The stock market is a complex and dynamic system influenced by multiple factors. To succeed in it, traders and investors must understand how to analyze stocks from various perspectives. Traditionally, there are three main types of analysis used in the stock market:
- Fundamental Analysis
- Technical Analysis
- Sentimental Analysis
Each plays a different role in your decision-making process. Some market experts believe that while all three are essential, their weight and importance vary depending on the trading style.
- Fundamental Analysis: 10% importance
- Technical Analysis: 90% importance
1. Fundamental Analysis: Laying the Foundation
Fundamental analysis focuses on evaluating the intrinsic value of a company. It answers the question:
“Is this a good business to invest in?”
This would help long-term investors who are not concerned about daily price movements but are concerned about whether the company is financially sound and will be able to grow in the long run.
What Does It Include?
- Earnings & Revenue Growth: Is the company consistently making profits?
- P/E Ratio: Is the stock overpriced or undervalued?
- Debt vs. Assets: Is the company financially sound?
- Management Quality: Who runs the company?
- Investor Types: Mutual funds, FIIs, promoters investing?
- Dividend Yields: Are shareholders being rewarded?
Example:
Suppose, for instance, you are evaluating ITC Ltd. Through fundamental analysis,
- you will find out the kind of profits the company is making.
- Whether the company is overvalued or undervalued.
- What future prospects might be in terms of business expansion or sector growth.
“Fundamentals help you select the right stock, but they won’t tell you the right time to buy it.”
Tip: Use fundamentals to shortlist strong companies in booming sectors like banking, IT, or energy before digging into technical charts.
2. Technical Analysis: Timing the Market
Once you’ve got a fundamentally sound stock, the question is—when to buy it and when to let go of it? That’s where Technical Analysis comes in.
Technical analysis considers price action, volume, and market patterns to decide the best entry price or the best time to exit a trade.
90% of the stock market decisions are pegged on technical, especially in the case of traders and short-term investors.
What Does It Focus On?
- Price Trends: Is the stock in an uptrend or downtrend?
- Volume: Are the buyers stronger or the sellers?
- Indicators: RSI, MACD, Bollinger Bands, Fibonacci
- Chart Patterns: Flags, Wedges, Double Tops, Head & Shoulders
- Support & Resistance: Levels for entry/exit
- Buyer-Seller Sentiment: Grasping the market psychology
Technical analysis reads in the minds of the market. It does not care about a company’s profits- it cares about what the market thinks will happen next.
Example:
Say you have identified Reliance Industries as a fundamentally strong stock. Should you buy it today, next week, or wait for a cheaper price? Technical analysis will help you determine:
- Where is the price currently sitting?
- Is it currently on an uptrend or is it in a pullback?
- Is the momentum amongst the buyers really strong?
“An excellent stock could still make you lose money if your timing is wrong.”
Tip: Always trade with the trend; minimize your risk by trading close to S/R zones and moving averages for better profit realization.
3. Sentimental Analysis: Reading the Market’s Mood
At times, even seemingly robust stocks plummet with a single negative headline. And this is where Sentimental Analysis comes into the picture. Sentimental analysis seeks to gauge how traders and investors feel about the general market or individual stocks. They are often influenced by factors external to the companies and thus may not always reflect fundamentals. Market behavior is ruled by emotion.
What Influences Market Sentiment?
- Breaking News (such as war, elections, fraudulent activities)
- Economic Events (interest rates, reports of inflation)
- Global Markets (movements in Dow Jones, Nikkei, FTSE)
- Government Policies (budgets, regulations)
- Natural Disasters/Pandemics
- Economic Events
- Investor Emotions (fear, greed, panic, euphoria)
It’s many times that we see the markets moving on feelings and not on facts. For instance, the announcement of a much better earnings report can still result in a decline of the stock price if the investor was expecting an even bigger profit.
Tip: Tools like the Fear & Greed Index, news aggregators, or economic calendars come in handy to keep sentiments in check. An early shift in sentiment will always prove to be an early indication for reversals.
“Fundamental Analysis plays 10% role while Technical Analysis plays 90% role in trading success.”
- Fundamentals help you filter out poor stocks and focus on potential winners.
- Technicals help you make money by finding the right entry and exit points.
- Sentiment keeps you alert to unpredictable shifts driven by external events.
When combined wisely, these three create a powerful strategy for anyone trading the markets.
Why You Need All Three
While each analysis serves a purpose, using them together provides a well-rounded strategy:
| Type of Analysis | Role It Plays | Best For |
| Fundamental Analysis | Stock and sector selection | Long-term investing |
| Technical Analysis | Timing entry and exit | Short- to medium-term |
| Sentimental Analysis | Understanding market mood and volatility | News-based movement |
✅ Successful traders know when to mix logic, emotion, and timing.
Practical Tips to Apply These Analyses
- Start with Fundamentals: Screen for quality stocks with strong financials.
- Use Technicals: Identify the right price levels and chart patterns before buying.
- Track Sentiment: Stay updated with news, events, and global trends that may cause sudden market moves.
- Risk Management: Regardless of analysis, always protect your capital with stop-losses.
- Keep a Trading Journal: Record why you entered/exited a trade to improve your process.
Conclusion:
Successful trading and investing is not about predicting the future—it’s about preparing for it using every tool available.
- Use Fundamental Analysis to choose what to buy.
- Use Technical Analysis to decide when to buy or sell.
- Use Sentimental Analysis to understand why the market might behave unexpectedly.
Each type of analysis is a piece of the puzzle, and when combined, they provide clarity in the often-chaotic world of trading.
FAQs:
1. Can I rely only on Technical Analysis?
A: For intraday and short-term trades, technicals are crucial. But combining them with sentiment increases your edge.
Q2. Is Fundamental Analysis only for long-term investors?
A: Primarily yes, but even short-term traders use fundamentals to avoid weak or scammy stocks.
Q3. How often should I do Sentiment Analysis?
A: Daily. Market mood can change overnight based on global events or economic data.
Q4. Which one should beginners focus on first?
A: Start with basic fundamental concepts, then dive into technicals. Learn sentiment as you gain experience.
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