Criticism Against Fundamental Analysis
There are some people who are used to or often criticize fundamental analysis. Critics (critics) argue that fundamental analysis can lead to improper valuations and incorrect investment decisions. Because the information is mostly backward or behind.
The analysis of financial statements, comments on company performance and those reported to the authorities as well as the macroeconomic environment focuses on what has happened. Investors use this information to model the expected results in the future. The problem is that forecasting becomes highly subjective, depending on the expectations and disclosures of the company’s management team and can in some ways be self-fulfilling prophecy. “Bad info as input, bad results coming out” is a term often used in conjunction with modeling related to fundamental analysis of intrinsic value determination.
On the other hand, critics of technical analysis think that price chart patterns work until they fail. Failure patterns may not always be predictable following the pattern of the past, especially if there are unexpected surprises. One way to reduce the shortcomings of these two methods is to use them together to get the best aspects of both.
Fundamental analysis should be used to determine which stock selection or sector is most likely to perform well based on a strong macroeconomic environment and company-specific operations or sector. Then, technical analysis can be used to decide when to buy or sell by giving signals of entry and exit levels based on average movements (MA), volume and price trends.
Using both mutual strategies, positions can be taken on a fundamentally strong stock of companies while avoiding buying stocks that are already running and overvalued. Technical analysis can help you avoid high purchases or low sales, a phenomenon that often occurs when psychology begins to dominate the trade.
Fundamental and technical analyzes do not necessarily contradict or survive within a certain range. Sometimes there may be one indicator that provides good information for technical and fundamentalist analysts. For example, price volatility is an important technical indicator of risk – the greater the volatility, the greater the risk. This may be a major indicator that fundamentals change. As a result, both will approve the decision to buy or sell.