Testing the Effectiveness of Technical Analysis and Fundamental Analysis on the Prediction of Stocks' Prices

Abstract

Technical and fundamental analyses are the two main approaches to the financial markets analysis. Both of them try to solve the same problem, but they approach the problem from different directions. The problem is to determine the main trend of the future stock prices to achieve returns. For this purpose, the fundamentalists rely on analyzing the companies' financial statements and analyzing the economic environment, while technicians depend on analyzing the companies' historical stock prices. Each type of analysis has its own tools, strategies, indicators, and techniques. Many analysts are trying to promote these techniques for enhancing their investment decisions in order to maximize their profit and minimize the risk of loss. Accordingly, some analysts use a combination of different analyses to identify which stocks they should invest in. For example, some fundamentalists rely partly on technical analysis as a timing tool for determining the best time to buy or to sell stocks. Second: Research Problem: There is no agreement on one approach to stock analysis. Although there are many studies supporting the profitability of technical analysis, there are also many studies supporting the predictive power of fundamental analysis. Therefore, the research problem is to find an answer to the question of which type of analysis, whether technical or fundamental, is more accurate in predicting stock prices in the Egyptian stock market.