Technical vs Fundamental Analysis: Why You Need Both (And How to Use Them Together)

Here's the debate that never ends:

"Should I use technical analysis or fundamental analysis to pick stocks?"

The answer? Both.

And anyone telling you to pick only one is selling you half a strategy.

Here's the truth: Fundamental analysis tells you what to buy. Technical analysis tells you when to buy it.

Use fundamentals alone, and you'll buy great companies at terrible prices. Use technicals alone, and you'll perfectly time the purchase of garbage stocks.

This guide shows you how each approach works, their strengths and weaknesses, and most importantly—how to combine them into a complete investment process.

What Is Fundamental Analysis?

Fundamental analysis evaluates a company's intrinsic value by examining its financial statements, business model, competitive position, and industry trends.

What Fundamentalists Look At

Financial Statements:

• Income Statement (revenue, margins, earnings)
• Balance Sheet (assets, liabilities, debt)
• Cash Flow Statement (operating cash, free cash flow)

Valuation Metrics:

• P/E ratio (Price-to-Earnings)
• P/B ratio (Price-to-Book)
• P/S ratio (Price-to-Sales)
• PEG ratio (P/E to Growth)

Quality Indicators:

• ROE (Return on Equity)
• ROA (Return on Assets)
• Profit margins (gross, operating, net)
• Debt-to-Equity ratio

Growth Metrics:

• Revenue growth rate
• Earnings growth rate
• Free cash flow growth

Business Quality:

• Competitive advantage (moat)
• Management quality
• Industry position
• Market share trends

The Fundamental Analyst's Question

"Is this company worth more or less than what the market is currently paying for it?"

If intrinsic value exceeds market price → Undervalued → Buy If market price exceeds intrinsic value → Overvalued → Sell or avoid

Example: Fundamental Analysis of a Stock

Let's say you're analyzing Microsoft (MSFT) using fundamentals:

Step 1: Check the business

• Go to MSFT Profile
• Business: Cloud computing (Azure), software (Office 365), gaming (Xbox)
• Competitive advantage: Network effects, switching costs, brand
• Industry: Growing (cloud adoption accelerating)

Step 2: Check financials

• Go to MSFT Financials
• Revenue: $211B, growing 10% YoY
• Operating Margin: 42% (excellent)
• Free Cash Flow: $70B/year (strong)
• Debt: Manageable relative to cash flow

Step 3: Check valuation

• Go to MSFT Fundamentals
• P/E Ratio: 35x (above market average of 20x)
• PEG Ratio: 2.3 (paying premium for growth)
• ROE: 40% (exceptional capital efficiency)

Fundamental Conclusion: High-quality business with strong moat, excellent margins, and consistent growth. Trading at premium valuation, but justified by quality and growth rate. Good long-term hold.

But when should you buy it? Fundamentals don't answer this. That's where technicals come in.

What Is Technical Analysis?

Technical analysis studies price patterns, trends, and trading activity to predict future price movements based on historical behavior.

What Technicians Look At

Price Action:

• Trends (uptrend, downtrend, sideways)
• Support and resistance levels
• Chart patterns (head and shoulders, double tops, triangles)

Moving Averages:

• 50-day moving average (short-term trend)
• 200-day moving average (long-term trend)
• Crossovers (golden cross, death cross)

Momentum Indicators:

• RSI (Relative Strength Index) - overbought/oversold
• MACD (Moving Average Convergence Divergence) - trend changes
• Stochastic Oscillator - momentum shifts

Volume:

• Volume trends (increasing, decreasing)
• Volume on breakouts (confirmation)
• Volume spikes (institutional activity)

Key Levels:

• Support (price floor)
• Resistance (price ceiling)
• Breakouts and breakdowns

The Technical Analyst's Question

"What is the price likely to do next based on how it has behaved in the past?"

If price is in uptrend above support → Buy If price breaks below support → Sell If price hits resistance → Take profits or wait

Example: Technical Analysis of a Stock

Same stock—Microsoft (MSFT)—but using technicals:

Step 1: Check the trend

• Go to MSFT Chart
• Price: $420, above 50-day MA ($410) and 200-day MA ($390)
• Trend: Uptrend intact

Step 2: Check momentum

• Go to MSFT Technical
• RSI: 65 (bullish, not overbought)
• MACD: Positive and rising (momentum strong)

Step 3: Identify levels

• Support: $400 (recent low)
• Resistance: $440 (52-week high)
• Current: $420 (mid-range)

Technical Conclusion: Strong uptrend with positive momentum. Support at $400, resistance at $440. Good risk/reward to buy near $400-410 with stop below $395.

