The teaching of the stock market has become branched into two schools of thought fundamental analysis and technical analysis. This strategy points out all relevant factors affecting the price of a market so as to be able to classify the intrinsic value of that market. The intrinsic value is what fundamentalists use to denote the worth, based on the law of supply and demand. If this intrinsic value is under the present market price, then the market is overpriced and should be sold.
Technical Analysis is the study of market action. This approach is used for the role of foretelling possible price information, purely by the use of charts. Price and Volume are the two prime sources of information generally there to the technician.
The fundamentalist studies the cause of market movement, while the technician studies the implication. These two approaches seem to differ the most at really serious times, usually at the beginning of important market moves when the fundamentals do not reveal or support what the market seems to be doing. While the known fundamentals have already been discounted and are already “in the market”, prices are now reacting to the unknown fundamentals.
By meaning the technical approach includes the fundamentals. If a trader had to picked only one of the two approaches to use, the choice would logically have to be the technical and in accepting the premise of technical analysis, one can see why technicians believe their approach is significantly better. If the fundamentals are reflected in market price, then the study of fundamentals becomes too much. Chart reading becomes a shortcut form of fundamental analysis. The reverse, however, is not true. Fundamental analysis does not comprise a study of price action.
The study of trends is the probably the most thread between technical and fundamental analysis. Where technical analysis is the study of trends in price and volume, fundamental analysis studies the economic and corporate developing trends and the projection of performance based on trends of acceptable issues to consider.
technical analysis of stocks.
August 11 2010 07:32 pm | Uncategorized