Technical vs Fundamental Analysis: Which Approach Wins?

#What Is Fundamental Analysis?

Fundamental analysis evaluates a stock by analyzing the underlying business:

• Financial statements — Revenue, earnings, cash flow, balance sheet
• Valuation metrics — P/E, P/B, EV/EBITDA, DCF models
• Competitive analysis — Moats, market position, industry trends
• Management quality — Capital allocation, track record, incentives

Goal: Determine the intrinsic value of the business and buy when the market price is below that value.

Pioneers: Benjamin Graham, Warren Buffett, Charlie Munger

#What Is Technical Analysis?

Technical analysis evaluates a stock by studying its price and volume history:

• Chart patterns — Head and shoulders, flags, triangles, cups
• Indicators — Moving averages, RSI, MACD, Bollinger Bands
• Support/resistance — Price levels where buying/selling tends to occur
• Volume analysis — Confirms or contradicts price movements

Goal: Identify patterns and trends that predict future price movements.

Pioneers: Charles Dow, Ralph Nelson Elliott, John Murphy

#Head-to-Head Comparison

#The Academic Verdict

Fundamental Analysis

Strong academic support. The Fama-French factor model, Novy-Marx profitability factor, and dozens of peer-reviewed studies show that fundamental metrics (value, quality, size) predict stock returns over long periods.

Our entire ranking methodology is built on this research.

Technical Analysis

Mixed evidence. Most chart patterns (head and shoulders, etc.) don't have robust out-of-sample evidence. However, momentum — the tendency for rising stocks to keep rising — is one of the most well-documented anomalies in finance.

The key distinction: momentum (buying recent winners) has strong evidence. Specific chart patterns and indicator-based timing have weak evidence.

#Where They Agree: Momentum

Momentum is the bridge between fundamental and technical analysis:

• Technical lens: Stocks in uptrends tend to continue
• Fundamental lens: Stocks with improving fundamentals see gradual price adjustment

Both approaches recognize that prices trend. This is why momentum is included in our 6-factor model alongside fundamental metrics.

Read: Momentum Investing Explained →

#A Combined Approach

The most effective strategy uses fundamentals for stock selection and technicals for timing:

Step 1: Fundamental Screen

Use factor scores to identify high-quality, undervalued stocks.

Step 2: Technical Confirmation

Wait for positive price momentum or trend confirmation before buying.

Step 3: Fundamental Monitoring

Hold based on fundamentals — factor scores, earnings trends, competitive position.

Step 4: Technical Exit Signals

Use moving average violations or momentum deterioration as warning signs.

#What Our Model Does

Our 6-factor model is primarily fundamental but includes momentum (a technical-like factor):

This blend captures the best evidence from both disciplines.

Explore our factor-based rankings →

Read our methodology →