Financial analysis is the analysis of company and market financials as we usually refer to it, which relies essentially on existing financial information such as annual reports, and the analysis of financial ratios and their comparison with competitors and sector benchmarks.

I applied financial analysis (albeit not rigorously) to stock market investing but was disappointed with the result. Rational investors firmly believe that stock prices closely reflect the (future) financial condition of the company. Unfortunately, this is not true. This assumption falls particularly short for analyzing short term stock price fluctuations.

This is where technical analysis comes into play. By contrast with financial analysis, technical analysis tries to uncover patterns in stock prices without assuming that investor behave rationally and that all relevant information is available (i.e. "perfect market" assumption). In essence, technical analysis tends more toward psychology than finance. This makes sense because most investors do not behave rationally. The effect of news, good or bad, and more importantly herd behavior such as the bandwagon effect can move the stock prices very far (above or under) from the values resulting from financial analysis. Technical analysis tries to anticipate the irrational behavior of investors when they are exposed to news, market "feeling", or any other perception that is not grounded in finance.

We can picture the long-term stock price as following the financial analysis curve and the short-term stock prices following the technical analysis along the financial analysis curve. The questions that remain are what do long-term and short-term mean, and which analysis technique weighs more according to the stock and the market. In immature markets such as China, and emotional times such as now, we might argue that technical analysis makes more sense than financial analysis.

In other words: stop focusing on numbers only, apply some behavioral psychology!