As you make important decisions on which stocks or companies to invest your money on, you'll come across the choice of whether to use fundamental analysis or technical analysis in your investment evaluations.
No one can say for certain which technique is better, since they each have their own merits. But a good place to start would be to learn more about how both strategies work, as well as their pros and cons.
Fundamental analysis is a method of evaluating all the components that make up a company or stock to determine its intrinsic value. This method will take into consideration the financial and management conditions of the company. This means a company's assets, liabilities and management will all be factored in with a fundamental analysis. In addition, you would also evaluate the overall condition of the wider economy.
Fundamental analysis assumes that a particular stock price will return to the right level in line with its fundamental conditions if it is currently over- or under-priced. This technique is most preferred by long-term investors.
On the other hand, technical analysis is anchored in stock price charts and/or volume data, using previous price history to predict future price movements of a stock.
The core assumption of technical analysis is that all fundamental conditions are already factored into the price history. Technical analysts and traders will place more emphasis on knowing stock price movements in the next hour, day, or week. Mostly, short-term investors or who we typically term day traders rely on the technical analysis strategy more.
Now that we've gone through some pros and cons of both fundamental and technical analysis, you should be better equipped to decide which strategy works better for your investment and trading needs and goals.
A good way to sum all this up is this: fundamental analysis tells us where to invest, while technical analysis indicates the best time to enter (or exit) the market. Supporters of both camps will have their fair share of proven results, but it's hard to say for sure which strategy is ultimately better. Depending on your investment goals and time horizon, the best idea would probably be to combine the 2 techniques and use them together to get the best of both worlds.