Fundamental & Technical Analysis
What FA and TA are, when to use each — and why the best traders combine both.
Two lenses for the same stock
Every successful investor uses two types of analysis — often without realising they're switching between them. Fundamental Analysis (FA) answers: is this a good business? Technical Analysis (TA) answers: is right now a good time to buy? Both questions matter. Neither is complete without the other.
What is Fundamental Analysis?
Fundamental analysis looks at the underlying business — its financials, competitive position, and management quality. You're reading the company's annual report, its profit & loss statement, and asking: does this business earn more than it spends? Is it growing? Is the management trustworthy?
Key numbers in FA
| Metric | What it measures | What you want |
|---|---|---|
| Revenue growth | Is the top line growing? | Consistent 15 %+ over 3–5 years |
| OPM (Operating Profit Margin) | What % of sales becomes profit? | Stable or expanding, ideally above 15 % |
| ROCE | How efficiently does the company use its money? | Above 20 % for quality businesses |
| Debt-to-Equity | How much borrowed vs owner's money? | Below 0.5 for non-financial firms |
| P/E Ratio | Price relative to earnings — "how expensive is it?" | Compare to peers, not an absolute number |
What is Technical Analysis?
Technical analysis looks only at price and volume — the chart. It ignores earnings reports, management quality, and business fundamentals entirely. The core premise: the market prices in all available information, so the chart IS the summary of everything buyers and sellers know. You read the chart to understand what the crowd is doing right now.
Key tools in TA
- Candlestick charts — visualise Open, High, Low, Close for every period (Lesson 3)
- Moving averages — smooth price to reveal the trend direction (EMA, SMA)
- Support & Resistance — price levels where buyers / sellers repeatedly appear (Lesson 5)
- Volume — confirms whether a move has real participation or is a thin fake-out
- Indicators — RSI, MACD, ADX — derived from price/volume to signal momentum and trend strength
When to use Fundamentals vs Technicals
| Question | Use | Why |
|---|---|---|
| Which stocks are worth owning? | FA | Quality screens out weak businesses before you risk capital |
| When should I enter? | TA | A pullback to the 50-day EMA in an uptrend = better price than chasing a breakout |
| Where should my stop-loss be? | TA | Below a support level or recent swing low — price-derived |
| Should I hold after bad quarterly results? | FA + TA | FA: is the business still intact? TA: did price break a key support? |
| Is this stock in a bubble? | FA | P/E at 80× with no earnings growth = valuation warning |
How the best traders combine both
Professional fund managers and systematic strategies use FA and TA together — not as competing philosophies but as sequential filters:
- FA first — stock selection: Screen for quality — strong ROCE, low debt, consistent earnings. This narrows 500 stocks down to 50–80 candidates.
- Momentum next (a form of TA): Of those quality stocks, which are also trending upward in price? Price momentum filters the 50–80 down to the top 10–20.
- TA for entry timing: Of those 10–20, enter on pullbacks to the EMA rather than chasing at all-time highs.
Asian Paints consistently scored well on FA screens throughout 2015–2020: ROCE above 30 %, OPM stable at 15–18 %, effectively debt-free, dominant market position. FA said: this is a quality business worth owning.
In early 2019, the stock dipped ~12 % over two months — temporarily below its 50-week EMA. TA said: the pullback touched support and bounced with volume — this is a potential entry point.
Combining both lenses: quality business (FA) + favourable entry price (TA). FA without TA timing might have bought at the March 2019 high; TA without FA might have applied the same entry logic to a fundamentally weak stock. Together, they produce a stronger thesis.
FA vs TA — two lenses on the same stock
Best systematic strategies combine both: FA for stock selection, TA for entry timing
What's coming in the next lessons
Now that you know the two lenses, the next lessons go deeper into Technical Analysis — because that's where day-to-day trade mechanics live:
- Lesson 3: Reading Candlestick Charts — the visual language of price action
- Lesson 4: Placing an Order — market, limit, stop-loss at your broker
- Lesson 5: Support, Resistance & Trends — where TA gets practical
Fundamental analysis gets its full treatment in the full courses (coming soon) — the quality factor model, reading screener data, and how to evaluate a company's moat.
- Fundamental Analysis (FA) asks: is this a good business? Use it to pick WHAT to buy.
- Technical Analysis (TA) asks: is now a good time to buy? Use it for WHEN to buy.
- FA filters by quality — ROCE, debt, earnings consistency.
- TA reads price and volume — trends, support/resistance, momentum indicators.
- The best strategies combine both: FA narrows the universe, TA times the entry.
- The best systematic strategies combine both: FA narrows the universe, TA times the entry.