But is the company actually good? Technicals don't answer this. That's where fundamentals come in.

The Great Debate: Which Is Better?

Neither. They answer different questions.

Fundamental Analysis Strengths

✅ Identifies quality companies

• Finds businesses with sustainable competitive advantages
• Spots undervalued stocks before the market catches on
• Provides conviction to hold through volatility

✅ Works for long-term investing

• Buy-and-hold strategies
• Value investing (Buffett, Graham)
• Dividend investing

✅ Objective metrics

• Financial statements don't lie (unless fraud)
• Ratios are comparable across stocks
• Quantifiable criteria

Fundamental Analysis Weaknesses

❌ Doesn't time entries

• Can be early (value traps linger for years)
• No idea when market will recognize value
• Can buy great companies in downtrends

❌ Slow to react

• Financial reports are quarterly (lagging)
• Market moves on expectations, not current earnings
• Earnings can be manipulated

❌ Ignores market psychology

• Stocks can stay "overvalued" for years in bull markets
• Market can ignore fundamentals during euphoria/panic
• Sentiment matters short-term

Technical Analysis Strengths

✅ Times entries and exits

• Identifies optimal buy points (support, breakouts)
• Spots trend reversals early
• Manages risk with stop losses

✅ Reacts to market reality

• Price reflects all known information
• Captures institutional money flows
• Works in any timeframe (day trading to swing trading)

✅ Objective signals

• Clear rules (buy above 200-day MA, sell on RSI above 70)
• Removes emotion
• Backtestable

Technical Analysis Weaknesses

❌ Doesn't evaluate quality

• No insight into business fundamentals
• Can perfectly time entry into bad companies
• Ignores long-term value

❌ Self-fulfilling prophecy risk

• Everyone watching the same levels creates false signals
• Algos gaming technical patterns
• Works until it doesn't

❌ Noise in short timeframes

• Daily charts have random volatility
• False breakouts and whipsaws
• Requires experience to filter signals

Why You Need Both: The Complete Picture

Imagine two investors analyzing the same stock:

Investor A (Fundamentals Only):

• Finds undervalued stock trading at 10x earnings
• Business is solid, balance sheet clean
• Buys immediately at $50
• Stock drops to $40 and stays there for 2 years
• Eventually goes to $80, but endured 20% drawdown

Investor B (Technicals Only):

• Sees clean breakout above resistance at $55
• RSI bullish, volume confirming
• Buys at $55
• Didn't check financials—company is overleveraged
• Stock crashes on earnings miss to $30
• Perfect entry, terrible stock

Investor C (Both):

• Finds same undervalued stock (fundamentals)
• Sees it's in downtrend, below 200-day MA (technicals)
• Waits patiently for trend reversal
• Buys when price breaks above $52 on high volume
• Confirms uptrend before entry
• Rides it to $80 without the 2-year wait or drawdown

The difference? Investor C combined:

• Fundamental filter: Only considers quality, undervalued companies
• Technical timing: Waits for trend confirmation before buying

This is the professional approach.

How to Combine Them: The Complete Workflow

Here's the step-by-step process for using both approaches together:

Step 1: Screen for Fundamental Quality

Start with a fundamental screen to find candidates:

Example Value Screen on Stock Alarm Pro Screener:

• P/E Ratio: Below 15
• ROE: Above 15%
• Debt/Equity: Below 1.0
• Revenue Growth: Above 5% YoY
• Dividend Yield: Above 2%

Result: 20-30 fundamentally strong, undervalued stocks

What you've done: Filtered for quality and value. Every stock on this list is worth owning—eventually.

Step 2: Analyze Top Candidates (Fundamentals Deep Dive)

Pick top 5-10 from screen and analyze deeply:

For each stock:

1. Read Fundamentals tab - Check all ratios, margins, growth
2. Review Financials tab - Income, balance sheet, cash flow
3. Read Profile tab - Understand the business
4. Check Earnings tab - Consistency and surprises

Questions to answer:

• Is the business high quality?
• Is management competent?
• Are financials improving or deteriorating?
• Is valuation attractive vs historical averages?

Output: 3-5 stocks you'd be happy to own long-term

Step 3: Check Technical Setup (Don't Buy Yet)

Now check if the stock is technically buyable:

For each finalist, check Technical tab and Chart:

Trend:

• Is price above or below 200-day MA?
• Is the trend up, down, or sideways?

