Fundamental analysis and technical analysis are the two major methods of examining a publicly traded company to determine the health of its stock. Fundamental analysis is like taking an "x-ray" of a company. It examines the internal financial fitness of an organization and tells us how strong it is. Fundamental analysts focus on supply and demand levels of the products and/or services the company produces.
They study company reports, profit and loss summaries, price-to-earnings (P/E) ratios (calculated by dividing the stock's price by its earnings-per-share figure), market share, sales and growth, and brokerage analyst's ratings. Those who buy and sell on the strength of a company's fundamentals generally buy a stock "for the long haul," and ignore the gymnastics performed by the market on any given day or week.
If fundamentals show us a company's internal financial strength, then a chart reveals that stock's personality (think: price volatility). Technical analysis is the study of time, price, and sentiment of a chosen equity (or market or index) as shown on charts. The price action draws patterns on those charts. And, because human behavior can be repetitive, the price patterns are many times repetitive. When technical analysts recognize one of those patterns starting to form, it gives them a set of probabilities on which to base the stock's next move.
When you utilize fundamental and technical analyses together, you've got an accurate picture of a company's financial fitness and personality profile.
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