Article by Investment U
Fundamental analysis focuses on the company's fundamentals. Technical analysis is primarily concerned with the price movements in the market.
When you’re making the attempt to analyze securities and make investment decisions, the strategies you use will most likely find themselves in two very broad categories: fundamental analysis or technical analysis.
Here at Investment U we stress fundamental analysis as the most important strategy. Take a look at the company’s DNA – financial statements, their industry, management and other characteristics of a company – so you can try to estimate its intrinsic value. It’s the fundamental focus on the company itself.
Technical analysis takes a completely different approach, but sometimes an important one nonetheless; it doesn’t care one bit about the “value” of a company or a commodity. Technicians or chartists (a term we will explore more) are primarily concerned with the price movements in the market.
What a “chartist” is really looking at is the supply and demand in a market in an attempt to determine what direction, or trend, that company or commodity will continue going forward. In other words, technical analysis attempts to understand the emotions in the market by studying the market itself, as opposed to its components.
If you’re aware of the pros and cons of technical analysis and the types of charts they use, you will then have a new tool at your disposal no matter what your end game is in investing in the market. So let’s see what these charts are and how they’re used by first looking at the simplest.
What you’re probably most familiar with are the typical graphs you see on CNBC, Fox Business, Bloomberg and most other financial programs or business newspaper sections: the line chart.
The line chart is one of the important kinds of technical analysis charts but only represents the closing prices over a set period of time. It doesn’t provide visual information of the trading range for the individual points such as the high, low and opening prices. This type of chart is particularly useful for providing an illustration of the trend of a stock’s price or a market’s movement.
For many this is enough information. They just want to see the closing price trend over a certain period of time, and maybe make a decision to buy or sell aware of that information. However, chartists have taken the simple graph to new measures as to what and how much market information a chart can actually provide.
Over the next week, I’ll be showing you some more advanced charts that many traders use as predictive tools. You may have seen them or have been referred to them but didn’t have enough understanding as to what they’re actually attempting to accomplish. There are a number of traders out there privy to this information and understanding and you should be, too.
I’ll be taking a look at:
Good Investing,
Jason Jenkins
Article by Investment U