Fundamental vs technical analysis

One company, two kinds of number

The first three numbers come from the company's accounts and change when new reports arrive, except P/E, where the price changes daily. The last three come from the price alone. The price here is adjusted for dividends, so the one-year number includes them.

None of these numbers alone says what the stock will do next. RSI and P/E each have their own lesson.

How they differ

• What they read. Fundamental analysis reads reports and the business. Technical analysis reads price and volume.
• What they ask. One asks what you are paying for, the other how the price has moved.
• Time frame. Fundamental analysis is usually about years, technical analysis often about days to months.
• How often something new arrives. Reports come a few times a year. The price changes constantly.
• When they go wrong. Fundamental analysis when the future differs from the one you assumed. Technical analysis when what happened before doesn't repeat.

Built on different ideas

The fundamental idea is that over the long run the price follows what the company earns. The technical idea is that the price already shows what buyers and sellers believe, and that behavior repeats. Both are ideas about the market, not laws of nature.

How well some well-known technical signals have held up on real prices is in the study Does technical analysis work?. The basics are in the course on technical analysis.

Can you use both?

Yes, and many people do. They answer different questions, so neither rules out the other. If you read both, you only need to know which question each number answers. A low RSI says nothing about a company's profit, and a strong report says nothing about where the price will be next week.

How the price has moved: the Exxon Mobil stock page.