Quick Answer
Fundamental analysis asks what a security should be worth using financial statements and ratios; technical analysis asks where the price is headed next using charts and volume. Neither is exclusively short-term or long-term, and many professionals combine fundamental analysis for stock selection with technical analysis for trade timing.
Side-by-Side Comparison
| Feature | Fundamental Analysis | Technical Analysis |
|---|---|---|
| Focus | Financial statements, ratios, intrinsic value | Price patterns, volume, market data |
| Time horizon | Typically longer-term | Can be short-term or long-term |
| Key question | "What should this security be worth?" | "Where is the price likely to go next?" |
| Data sources | Balance sheets, income statements, economic data | Charts, volume, market indicators |
| Core belief | Markets may misprice securities; find undervalued opportunities | All information is already in the price; study price action |
| Practitioner | Fundamental analyst | Chartist (technical analyst) |
Exam Tip: Gotchas
- Technical analysts believe all information is already in the price. They do not use financial statements.
- Fundamental analysts believe the market can misprice securities, creating buying opportunities.
When Is Each Approach Used?
Fundamental Analysis Is Best For:
- Long-term investment decisions (value investing, growth investing)
- Evaluating a company's financial health and competitive position
- Determining whether a security's price reflects its intrinsic value
- Making suitability recommendations based on a company's fundamentals
Technical Analysis Is Best For:
- Timing entry and exit points for trades
- Identifying trends and momentum in the short to medium term
- Gauging market sentiment and crowd psychology
- Confirming or questioning fundamental analysis conclusions
Exam Tip: Gotchas
- Technical analysis can be used for any time horizon, not just short-term.
- The exam may describe an analytical approach and ask you to identify it as fundamental or technical.
How Do Professionals Combine Both?
Many investment professionals use both approaches together:
- Fundamental analysis identifies what to buy (undervalued securities with strong financials)
- Technical analysis identifies when to buy (favorable entry points based on chart patterns and momentum)
This combined approach uses fundamental analysis for security selection and technical analysis for timing.
What Should You Check on Exam Day?
- Fundamental analysis asks what a security should be worth; technical analysis asks where the price is headed next.
- Technical analysis is not exclusively short-term; it can support decisions on any time horizon.
- Fundamental analysis assumes markets can misprice securities; technical analysis assumes all information is already in the price.
- A common combined workflow: fundamental analysis picks what to buy, technical analysis times when to buy it.