Diesel

22
Article Cover FinLife of the Story Month
NIVESHAK
Fundamental or Technical Analysis:
An Amalgamation of both the
perspectives
Rahul Bajaj
IIM Shillong
“The best way to have a million is to start with two million and trade
in the financial markets using technical analysis “
A lot of negativity has been built over the years
around technical trading, however this powerful
tool when used in conjunction with fundamental
analysis can help enhance the returns of any
trader. Difference between the two perspectives
is that the technical analyst uses statistics and
assets traded volume and historical prices data
to forecast the prices whereas the fundamental
trader calculates the assets intrinsic value
through current performance and future
projections. Technical analysis relies on patterns,
historical prices to repeat in the future whereas
fundamental analysis relies that the expected
company future performance to reflect in the
prices. However it is possible that history and
market behaviour do not repeat in the former,
and market behaviour/sentiment not being in
sync with the fundamentals in the latter. Traders
who invest in assets with good fundamentals at
the right time can help maximise the returns for
investors. Let us look at both the perspectives
and how they can be used together.
Technical analysis is applicable to stocks,
indices, commodities, futures or any tradable
instrument where the price is influenced by
the forces of supply and demand. Technical
analysts use combination of the open, high,
low, or close for a given security over a specific
time frame. The time frame can be based on
intraday (1-minute, 5-minutes, 10-minutes,
15-minutes, 30-minutes or hourly), daily, weekly
or monthly price data and last a few hours
or many years. As it can be done across time
frames, it is possible to find short-term as well
as long-term trends using technical analysis.
Line chart, Bar chart and Candlestick chart are
three types of charts that are used by investors
to study the chart patterns. Higher the number
of technical traders in the market more linear
will be the price movements in accordance with
the principles of technical analysis. The basis
of widely used algorithmic trading is technical
analysis methods adopted in the system itself
Volume is an important measure for a technical
trader. It helps a technical trader analyse the
intensity of the price movements. When the
trend in an Index/industry/stock is bullish and
the volume traded increases it implies that the
prices are expected to further increase in the
future trading sessions. Similarly bullish trend
with decreasing volumes implies a bearish trend
as the intensity of price rise is decreasing.
Pivot points, resistance and support levels are
tools which are quintessential part of any shortterm
technical trader. For the selected equity
from fundamental analysis, use of such tools
can enable the analyst to enter at the bottom
most price level. Pivot point is the point near
which asset prices are expected to be most
NOVEMBER 2014