More Trading Strategies
Moving along to the next excerpt of The Bullhunters Guide to the US Stock Market we will be tackling the old Fundamental vs Technical analysis which is always rather interesting. I have met and been in contact with many graduates of the Jamie McIntyre homestudy who are all right about there trading strategies as some only take on the Fundamental analysis and others take on the Technical analysis, and then some use a bit of both. If it suits your trading system then that’s great. Whatever works for you is the right thing to do. Let’s see what Sean has to say in his eBook.
Fundamental Analysis vs Technical Analysis
Value investors most commonly prefer fundamental analysis. This is the rigorous approach of determining the value of a stock and whether or not it is under or overvalued. Technical Analysis by contrast, examines the price history and the chart patterns of a stock. Aggressive growth investors are more concerned with the technical analysis and will never buy a stock without first consulting a chart.
Support and resistance constitute the basics of technical analysis. As a stock’s price fluctuates over time, it might routinely go down to one price (but no lower) and then rise to another price (but no higher). This low price is considered its support and the high price is its resistance.
For example, if a stock traded in a range of $25 and $35 over the course of six months, $25 would be thought of as its support and $35 would be considered its resistance. Support can be thought of as a price floor - the stock isn’t likely to fall through that floor. Resistance is like a price ceiling.
If a stock does fall through its support (floor), this is a very bearish sign. Who knows how far it will fall. Technical investors think it will keep going down until it hits an earlier support level. By the same token, if a stock breaks through its resistance (ceiling), growth investors think the sky is the limit.
At first glance technical analysis may seem a bit silly but there are several reasons to take it seriously. For one, if several other investors believe in it (which they do) then their actions will create a self-fulfilling prophecy. Secondly, support and resistance often represent psychological barriers. Perhaps a lot of buy and holders keep adding to their position each time the stock hits $25. But if it ever fell much lower, they all might bail causing the stock to plummet in value.
For these and other reasons it is a good idea for even the most fundamentally focused of value investors to consult a chart before buying a stock. Luckily, several sources on the internet provide charts free of charge.
Bullhunters Guide
To have access to these websites and their free charts please download the eBook now if you haven’t already done so. This also means that you will have all the information at hand when you need to refer to it. You will find the links on page 27.
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To Your Success
Angela Recchia
Graduate Support
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