Is Technical Analysis Better Than Fundamental Analysis
Mar0
Options Trading: Reversal Pattern - when to get in and when to get out
When Trading the Stock Market or Investing for the long term there are two methods of analysis an Investor may choose to base their decision making process on.
Technical Analysis and Fundamental Analysis.
But how do we know which is the best method to use?
That really depends on the strategy you are using and your desired outcome.
Let me explain…
FUNDAMENTAL ANALYSIS is the study of a particular company’s financial and management details.
There are those investors who believe that they can make an estimate of the value of a company’s stock price, as well as how it may perform in the future, just by looking at the company’s profits and expenditure history, as well as the level of company debt and it’s strength of management.
They form a view as to whether the company will remain profitable for the future and if it can offer solid ground for investment.
This method of analysis is strongly recommended if you are investing your money in the marketplace for long term gains and capital growth.
TECHNICAL ANALYSIS is the study of the share price history of a particular stock using a stock chart and just a few graphing tools and indicators.
The approach of a technical analyst is completely different to that of a fundamental analyst. They don’t care at all about the “value” of a company because they are only interested in the movements of the company’s share price in the market.
Using Technical Analysis Software and different tools such as trend lines & support and resistance, a technical analyst is able to study the supply and demand of a stock to determine which direction or trend might continue in the future.
In summary, Fundamental Analysis is based on what SHOULD happen, while Technical Analysis is based on what DOES happen!
When Trading the market for short term gains, Options Trading your analysis should be more focused on the technical aspects of a company using their stock chart.
In simple terms, Technical Analysis studies the prices and volume of a stock in an attempt to understand the emotions in the market itself, rather than the components that make up the market.
It is true that some fundamental aspects can influence the movement of a share price (such as company announcements) however you need to remember it is people who actually drive the market and you can see their sentiment in the price bars on a chart.
Price movements are based on the emotions of Buyers and Sellers (supply and demand).
If people wanting to sell are dominating the market, you can SEE this on the chart with trend lines that are sloping downward.
If people wanting to buy are dominating the market, you can see that too on the chart with a trend line in an upward direction.
And even if both the buyers and sellers are uncertain as to where the price will head, you can actually see their indecision in the price bars or candles on the stock chart (This is called an Inside Day).
Simple tools, available with most good Technical Analysis Software, are all you need when Options Trading or Stock Trading for short term gains. And if you understand the benefits and limitations of this method of analysis, it can give you a powerful set of tools or skills that will enable you to be a better Trader and Investor. More Resources
To your ultimate success
Lorraine James
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