Momentum:

• RSI: Is it oversold (below 30), neutral (30-70), or overbought (above 70)?
• MACD: Is momentum positive or negative?

Support/Resistance:

• Where is the nearest support level?
• Where is resistance?

Volume:

• Is volume increasing on up days?
• Are there recent volume spikes?

Step 4: Categorize by Technical State

Sort your finalists into buckets:

Bucket A: Buy Now (Green Light)

• Fundamentals strong ✓
• Price in uptrend (above 200-day MA) ✓
• Recently broke resistance or pulled back to support ✓
• RSI not overbought ✓
• Volume confirming ✓

Action: Buy immediately with stop loss below recent support

Bucket B: Wait for Entry (Yellow Light)

• Fundamentals strong ✓
• Price in downtrend or sideways ✗
• OR at resistance / overbought ✗

Action: Set price alerts at support levels or breakout points. Wait patiently.

Bucket C: Avoid for Now (Red Light)

• Fundamentals strong ✓
• Price in severe downtrend ✗
• Breaking support levels ✗
• Negative momentum ✗

Action: Revisit quarterly. Something may be broken that financials haven't shown yet.

Step 5: Set Alerts and Monitor

For stocks in Bucket B (waiting for entry), set strategic alerts:

Entry Alerts:

1. Breakout alert: Price rises above resistance (trend reversal)
2. Pullback alert: Price drops to support in uptrend (buy the dip)
3. MA crossover: Price crosses above 200-day MA (trend change)

Example: Stock trading at $100

• Strong fundamentals (P/E 12, ROE 18%)
• But in downtrend, below 200-day MA at $105
• Support at $95, resistance at $110

Alerts to set:

• Alert 1: Price above $106 (crosses 200-day MA → trend reversal)
• Alert 2: Price drops to $96 (support test → potential reversal)
• Alert 3: Volume above 2M shares (unusual activity → something happening)

What happens: You wait patiently. When alerts trigger, you check if conditions are met, then buy.

Step 6: Enter with Technicals, Hold with Fundamentals

When you buy (technical trigger):

• Entry: Based on technical signal (breakout, support bounce)
• Stop loss: Based on technicals (below support, below MA)
• Position size: Based on risk (1-2% portfolio risk per trade)

Why you hold (fundamental conviction):

• Business quality hasn't changed
• Valuation still attractive
• Long-term thesis intact

When you sell:

• Technical stop: Price breaks support (protect capital)
• Fundamental break: Business deteriorates (thesis broken)
• Valuation exit: Stock reaches fair value (goal achieved)

This approach gives you:

• Downside protection (technical stops)
• Upside conviction (fundamental thesis)
• Clear entry rules (no FOMO)
• Clear exit rules (no hope/fear)

Real-World Example: Complete Analysis

Let's walk through a full example combining both approaches.

Stock: JPM (JPMorgan Chase)

Scenario: Banking sector sold off on recession fears. You're screening for value opportunities.

Fundamental Analysis

Step 1: Initial Screen

• Screener filters: P/E below 12, ROE above 15%, Financials sector
• JPM appears: P/E 9.5x, ROE 17%, trading at $140

Step 2: Deep Dive (JPM Fundamentals)

Profitability:

• Net Interest Margin: 2.5% (solid for banks)
• ROE: 17% (above peer average 12%)
• Efficiency Ratio: 55% (well-managed)

Balance Sheet (JPM Financials):

• Tier 1 Capital: 13.5% (strong, above regulatory minimum 10%)
• Loan Loss Reserves: $20B (adequate for downturn)
• Book Value: $95/share

Valuation:

• P/E: 9.5x vs 5-year avg 11x (cheap)
• P/B: 1.5x vs avg 1.8x (discount)
• Dividend Yield: 2.8% vs avg 2.3% (high)

Fundamental Verdict: High-quality bank trading at 15-20% discount to historical averages. Strong balance sheet can weather recession. Attractive dividend. Fair value: $165/share.

Decision: Worth buying—but when?

Technical Analysis

Step 3: Check Chart (JPM Chart)

Current situation:

• Price: $140
• 50-day MA: $145
• 200-day MA: $152
• Trend: Downtrend (below both MAs)
• Support: $135 (recent low)
• Resistance: $150 (200-day MA)

Step 4: Check Momentum (JPM Technical)

• RSI: 42 (neutral, approaching oversold)
• MACD: Negative but flattening (downtrend slowing)
• Volume: Average (no panic selling)

Technical Verdict: Downtrend intact but losing momentum. Not a buy yet—could still drop to $135 support. Wait for trend reversal signal.

