When you buy stocks, there are two main ways to do it: fundamental analysis and technical analysis. People who invest often talk about which method is better. Fundamentalists say that looking at a company's financial statements, earnings growth, and economic data is the best way to find out how much it is worth. But technical analysts say that price charts and patterns show everything important, and the best way to understand market psychology is through price movements.
What if you could combine the best parts of both? The truth is that using both fundamentals and technicals together can help you make better decisions.
Getting to know the two ways
1. Basic Analysis
The main goal of fundamental analysis is to figure out "What to buy?" It looks at:
Earnings per share (EPS)
Price-to-earnings (P/E) ratio
Ratio of debt to equity
Increase in sales and profits
Position in the industry
Inflation, interest rates, and GDP are some of the economic factors that affect the economy.
If Infosys, for example, shows steady revenue growth, low debt, and high demand for IT services, the fundamentals say it's a good company to invest in.
2. Technical Analysis
Technical analysis helps you figure out when to buy. and "When to sell?" It is all about:
Trends in prices
Patterns in charts, such as flags, triangles, and heads and shoulders
Moving Averages, RSI, and MACD are all indicators.
Levels of support and resistance
Analysis of volume
For example, even if Infosys is a good company, it might not be a good idea to buy the stock when the price gets close to a resistance level. Technicals help you figure out when to get in.
Why Put Them Together?
Fundamentals lower risk by helping you find weak companies.
Technicals help with timing by helping you avoid buying too soon or selling too late.
They give you confidence because you know what you're buying and when you're buying it.
This mix is especially useful for investors in the Indian market, where prices can change quickly and not every good stock does well right away.
How to Use Fundamentals and Technicals Together in Real Life
1. Choosing stocks based on fundamentals and entering based on technicals
Step 1: Look at companies with good balance sheets, room to grow, and fair prices.
Step 2: Use technical tools like moving averages or RSI to figure out when the best time to buy is.
If you like HDFC Bank because of its strong fundamentals, don't buy it at random times. Instead, wait for the stock to break through resistance with a lot of volume.
2. Use technical analysis to stay away from value traps
A stock may seem cheap based on its fundamentals (low P/E, strong assets), but the price keeps going down because people are feeling bad about it.
You can avoid stocks like these until they show signs of recovery with the help of technical analysis.
For example, a company that is trading at a low price but keeps making lower lows on the chart could be a falling knife. Wait until the downtrend slows down before you do anything.
3. Basics for a long-term vision and technicals for short-term changes
Long-term investors might want to buy stocks that are fundamentally strong, like Reliance Industries or TCS.
They can, however, use technical charts to figure out if they should buy more when prices go down or wait until prices go up.
This method lets you keep your long-term beliefs while making the best short-term choices.
4. Use earnings dates along with technical levels
Fundamentals often cause big changes around the time of quarterly results.
During these times of high volatility, technical analysis can help you set stop losses or targets.
If Infosys results are coming out and the stock is close to strong support, an investor might choose to buy more. But if it's close to resistance, they might wait until after the results come out.
5. The Sector Rotation Strategy
Fundamentals can help you figure out which sector is likely to grow. For example, banking might grow when credit is easy to get, and pharma might grow when healthcare demand goes up.
Technicals help you decide when to buy or sell by confirming if sector indices are breaking out.
For example, in 2020–21, demand for COVID19 helped pharma stocks stay strong. Technical breakouts in Nifty Pharma made it easy for investors to get in.
Case Study: Using Both Methods in Indian Markets
Let's take a look at Infosys:
Basic View: Strong revenue growth, leadership in IT services, low debt, and steady dividends. There is a good reason for long-term investors to be interested.
Technical View: If Infosys is trading close to its 200-day moving average and breaks above resistance with volume, that means it's a good time to buy.
Result: Combining strong beliefs with good timing can help you make more money while lowering your risk.
Things You Shouldn't Do
1. Only using one method: If you only use fundamentals without timing, you might get stuck; if you only use technicals without fundamentals, you might make risky trades.
2. Not using a stop loss: Even strong stocks can go down in bear markets. Always keep an eye on your risk.
3. Making things too complicated: Don't use too many ratios or indicators. Stay with a few that you know you can trust.
Last Thoughts
It's not about picking between fundamental and technical analysis when you invest in the stock market; it's about knowing how to use both.
Fundamentals are quality and confidence, which tell you what to buy.
Technical analysis is about timing and managing risk (when to buy and sell).
You get an edge by combining the two: you choose strong companies and time your entries and exits well.
In short, fundamentals tell you about the company, and technicals tell you how the market feels. When you put them all together, they make a winning plan.
