Introduction to Fundamental and Technical Analysis
Knowledge is power!
There are many strategies a trader can utilize to reduce the risk, to a certain extent, when choosing between stocks. Strategies can be broken up into two categories: Fundamental Analysis and Technical Analysis. Fundamental Analysis is a fancy industry term for using publicly-shared data to make decisions. From reviewing the corporate financial reports, to seeing who has more money than expenses, or choosing a company that signed the hottest celebrity to an exclusive contract, the analysis of these kinds of hard data facts comprise of Fundamental Analysis. Though it takes a lot of time to properly complete the fundamental analysis of a single company, with the amount of public information companies are required to disclose, regular people like us can be almost as informed as the CEO of the companies we are buying.
Fundamental Analysis
It is not difficult to stay up-to-date with any given company. As you will learn in articles like Fundamental Analysis - Getting Started, Earnings Calls 101, and Don’t Be Afraid to Search, persistence can be the most important quality of a good fundamental analysist.
What may seem complex and foreign at first will quickly become understandable and repetitive. After utilizing our Fundamental Analysis section of the knowledge center, you will quickly realize a good trader do not need a Master’s degree in economics to review a basic corporate finance report to know if they are spending more than they make!
Common pitfalls, that are generally easily avoided, include: no longer being up-to-date with information as well as having to keep up with too many companies; to name a few.
Technical Analysis
Technical Analysis is the method used by the TheChartReaders and, for lack of words, revolves around making decisions based on “the lines on a chart.” That phrase will make more sense after reading articles like Moving Averages & Trend Lines as well as the Major Market Breakdowns; however, believe us when we say, a skilled Technical Analysis Trader will make several seven-figure-plus trades on companies they have no idea about. A running joke here is: We do not care if a publicly traded company is selling TheChartReaders Suck t-shirts; if the lines look good, we will happily invest in them!!! :) The amount of time required for a proper technical analysis becomes minimal as the review becomes more repetitive. A good technical trader can review over 100 unique tickers in a relatively short amount of time.
Common pitfalls, that take a lot more time and patience to avoid, include: misunderstanding signals, messing up timeframes, and letting emotion interfere; to name a few.
Why not use both?
There is nothing wrong with using a blend of Fundamental and Technical Analysis whenever reviewing a company that is potentially worth your hard earned money. As basic as this sounds, there is a hard divide in the Fundamental and Technical communities.
Generally, fundamental analysists believe technical analysis is bullsh*t and “reading the lines” is as pointless as palm reading or other mumbo-jumbo. Similarly, technical analysists believe fundamental analysis takes too much time and prevents traders from finding other stocks that may be moving faster.
