Criticism Against Fundamental Analysis
There are some people who are accustomed to or often criticize fundamental analysis. Critics (critics) argue that fundamental analysis can lead to improper judgments and wrong investment decisions. Because the information is mostly backward or lagging.
Analysis of financial statements, comments on company performance and those reported to the authorities and the macroeconomic environment focus on what has happened. Investors use this information to model the expected results in the future. The problem is that forecasting becomes very subjective, depending on the expectations and disclosures of the company’s management team and in some cases can be a self-fulfilling prophecy. “Bad info as input, poor results out” is a term often used in conjunction with modeling associated with fundamental analysis of determining intrinsic value.
Criticism of technical analysis.
On the other hand, critics of technical analysis think that price chart patterns work until they fail. The pattern of failure may not always be predicted to follow the pattern of the past, especially if there are unexpected surprises. One way to reduce the disadvantages of these two methods is to use them together to get the best aspects of both.
The fundamental analysis must be used to determine which stock or sector is most likely to perform well based on a strong macroeconomic environment and a company-specific sector or operation. Then, technical analysis can be used to decide when to buy or sell by giving signals of entry and exit rates based on moving average (MA), volume and price trends.
Using both reciprocal strategies, positions can be taken on fundamentally strong company shares. This also while avoiding buying shares that are already running and being overvalued. Technical analysis can help you avoid high purchases or low sales. This is a phenomenon that often occurs when psychology begins to dominate trade.
Fundamental and technical analysis does not always conflict or persist in a certain range. Sometimes there may be an indicator that provides good information for technical analysts and fundamentalists. For example, price volatility is an important technical indicator of risk – the greater the volatility, the greater the risk. This may be the main indicator that fundamental change. As a result, both of them will approve of the decision to buy or sell.