Fundamental analysis or
Which approach makes more money?
The concept of fundamental analysis and technical analysis is not new. If you have been doing some reading about investing, you would have already come across them.
Which one is better has actually been discussed by many. The approach you take will largely determine whether you will invest or trade.
Investors are commonly known to make decisions by analyzing the fundamentals of the company. Traders on the other hand makes decision on which stock to trade based on technical analysis.
What fundamental analysis is...
It is an approach that uses economic and production data to determine a company's fair value. Investors are able to forecast future stock price based on the balance sheets, income statements, past records of earnings, sales, assets, management, products, and services.
Well...a really long list of things to consider.
What Technical Analysis is...
Technical analysis is built on the theory that market prices display repetitive patterns. Thus, technicians believe that they are able to forecast future stock price movements by analyzing chart patterns and statistics generated by market activity such as past prices, volume, momentum, and stochastics.
Well...another long list of confusing stuff to know.
Don't be confused. This site will guide you.
If you are getting overwhelmed by the above definitions, don't worry. Most people get a bit nervous when they hear the words fundamental and technical analysis.
It all seems like heavy stuff. And the fact that your local bookstore is full of thick books on these subjects don't help either. Some books and investing sites on the net just confuse you more.
This website will help you overcome the learning curve. I will show you how you should really use fundamental and technical analysis.
The best way is to combine both type of analysis
You do not need to choose one approach over the other. To be honest, neither one is superior than the other. The best way is to combine and use both approaches when deciding to buy a stock. Whether you invest or trade, you will benefit tremendously by combining both approaches.
Here is the reason...
Fundamental analysis is used as a filter to find good stocks
This website wlll teach you the real way to use fundamental analysis. Let's not make it more difficult than it should be.
You do not need an MBA and you certainly do not need to spend days reading the company's financial statements. Fundamental analysis alone is good but it does not give you the complete picture.
We will use it as a filter to find good stocks. Then, we will use Technical Analysis to...
Technical Analysis is used to time our entry and exit
When we have found some good stocks, we will wait for the right time to buy it. Technical analysis will guide us on when is the best time to enter the stock.
After all, even if the stock is a good stock, I'm sure you won't want to enter it today and see it drop another 5 dollars by next week right?
Technical analysis will help you to avoid that. And sometimes it helps you to avoid a lousy company. Why? That's because financial statements can lie. Accountants can manipulate the figures. Picture Enron...
While the company's financials statements were shining like stars, the stock chart of Enron was showing many warning signs.
Combine both analysis with more advanced analysis
As I said in my previous articles, I do not want you to be only a one dimensional investor or trader. I have already told you that the best approach is to combine both types of analysis.
However, you still won't have the complete big picture yet. In the more advance topics, I will teach you how to get the complete big picture. Yes, by combining your fundamental analysis and technical analysis with other analysis.
When you do that, let me tell you...
You will be amazed at how you can enter and exit a stock with great accuracy. Which means, more profit and less losses for your investments.
That's all for fundamental analysis and technical analysis introduction. Let's move on now to the next IMPORTANT article in the Foundation series, Money Management.Click on the link to get to that important page.
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