It has always been a classic debate between the two camps of stock trader: The fundamentalist and the Technical Chart Analysis Group.
Which school of trading is more effective? Firstly, we have to define both terms.
Fundamental analysis is the process of looking at a business at the basic or fundamental financial level.
This type of analysis involves heavily the analysis of key ratios of a business to determine its financial health and growth potential to give you an idea of the value its stock.
Fundamental analysis could be used alone or in combination with other tools to evaluate stock for investment purposes.
The goal is to determine the current worth and, more importantly, how the market values the stock.
Technical charting analysis is a way of gathering and processing price and volume information of a particular security by applying mathematical equations and then plotting the resulting data onto graphs in order to predict future price movements.
Unlike the fundamental analysis, technical analysis is only concerned with the current price and trading volume of a stock to predict future price movement.
Traders use technical statistical analysis of a stock to predict the short and mid term price fluctuations to trade the market profitably.
So, the golden question remains: Which school of discipline is more effective? Well, my personal view is as follow: (a) Technical analysis could be use in the short to medium time frame for trading as the stock price movement is affected by largely by external events that cause swings in trading moods and sentiments which will dictate prices of stock.
Fundamental analysis could not effectively function in the short and medium term analysis of stock price as it is affected by external events that is not relevant to the company's business growth and potential.
(b) However, in the long run, a good company with sound management and business growth will be able to attract fund manager's attention to invest in the company.
This in turn will be reflected in the price changes and the price trends Technical analysis in the longer time frame will also be able to conclude the rise of the price of a stock of a good company.
Hence, in the long timeframe of investment, technical and fundamental analysis will likely have the same conclusion.