Should I use technical analysis or fundamental analysis?

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Love watching prices go up and down :)

If only there was an easy answer for this ;-)

Anyhow this question has more to do with your personality and psychology than a simple this or that kind of answer. Fundamental analysis is typically used by investors who are there for the long haul and don't mind waiting for years to see fruitful results as a successful outcome of their research. On the other hand, technical analysis is typically the tool of traders who have a smaller time horizon in their mind, from intraday to a few weeks. If you have the patience for long haul then fundamental analysis may be your calling but if you aren't willing to wait that long, technical analysis may be your thing.

Having said that, this does not mean that both do not work together. In fact, both work great together if used properly. It's not uncommon to find trader/investors using both in tandem. The timeframe used for analysis may be different for investors and traders.

But that's not all there is to it. There are pros and cons for and against both of them, other than the personality type fit. One popular argument in favor of technical analysis is that it inherently covers the risk management aspect (stop losses, position sizing) when implemented properly so your losses are typically smaller than your wins. On the other hand, once you're convinced that a stock looks good after your fundamental research then you wouldn't mind buying more, aka accumulate, when the stock goes down. One could argue that you're adding to your losses hoping that eventually the stock would go up. That might happen but in stock markets there is no guarantee of anything, Even if the stock turns in your direction, it may do so very slowly. There are so many examples where a stock either moved so slowly or stayed in the same zone for years that inflation itself would have beaten the returns (if there were any) hands down. On such case is ITC as on writing this answer which is still hovering around the same price zone since 2013/14 levels.

Coming to technical analysis, one popular argument against them is profits are quick but smaller whereas you can catch mutibaggers only via fundamental research. This is generally true since with technical analysis you have fixed profit and loss targets for each trade and you book your profit or loss once they get hit. Now the stock could keep going up even after you exited your long trade so you would miss that profitable ride.

Eventually, there is no right or wrong way. Use them both if you can irrespective of you are primarily interested in just one of these approaches. As mentioned before it all boils down to your own personality and you should pick the one which suits your better from the perspectives mentioned above.

Hope this helps!

Written Nov 26, 2020

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