Fundamentals vs. Technicals: When Each Matters
Two lenses. Different questions. Better decisions when used correctly.
Investors often argue fundamentals versus technicals as if one must win. In reality, they answer different questions. Fundamentals tell you what to buy and why. Technicals help decide when to act and how the market is behaving right now.
Fundamentals — Valuing the Business
Fundamentals focus on the company itself.
They answer questions like:
Is the business profitable?
Is revenue growing?
Are margins strong?
Is debt manageable?
Is cash flow real?
Real-world example:
An established tech company shows steady revenue growth, expanding margins, strong free cash flow, and minimal debt. Even if the stock drops during a market-wide selloff, the underlying business remains solid. Long-term investors often view these dips as opportunities because the value of the business has not changed.
Fundamentals matter most for long-term investing, portfolio construction, and determining whether a company deserves your capital at all.
Technicals — Reading Market Behavior
Technicals focus on price, volume, and trends.
They answer questions like:
Is momentum accelerating or fading?
Where are buyers and sellers reacting?
Is the stock trending or ranging?
Real-world example:
A fundamentally strong stock reports great earnings, but price fails to break above a well-known resistance level and volume fades. Short-term traders may wait, knowing that even great companies can stall or pull back before moving higher.
Technicals matter most for timing entries and exits, managing risk, and understanding crowd behavior.
When Fundamentals Matter More
Long-term investments
Earnings growth stories
Valuation-based decisions
Deciding what belongs in your portfolio
Example:
An investor buys a high-quality consumer brand because cash flow, balance sheet strength, and pricing power suggest durable long-term returns, regardless of short-term price swings.
When Technicals Matter More
Short-term trades
Volatile markets
Entry and exit timing
Risk management
Example:
An investor believes in a company long-term but waits to buy until the stock stops making lower lows and volume confirms renewed buying interest.
How Professionals Combine Both
Strong fundamentals define the opportunity.
Technicals define the execution.
Example:
A long-term investor identifies a strong company through fundamentals, then uses technical support levels to avoid buying during a sharp downtrend.
Ultimately, fundamentals tell you what the business is worth, technicals tell you what the market is doing with that information.
Ignoring either means flying with one wing.