Fundamental analysis involves making evaluations on the future share price direction based on company balance sheets, profit/loss details and company announcements.
Technical analysis or charting takes into consideration the share price and volume action to establish whether share prices are likely to go up or down in the future.
Within the investment field there is an on going ‘tug of war’ between those with a fundamental viewpoint and those with a more technical outlook. There are good traders from both sides of the analysis coin.
Fundamental Analysis
Fundamental analysis determines the probability of a share price increasing or decreasing in value based on the companies balance sheets, profit and loss details and announcements. Therefore if you are familiar with reviewing company figures, ratios and interpreting data, and reading company reports then this type of analysis may suit you.
Technical Analysis
Technical analysis reviews actual price and volume action to determine the likely direction of the share price on charts. For me fundamental analysis is too time consuming and I really do not have the time or patience to read reams of company reports, number crunch balance sheets and analyze reams of ratio figures.
Many people think in pictures, so relate quickly to the pattern recognition of the charts. It is not unusual for a share price to show signs of a reaction before a media announcement is made, it is this action that is used for buy and sell signals by a technical analyst. The reason for the increase in the share price is not really important, you only need to observe that it is going up.
Most technical analysts are trend followers (the trend is your friend). They will wait for the share price to reveal a trend in a particular direction before taking action. For instance if a share is trading up – buy it and if the trend is going down – sell it. The more familiar you become at identifying the direction of a trend the better your trading will become.
Another Method
Another type of analysis is that of reading newspapers and listening to rumors, and the inevitable ‘hot tip’
Headlines in newspapers directly feed our fear and greed as newspapers report on what has happened not on what is about to happen, therefore it is advisable not to take advise solely from these sources.
Take care,
Stock Trading Mum
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Ue6QAd Excellent article, I will take note. Many thanks for the story!
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