Question

Fundamental and technical analyses examples

Answer 1

Technical analysis:

This is the process or technique of future price pattern of securities. The current or past data could be used for future reference. This is mainly used as per historical basis – it is assumed that history should repeat on cyclical way over time – suppose bear market or bull market.

Example: The average price of a stock on Christmas times in last 3 years was $120 with a standard deviation of 2%. Therefore, the estimated price of such stock in the coming Christmas would be at a range of [120 – (120 × 2%) =] $117.60 to [120 + (120 × 2%) =] $122.40.

Fundamental analysis:

This is overall analyses of securities, which includes economy as a whole, competition in the market, and interest factor. This is the analyses of price and fair market value both.

Example: Interest rate declines in the market from 12% to 9% on fixed deposit. This increases investments in stocks, because fixed deposits are no more attractive and share market becomes attractive. The stock price increases (as its demand increases) from $123 to $125 per share.