Combined Strategy

Current State: Yellow Light (Wait for Entry)

• ✓ Fundamentals: Strong
• ✗ Technicals: Downtrend

Alert Strategy:

Set 3 alerts:

1. Breakout Alert: Price above $152

   • Signals: Crosses 200-day MA (trend reversal)
   • Action: Buy 50% position

2. Support Test Alert: Price drops to $136

   • Signals: Tests support in oversold territory
   • Action: If bounces with volume, buy 30% position

3. Volume Spike Alert: Volume above 15M shares

   • Signals: Institutional accumulation or news
   • Action: Check news, reassess

3 Weeks Later: Alert #1 triggers—Price breaks $152 on high volume

Pre-buy checklist:

• ✓ Fundamentals still strong (check latest earnings)
• ✓ Price above 200-day MA (confirmed)
• ✓ Volume above average (institutional buying)
• ✓ RSI 58 (bullish, not overbought)

Action: Buy JPM at $153

Risk Management:

• Entry: $153
• Stop loss: $147 (below 200-day MA)
• Target: $165 (fair value)
• Risk: $6/share (4%)
• Reward: $12/share (8%)
• Risk/Reward: 1:2 (acceptable)

Position sizing: Risk 1% of $100K portfolio = $1,000 / $6 risk per share = 166 shares

Result: You bought a quality stock at a technical breakout with defined risk. Not at the bottom ($135), but with confirmation the downtrend ended.

6 Months Later: Exit Decision

Price: $172 (above $165 target)

Fundamental check:

• Earnings beat expectations ✓
• ROE still 17% ✓
• P/E now 11x (still reasonable) ✓
• Thesis intact ✓

Technical check:

• Trend: Still strong uptrend ✓
• RSI: 72 (getting overbought)
• Resistance: $175 (52-week high)

Decision Matrix:

Option 1: Sell 50%, hold rest with trailing stop

• Lock in profit on half
• Let winners run
• Trail stop at $165 (break-even)

Option 2: Hold everything, raise stop to $165

• Still undervalued fundamentally
• Let it run to next resistance
• Protected with break-even stop

Option 3: Sell all at target

• Hit $165 fair value
• Redeploy to new opportunities
• Take win and move on

Pro approach: Option 1 (sell half, trail stop on rest)

Why: Combines fundamental conviction (still undervalued) with technical prudence (overbought, near resistance).

Common Mistakes When Combining Both

Mistake #1: Using Technicals as Fundamental Justification

Wrong: "This stock is breaking out, so it must be a good company."

Right: "This is a good company (fundamentals), and it's breaking out (technicals), so I'll buy."

The difference: Fundamentals come first. Technicals are timing, not validation.

Mistake #2: Ignoring Technicals Because Fundamentals Are Strong

Wrong: "P/E is 8x, this is cheap, I'm buying now even though it's in a downtrend."

Right: "P/E is 8x, but it's in a downtrend. I'll wait for trend reversal before buying."

The difference: Cheap can get cheaper. Wait for price to confirm your thesis.

Mistake #3: Over-weighting Recent Price Action

Wrong: "Stock is up 50% this month, fundamentals must be improving."

Right: "Stock is up 50%, let me check if fundamentals justify it or if this is speculation."

The difference: Price can disconnect from fundamentals short-term. Don't assume correlation.

Mistake #4: Paralysis by Analysis

Wrong: "Fundamentals are good, but RSI is 68 and MACD is flattening, and the 50-day is about to cross the 20-day..."

Right: "Fundamentals are good, price is in uptrend above support, RSI not overbought. Buy."

The difference: Don't overthink technicals. Focus on the big picture: trend, support/resistance, momentum.

Mistake #5: Forgetting Which Timeframe You're Trading

Wrong: Using daily RSI signals to trade a stock you plan to hold for 5 years.

Right:

• Long-term holds: Use weekly charts, focus on 200-day MA and major support/resistance
• Swing trades: Use daily charts, focus on 50-day MA and short-term patterns
• Day trades: Use hourly/15-min charts, focus on intraday levels

The difference: Match technical timeframe to investment timeframe.

