Skip to main content

The Forms of Analysis - Fundamental & Technical

There are two forms of analyzing stocks to buy, those being Fundamental and Technical. Fundamental Analysis is when you take a deep dive into the company and know their ins and outs. This means looking at their products, target audience, competitors, income, etc.. There are some basic forms that will supply this information to you, including Income Statements, Balance Sheets, Cash Flows, 10Q (Quarterly Report), and 10K (Annual Report). Fundamental Analysis is considered to be the “old-school” way of trading that is commonly used by big name investors such as Warren Buffett. 

 

    Above is a quick example of the financial statements already mentioned, including the Balance Sheet, Income Statement, and Cash Flows. When using Fundamental Analysis, an investor is looking for a company's performance and money-management. They want to see that the company is growing and knows what they are doing with their money. In this case, this company has seen steady significant growth over the past 5 years. Also, the company seems to be paying off their debt steadily and increasing their retained earnings. Through these forms, along with some other forms, research into the company's competitors, the products of the company, etc., an investor can determine whether to buy this company's stock or not.


    Technical Analysis is what you are most likely more familiar with and what you think of when you imagine stock trading. This is when you use different indicators that help you gauge which direction the stock is moving and when to buy/sell your shares. 


    Above is a quick example of technical analysis. An investor can use the indicators of their choice to determine whether or not they should by a stock. In this case, this investor is using two Moving Averages, the RSI, and the MACD. These indicators are meant to help determine a stock's relative price (cheapness) and predict the direction of the stock. With this in mind, an investor can try to buy as cheap as possible and then sell when their strategy determines to do so.


    As you can see, Fundamental and Technical Analysis are both very different. Even though they are very different in terms of actual strategy, they have the same goal in mind: Buy a stock when it is cheap and sell when it is expensive. Remember, the goal of every investor is to make a profit and some investors may perform better with one strategy compared to another. Both Technical and Fundamental Analysis have proven to be very successful yet neither is better than the other. It is important when you start investing to choose which form of analysis works better for you and stick with that as you continue your career.

Popular posts from this blog

What is Catalyst Trading? - How to Trade Upcoming Events

 Catalyst Trading is when you play off of the hype in anticipation to an event that affects a stock's price. This is a very simple way to try to capture profits in, usually, a smaller time frame than most investments. There are many different types of catalysts that can cause a stock price to increase and there are many resources to use to find these catalysts. It is important to understand that just because there is a catalyst, it does not mean that the stock price will be affected by it. When researching into different catalysts, it is clear that some provide higher returns than others. Also, it is important to research into the stock that has the catalyst. An easy way to tell if it is worth investing is looking into that specific stock's previous catalysts. If that stock has previously reacted positively to catalysts, then it is reasonable to assume it will do so again.  With that being said, let's look into some different types of catalysts that are easy to track: Earni...

What are ETFs & How Do You Trade Them?

 An Exchange Traded Fund (ETF) is similar to a Mutual Fund in the fact that it is a group of stocks that you can buy through one ticker symbol. However, ETFs usually often contain stocks that all have something in common (Such as an index, market, etc.). They are popular for investors who want to trade both in the long-term and the short-term, depending on which ETF you choose to invest in. In this article, we will discuss different types of ETFs and how to trade some of them efficiently. Index ETFs     One of the most common ETFs that are used/recommended by many investors are Index ETFs. Index ETFs  are a group of stocks that are included in one popular index that you can invest in, basically allowing you to invest in an index. One of the most common Index ETFs is the S&P 500 ETF. Three of the most popular S&P 500 ETFs are: 1.)  SPDR S&P 500 ETF Trust (SPY) 2.)  Vanguard S&P 500 ETF (VOO) 3.)   iShares Core S&P 500 ETF (IVV)...

What are Bullish Reversal Patterns & How Do You Read Them?

Bullish Reversal Patterns are universal patterns that candlesticks can follow that signify a change from a downwards movement to an upwards movement of share price. Identifying these patterns may help when trying to predict if the stock is a good buy. However, it is important to remember that even though a pattern begins to form, it does not always need to finish. There is no guarantee that a pattern will follow through to the end. With that being said, here are some of the most popular Bullish Reversal Patterns: Double Bottom      Above is an example of the Double Bottom pattern. This can be identified by the two identical bottom points the share price reaches. Some investors like this pattern for its relative price, short-term trading, and long-term trading opportunities. Since the share price hits a bottom, it is most likely relatively cheap and likely has a low RSI . This allows for lots of upwards potential and profit in the long run. On the other hand, the Doubl...