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What are the main types of Analysis

Fundamental and Technical 

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What is Fundamental analysis

Fundamental analysis (FA) measures a security's intrinsic value by examining related economic and financial factors. Intrinsic value is the value of an investment based on the issuing company's financial situation and current market and economic conditions. Fundamental analysts study anything that can affect the security's value, from macroeconomic factors such as the state of the economy and industry conditions to microeconomic factors like the effectiveness of the company's management. The end goal is to determine a number that an investor can compare with a security's current price to see whether the security is undervalued or overvalued by other investors. KEY TAKEAWAYS Fundamental analysis is a method of determining a stock's real or "fair market" value. Fundamental analysts search for stocks currently trading at prices higher or lower than their real value. If the fair market value is higher than the market price, the stock is deemed undervalued, and a buy recommendation is given. If the fair market value is lower than the market price, the stock is deemed overvalued, and the recommendation might be not to buy or to sell if the stock is held. In contrast, technical analysts favor studying the historical price trends of the stock to predict short-term future trends. Understanding Fundamental Analysis Fundamental analysis is usually done from a macro to micro perspective to identify securities that are not correctly priced by the market. Analysts typically study, in order: The overall state of the economy The strength of the specific industry The financial performance of the company issuing the stock This ensures they arrive at a fair market value for the stock. What Is Used? Fundamental analysis uses publicly available financial data to evaluate the value of an investment. The data is recorded on financial statements such as quarterly and annual reports and filings like the 10-Q (quarterly) or 10-K (annual). The 8-K is also informative because public companies must file it any time a reportable event occurs, like an acquisition or upper-level management change. Most public—and many private—companies list annual reports on the investor relation sections of their websites, highlighting financial decisions made and results achieved throughout the year. For example, you might perform a fundamental analysis of a bond's value by looking at economic factors such as interest rates and the overall state of the economy. Then, you'd evaluate the bond market and use financial data from similar bond issuers. Finally, you'd analyze the financial data from the issuing company, including external factors such as potential changes in its credit rating. You could also read through the 8-K, 10-Q, 10-K, and the issuer's annual reports to find out what they are doing, their goals, or other issues. Fundamental analysis uses a company's revenues, earnings, future growth, return on equity, profit margins, and other data to determine a company's underlying value and potential for future growth. Intrinsic Value One of the primary assumptions behind fundamental analysis is that a stock's current price often does not fully reflect the value of the company when compared to publicly available financial data. A second assumption is that the value reflected from the company's fundamental data is more likely to be closer to the true value of the stock. Intrinsic value means something different in stock valuation than in options trading. Option pricing uses a standard calculation for intrinsic value, while it can be calculated in many different ways for a stock. For example, say that a company's stock was trading at $20, and after extensive research on the company, an analyst determines that it ought to be worth $24. Another analyst does equal research but decides it should be worth $26. Many investors will consider the average of these estimates and assume that the stock's intrinsic value may be near $25. Often investors consider these estimates highly relevant because they want to buy stocks trading at prices significantly below these intrinsic values. This leads to a third major assumption of fundamental analysis: In the long run, the stock market will reflect the fundamentals. The problem is, no one knows how long "the long run" really is. It could be days or years. This is what fundamental analysis is all about. By focusing on a particular business, an investor can estimate the intrinsic value of a firm and find opportunities to buy at a discount or sell at a premium. The investment will pay off when the market catches up to the fundamentals. Fundamental analysis is used most often for stocks, but it is useful for evaluating any security, from a bond to a derivative. If you consider the fundamentals, from the broader economy to the company details, you are doing a fundamental analysis. 

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What is Technical Analysis

What Is a Technical Analyst? A technical analyst, also known as a chartist or market technician, is a securities researcher or trader who analyzes investments based on past market prices and technical indicators. Technicians believe that short-term price movements are the result of supply and demand forces in the market for a given security. Thus, for technicians, the fundamentals of the security are less relevant than the current balance of buyers and sellers. Based on the careful interpretation of past trading patterns, technical analysts try to discern this balance with the aim of predicting future price movements. KEY TAKEAWAYS Technical analysts, also known as chartists or technicians, employ technical analysis in their trading and research. Technical analysis looks for price patterns and trends based on historical performance to identify signals based on market sentiment and psychology. Technical analysts may augment their training and education by earning the chartered market technician (CMT) professional designation. Understanding Technical Analysts Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities. It involves analyzing statistical trends gathered from trading activity, such as price movement and volume. Unlike fundamental analysts, who attempt to evaluate a security's intrinsic value, technical analysts focus on patterns of price movements, trading signals, and various other analytical charting tools to evaluate a security's strength or weakness. Technical analysis utilizes price movements and chart histories to uncover trends and sentiment based on revealed market psychology. Technical analysts have developed an extensive toolbox of analysis techniques and indicators. Typically, the use of one technical indicator does not provide enough information to make a trading decision; technicians use several indicators to confirm a hypothesis before taking action. There is no broad consensus on the best method of identifying future price movements, so most technicians gradually develop their own set of trading rules based on their knowledge and experience. Technical analysts can work in either buy-side or sell-side firms and, as of 2022, earn an average income of $108,080. 1 Technical analysts rely on technical analysis trading systems, which form the basis for their investment trades. Since many technical analysts are day traders, these systems are typically targeted at individual traders. Chartists have a variety of options to choose from with many programs available through brokerages. Brokerages will often include comprehensive charting software with featured charting patterns in their service offering. Many advanced chartists, however, choose to obtain charting software from independent vendors in order to have access to the full range of available charting patterns. Technical Analyst Certification and Licensing Licensing is required for most technical analysts, although it will depend on the specific duties they perform, the organization they work for, and the state in which they reside. The Financial Industry Regulatory Authority (FINRA) issues licenses to technicians who are sponsored by the firm that employs them. Many technical analysts hold certifications from industry-recognized professional associations, such as the CFA Institute. To earn the Chartered Financial Analyst designation from the institute, technical analysts must have relevant work experience and pass several exams. Other prominent associations that technical analysts may belong to include the American Association of Professional Technical Analysts and the International Federation of Technical Analysts. The Chartered Market Technician (CMT) designation marks the highest level of training within the discipline and is the preeminent designation for practitioners worldwide. It is issued by the CMT Association (formerly the MTA), a global credentialing body with nearly 50 years of service to the financial industry. Technical analysis provides the tools to successfully navigate the gap between intrinsic value and market price across all asset classes through a disciplined, systematic approach to market behavior and the law of supply and demand. Earning the CMT demonstrates mastery of a core body of knowledge of investment risk in portfolio management, including quantitative approaches to market research and rules-based trading system design and testing. Technical Analyst Job Responsibilities A technical analyst observes and interprets the price action of a security to make predictions about its future direction. They apply this price data to statistical formulas to determine probable outcomes. Technicians may present their findings both internally and externally. For example, a technical analyst may present several tactical trading ideas at their investment firm’s morning meeting as well as give a presentation at a client seminar. Technical analysts may also work closely with fundamental analysts to compile research reports that provide comprehensive analysis for stocks that a brokerage firm covers.

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