Your Action Plan: Implementing the Combined Approach

Week 1: Set Up Your Workflow

Day 1-2: Build fundamental screens

• Create 3 screens: Value, Growth, Dividend
• Run each weekly
• Track results in watchlists

Day 3-4: Learn technical basics

• Practice identifying trends (up, down, sideways)
• Mark support and resistance on charts
• Understand RSI and MACD basics

Day 5: Create your checklist

Fundamental Checklist (Must-pass):

• ROE above 12%
• Debt/Equity below 2.0
• Revenue growth positive
• Profit margins stable or improving
• Valuation below 5-year average

Technical Checklist (Entry timing):

• Price above 200-day MA (uptrend)
• RSI between 30-70 (not extreme)
• Recent breakout or support bounce
• Volume confirming move
• Clear stop loss level identified

Week 2: Practice on Paper

Don't buy real stocks yet. Paper trade to build confidence.

Process:

1. Run fundamental screen → 20 stocks
2. Analyze top 5 fundamentally
3. Check technical setup for each
4. Categorize: Buy now / Wait / Avoid
5. Set alerts for "Wait" category
6. Track results in spreadsheet

What to track:

• Stock ticker
• Fundamental score (1-10)
• Technical setup (bullish/neutral/bearish)
• Entry alert price
• Actual entry (if triggered)
• Stop loss level
• Target price

Week 3: Start Real Trading (Small Size)

First Real Position:

• Use 1-2% of portfolio max
• Must pass both fundamental AND technical checklist
• Set stop loss immediately after entry
• Track in spreadsheet

What success looks like:

• Not about winning on first trade
• About following your process
• About learning what works for YOU

Week 4: Review and Refine

End of month review:

Questions to ask:

• Did I follow my checklists?
• Which fundamental metrics mattered most?
• Which technical signals worked best?
• Did I enter too early or too late?
• Did I respect my stops?
• What would I change?

Refine your approach:

• Tighten criteria if too many false positives
• Loosen criteria if missing good opportunities
• Adjust position sizing based on confidence
• Update checklists based on learnings

Tools for Combined Analysis (Stock Alarm Pro)

Stock Alarm Pro provides everything you need for both fundamental and technical analysis in one platform:

Fundamental Analysis Tools

S&P 500 Screener

• 60+ fundamental metrics
• P/E, P/B, PEG, Debt/Equity, ROE, margins, growth rates
• Real-time quote integration
• Export to Excel for custom analysis

Fundamentals Tab

• All key ratios in one place
• Profitability metrics (margins, returns)
• Valuation (multiple approaches)
• Quality indicators

Financials Tab

• Income statement (5 years)
• Balance sheet (assets, liabilities)
• Cash flow statement
• Year-over-year comparisons

Profile Tab

• Business description
• Industry and sector
• Company info

Earnings Tab

• Earnings history
• Beat/miss trends
• Guidance and expectations

Technical Analysis Tools

Interactive Charts

• Multiple timeframes (1D to MAX)
• Moving averages (50-day, 200-day)
• Volume overlay
• Clean, responsive interface

Technical Tab

• RSI (Relative Strength Index)
• MACD (momentum)
• Moving average positions
• Support/resistance levels

Price Alerts

• Set alerts at key technical levels
• Breakout alerts
• Support/resistance tests
• Volume spike alerts
• MA crossover alerts

Integration Features

Watchlists

• Organize stocks by strategy
• Real-time quote updates
• Quick access to analysis tabs
• Export and share

All-in-One Quote Pages

• Switch between Fundamentals, Technicals, Chart in one click
• No need for multiple tools/sites
• Consistent data across all views
• Mobile-optimized for on-the-go analysis

Conclusion: The Best of Both Worlds

The technical vs fundamental debate is a false choice.

Fundamental analysis tells you if a stock is worth owning. Technical analysis tells you when to own it.

Together, they form a complete system:

1. Screen for quality (fundamentals)
2. Analyze deeply (fundamentals)
3. Wait for setup (technicals)
4. Enter with confirmation (technicals)
5. Hold with conviction (fundamentals)
6. Exit on rules (both)

This is how professionals invest.

They don't pick one approach and ignore the other. They use fundamentals to find asymmetric opportunities, then use technicals to time entries and manage risk.

The result?

• Higher win rate (only buy quality)
• Better entries (wait for confirmation)
• Smaller losses (technical stops)
• Bigger winners (fundamental conviction to hold)

Stop asking "which is better?" Start asking "how do I use both?"

Start combining both approaches with Stock Alarm Pro →

Related Reading

• How to Pick Stocks: A Complete Guide - Full stock picking workflow
• Fundamental Charts Guide - Visual fundamental analysis
• S&P 500 Stock Screener Guide - Master the screening process
• Economic Indicators Every Trader Should Monitor - Macro analysis for context
• What Stock Strength Really Means - Relative strength analysis