examples of the application of fundamental analysis and technical analysis in stock investment

Stock investment is now increasingly in demand by many people, especially among young people who are starting to realize the importance of long-term financial management. However, to be successful in stock investment, in-depth knowledge of stock analysis is needed. The two main approaches that are widely used by investors are Analysis#ATFP_CLOSE_TRANSLATE_SPAN# FUNDAMENTAL and Analysis#ATFP_CLOSE_TRANSLATE_SPAN# TECHNICAL. These two analyzes have fundamental differences in their approach, but are equally useful for determining investment decisions. The following is an example of the application of fundamental analysis and technical analysis in stock investment.

What is Fundamental Analysis?

Fundamental analysis is an analytical approach that studies economic, financial, and other information related to the company to determine the intrinsic value of its shares. Investors use this method to assess whether a stock is worth buying or not based on the company’s business conditions and its future growth projections.

FUNDAMENTAL ANALYSIS ELEMENTS

Some important factors in fundamental analysis include:

1. Financial Performance: includes financial statements such as balance sheets, income statements, and cash flows. This report provides an overview of the company’s profits, losses, and sources of funds.
2. Financial Ratios: Some important financial ratios in fundamental analysis include price-to-earnings (P/E) ratio, debt-to-equity (d/e) ratio, and return on equity (ROE). This ratio helps in assessing the company’s financial health.
3. economic growth: Fundamental analysis also considers global and local economic factors, such as interest rates and inflation, which can affect the company’s performance.
4. Company Management: An understanding of who is leading the company, as well as their experience and vision, can help investors understand the company’s long-term prospects.

The table below shows some of the common financial ratios used in fundamental analysis:

What is technical analysis?

Technical analysis, on the other hand, is a method used to predict future stock price movements based on historical data on prices and trading volumes. Unlike fundamental analysis, technical analysis does not take into account economic information or company performance. Instead, this approach focuses more on price patterns and technical indicators.

Elements of Technical Analysis

Some of the tools commonly used in technical analysis include:

1. Moving Averages: This technique is used to identify price trends with average prices in a certain period of time, such as 20 days or 50 days.
2. Relative Strength Index (RSI): RSI is a momentum indicator used to measure the speed and change in stock prices. RSI values between 30-70 usually indicate neutral conditions, while values below 30 are considered oversold, and above 70 overbought.
3. support and resistance: Support is the lowest price level where stocks tend not to fall further, while resistance is the highest price level where stocks are difficult to rise higher. Understanding support and resistance helps investors determine when to buy or sell shares.

the difference between fundamental analysis and technical analysis

The following is a brief comparison between fundamental and technical analysis:

examples of the application of fundamental analysis

Suppose you want to invest in a technology company listed on the Indonesia Stock Exchange (IDX). Here are the steps using fundamental analysis:

1. analyze financial performance: Check the company’s income statement, balance sheet, and cash flow. Tech companies usually have a higher price-to-earnings (P/E) ratio due to their rapid revenue growth. However, make sure the company’s P/E is still reasonable compared to its competitors.
2. Checking financial ratios: Check the debt-to-equity (D/E) ratio to ensure the company does not have excessive debt burden, which can endanger its financial health if there is an economic decline.
3. Sector Analysis and Competition: Learn the trends of the technology industry globally and locally. Technology companies are usually strongly influenced by innovation and technological change. If the company has a competitive advantage in the market, the opportunity to continue to grow will be greater.
4. Company Management Evaluation: Check their management profile and track record. Visionary and experienced company leaders tend to be able to take the company through market challenges.

With the steps above, you can estimate the intrinsic value of the stock and assess whether the current stock price is undervalued or overvalued.

examples of the application of technical analysis

On the other hand, technical analysis is more often used for short-term stock trading. For example, if you want to buy shares in the same company quickly and sell them in a short time, here is an example of applying technical analysis:

1. Using Moving Averages: Use a 20-day moving average to get an overview of short-term trends. If the stock price is above the 20-day average, this indicates a bullish trend, which is a positive sign to buy.
2. Monitoring RSI: If the RSI is below 30, it means the stock is in the oversold zone. This may be a buy signal, as the price is likely to rise again.
3. Identification of support and resistance: If the stock is approaching the support area, consider buying, because there is a possibility that the price will turn up from that point. On the other hand, if you approach the resistance area, be prepared to sell, because the price is likely to decline.

By following this technical analysis guide, you can get an idea of when the best time to buy and sell stocks.

advantages and disadvantages of fundamental and technical analysis

Both types of analysis have their own advantages and disadvantages. Here is the comparison:

Conclusion: Combining Fundamental and Technical Analysis

Many successful investors use these two types of analysis simultaneously. Fundamental analysis can be used to find undervalued stocks that have high growth potential, while technical analysis can help determine the best time to buy or sell the stock.

In stock investment, understanding and mastering these two analyzes will give you a competitive advantage, allowing you to make more precise and data-based decisions. Regardless of the method you choose, it is always important to continue to learn and understand the risks in every investment decision.