also, what if the fundamentals change? Most fundamental investors maintain the belief that it is better to hold onto a stock through thick and thin and hope the company recovers once better times return. But as we saw through the 2000 – 2002 bear market correction and all bear markets before it, this approach can lead to complete disaster.

The continued popularity of the traditional buy-and-hold strategy is due in no small part to the 18-year bull that ended in 2000. During this market, the buy-and-hold approach to investing worked great, but then so did throwing darts. It was only when the market turned to a bear that the fundamental flaw in this method became obvious.


Lastly, fundamental investors generally do not use stop losses to protect profits. Worse, those adopting a value approach employ the practice of averaging down, using the rationale that the cheaper a stock gets, the greater its value. This only serves to compound losses when a market is in plunge mode.

At the opposite end of the spectrum, technical analysis ignores fundamentals altogether and focuses strictly on technical indicators and chart patterns. While an excellent method of short-term trading, it can lead to losses in longer-term trades unless the trader continually readjusts profit targets and stop-losses. Also, this type of on-going maintenance may not be everyone's cup of tea and can cause unnecessary stress.

In reality, unless you are a pure technical trader employing very short time horizons to day trade or swing trade, using one method of analysis while ignoring the other is like trying to win a boxing match with one hand tied behind your back.

So what is the best combination of technical and fundamental methods for the busy trader or investor, and how does one become a truly proficient "technimental" trader (which you can read more about in "Charting Your Way to Better Returns")?

So Conclusion:

1. As allready mentioned Technical Analysis needs on-going maintenance & may not be everyone's cup of tea. For Example MOSL gives daily diary of Index stocks and some more with targets and S.L.

2. Fundamental Analysis is easy to follow but the problem is time frame. For Example Technical Analysts could have entered stocks like PSTL, PRAJ Ind and gained even though they are getting traded at high P/Es but Fundamental Analysts would recommend to remain away from such stocks.

3. Technical Analysis requires discipline. For Example: When S.L. gets hit one should take appropriate actions. Like in case of 3i Infotech it took just more then month to hit 300/= levels post closing above 190/=(Mentione at my blog http://stockstorm.wordpress.com on 02-01-07.) Its true that Fundamental analysts were bullish right from 170/=(that was the first time when i read report on it(26-12-05)) levels but just look at the kind of gain in small intervals of month post Jan-07. Same was case in Praj Ind from 100/= to 210/= but not more then month from 210/= to 400/=. Technical Analysts can time the market.

4. Fundamental analyst can analyse the policy changes and price change effect on their stocks and can sell at higher levels like in case of Bajaj Hind at 525/= but so can Technical Analyst could protect their profits by putting S.L. Bajaj Hind S.L. hit at 500/= and again next S.L. of 292/= was hit suggested only downtrend. Bajaj Hind had clearly given strong buy reco at 275/=.

5. It is not possible and also not practical to trade in F&O on mercy of Fundamental Analysis.

6. It is largely know that just before WTC attack there was huge position built in long. And same case in Crude recently. Such developments can only be tracked with Technical analysis as previously said.

Lets look at recent case on 26-02-07 market fell by 250 points in mid trades but recovered and was back in green at the end by 17 points. What happened? Simple everyone would say "recovery"(Includes Fundamental Analysts.)....Recovery from what?? Was it fundamental breakdown!!! One could have easily pin pointed this with help of Charts. For example RIL moved up from 1373 dot from its intraday support and Infosys went down but started its recovery just 10/= bucks before its support. Dont Belive!! Check It.

So all in all we can identify n numbers of such points which discriminates both of the analysts. Also as allready said by the time news announcements are made, the stock has already made its move. Even directors may have reduced their position like in recent cases of Infrastructure stocks. Lok Housing E.P.S. above 80 but priced at 200/= why the stock fell so much in last month! Technicals suggested a correction in this stock at 300/=.

Best Conclusion: Apply skills of Technical Analysis on Fundamentally Good Stocks.

At last One should not try to discriminate between this two branches of stock analysis, without giving a try. After all markets are always right. As cleverly said "Half Knowledge Is Always Dangerous."