Combining Fundamental and Technical Analysis for Smarter Investing

What Is Fundamental Analysis?

Fundamental analysis evaluates a company’s intrinsic value by analyzing:

• • Financial statements (income statement, balance sheet, cash flow)
  • Industry position and competitive advantage
  • Management quality and governance
  • Broader economic indicators

The goal is to identify undervalued or overvalued stocks and hold them until their market price aligns with their real value.

What Is Technical Analysis?

Technical analysis focuses on price action and market psychology using:

• • Charts and chart patterns
  • Volume analysis
  • Indicators like RSI, MACD, Bollinger Bands
  • Support and resistance levels

It’s used to identify entry and exit points, trends, and momentum.

Why Combine Fundamental and Technical Analysis?

Many investors make the mistake of choosing one method and ignoring the other. However, the markets are complex, and no single method provides all the answers. Combining fundamental and technical analysis gives you:

• • A complete picture of a stock’s value and market behavior
  • Increased confidence in your trades
  • Better risk management and optimized entry/exit timing

Fundamental vs Technical: A Quick Comparison

How to Start Combining Fundamental and Technical Analysis

Let’s break it down into actionable steps:

1. Use Fundamental Analysis to Filter Stocks

Start by screening stocks based on:

• • Price-to-Earnings (P/E) ratio
  • Earnings per Share (EPS) growth
  • Return on Equity (ROE)
  • Debt-to-Equity ratio
  • Industry trends and company position

Example:
If a company has strong earnings growth, low debt, and a competitive advantage (economic moat), it’s a good long-term candidate.

2. Use Technical Analysis to Time the Trade

Once a fundamentally strong stock is identified, use technical tools to:

• • Find entry points at support levels
  • Confirm momentum using RSI or MACD
  • Watch volume breakouts or trendline reversals
  • Identify exit targets using resistance zones or Fibonacci levels

Example:
If a stock’s fundamentals are solid but it’s in a downtrend, wait for a trend reversal on the chart before entering.

3. Apply Risk-Reward and Position Sizing

Technical setups allow for proper risk-reward ratio planning:

• • Set stop-loss below support
  • Define target price based on technical resistance
  • Position size according to volatility and account risk

This is where technical analysis complements your fundamental conviction.

4. Backtest Your Strategy

Once you define your system of combining fundamental and technical analysis, use historical data to test:

• • Entry effectiveness
  • Risk-reward consistency
  • Win/loss ratio
  • Holding periods

Platforms like TradingView and MetaTrader can help simulate past trades.

5. Keep a Trading Journal

Document your trades to refine your process:

• • Why you picked the stock (fundamentals)
  • Why you entered when you did (technicals)
  • Results of the trade
  • Lessons learned

This helps in spotting patterns in your own behavior and strategies.

Case Study: Combining Both Analyses in Real Life

Example: Infosys Ltd. (NSE: INFY)

1. Fundamentals:

• • Strong EPS growth and global IT demand
  • Stable management and good dividend payout

1. Technicals:

• • Bullish reversal pattern on daily chart
  • RSI bouncing from 40 (oversold)
  • Breakout above 200-day moving average

Action:
Buy confirmed on the breakout with SL below moving average and TP set at the next resistance zone.

Common Mistakes to Avoid

• • Relying on just one method: You may pick the right stock but enter at the wrong time or exit too early.
  • Ignoring market sentiment: Even fundamentally strong stocks can fall in bear markets.
  • Overcomplicating indicators: Stick to a few proven tools and strategies.
  • Not defining rules: Make a checklist for both FA and TA signals before taking trades.

Final Thoughts on Combining Fundamental and Technical Analysis

Combining fundamental and technical analysis is one of the smartest strategies you can apply in the stock market. It balances the logic of business performance with the reality of market behavior. Whether you’re a long-term investor or swing trader, merging these two disciplines gives you a powerful edge.

Pro Tip:
Start with strong fundamentals to build conviction. Then use technicals to reduce risk and optimize timing.

Quick Recap:

• • Use Fundamentals → Find undervalued, quality stocks
  • Use Technicals → Time entries, exits, and manage risk
  • Combined Strategy = Better results and fewer surprises