Fundamental vs. Technical analysts:
Fundamental analysts believe that there is an intrinsic value for a stock market, various industries and individual securities and that these values depend in underlying economic factors. Analysts help to determine the intrinsic value of an investment asset at a point in time by examining the variables which determine values such as current and future earnings and cash flows, interest rates and risk variables. If there intrinsic value of the stock is more than what is in the market, then the investors are advised to buy the stock and vice versa.
Technical analysts develop technical trading rules from observations of past price movement of the stock market and individual stock prices. It is in sharp contrast to the efficient market hypothesis which claims that past prices and information has no effect on the future performance of the stock. Technical analysts in contrast to the fundamental analysts examine the past market data such as prices and volume of trading which leads to an estimate of future price trends and therefore an investment decision. Technical analysts use data from the market because it is the best predictor of itself in contrast to fundamental analysts who use economic data. Technical analysts also believe that a change in the price trend may also predict a forthcoming change in the fundamental variables such as earnings and risk before the change is perceived by most fundamental analysis.