Posts Tagged ‘technical analysis’
While technical analysis concentrates on studying the behavior of the market price, fundamental analysis focuses on the analysis of economic forces that generate the upward price movement, down or consolidation.
The fundamental approach examines all relevant factors affecting the market price in order to determine the intrinsic value of that particular market. The intrinsic value is what the fundamentals say that an action should be worth based on the laws of supply and demand. If this intrinsic value is below the current market price, then the share price of the company is overvalued and needs to sell. If the market price is below the intrinsic value, then this undervalued and must be purchased.
Both approaches attempt to solve the same problem: to determine in which direction prices will move. Each one does it differently. The fundamental analyst studies the causes that move a market, the technician studies the effects. The coach, of course, thinks that the effect is all you need to know and that the reasons or causes are not necessary for analysis. The fundamentalist always know why.
Many investors are considered: fundamental or technical. In fact, many fundamentalists have a broad knowledge of graphic interpretation. Similarly, many technicians have a basic understanding of the fundamentals. The problem is that in many instances the fundamentals and charts are in conflict. Usually at the beginning of an important trend, the fundamentals can not explain what is happening. It is at this critical moment when the two approaches differ. Later than sooner, once again be in sync but it’s too late for the investor to do something.
One explanation for these differences is that the price tends to stay ahead of the fundamentals, i.e. acts as a leading indicator of the fundamentals. While the fundamentals and acquaintances have been discounted by the market, prices are reacting to fundamentals unknown. Some of the markets up or down the most important have started with almost no perceptible change in the fundamentals. By the time these changes becomes evident and the market trend is in advanced stages.
With practice, the coach develops an ability to read and rely on charts and indicators derived from the behavior of the price and volume. Learn to invest trust in those times when market behavior goes against what is perceived through the fundamentals. The coach does not wait for undisclosed fundamentals are confirmed by the market.
By accepting the premises of technical analysis, you understand that the experts consider that their way of acting is superior to that of the fundamentalists. If an investor had to choose one of two approaches, the decision logic should be the technical analysis. If the fundamentals are reflected in the market price, then the study of these fundamental becomes irrelevant. Reading the graphic becomes a version of the fundamental analysis. But you can not say the same fundamental analysis. This analysis does not include a study of the price. It is possible to negotiate on the market using only technical analysis, but it is difficult to imagine that an investor can be negotiated taking into account only the fundamental.