-Jul-
26
Technical vs. Fundamental Analysis and the Perfect Combination of Both to Maximize Your Profits (Technorati) Technorati | (Del.icio.us) Del.icio.us | (Digg) Digg | (Blinklist) Blinklist | (Comment) Comments (2)

You are up all night doing your fundamental research on a stock. You love the company, you love their products and they are fundamentally sound from top to bottom. Thus you decide to pull the trigger and purchase their stock. 6 months later, the stock has tumbled and you are left scratching your head as to why people are selling such a sound company.

The truth is, had you looked at the chart, the answer was right there all along. All you had to do was recognize and read the signals the chart was giving you. The price pierced the 200Day SMA on high volume, the relative strength index signaled an overbought situation, a head-and-shoulders top formed. In short, there were numerous technical indicators screaming that a buy now would cost you that summer vacation or maybe force you to make a car payment with your savings money. All because you never saw the signs staring you right in the face.

Well don't worry, I promise that you are not alone. In fact, I use to be in that boat (or sinking ship I should say) for a while but quickly learned that there had to be a better way to trade and thus sought out the advice of experienced market professionals. Along the way I met several individuals who were making so much money in the market they left their jobs to trade full time. I saw one friend of mine retire at the age of 45 with an 8-figure bankroll, all of which was earned through smart investing.

While most investors that I talked too are either 100% technical traders or 100% research/fundamental traders, the best investors I know are a perfect combination of both. One thing each of these individuals has in common is their ability to develop a strategy that takes into consideration all the most important aspects of both technical and fundamental trading. These types of investors look at who the market leaders are, with solid group ranks, earnings, institutional cash flow, world news and focus in on these leaders. After finding the best of breed, they search for technical indicators to help them determine if this is a bullish or bearish setup. Then, and only then, will they pull the trigger. When everything has set up in their favor, creating a low risk, high reward situation.

There are many ways to trade the market but the above explanation is my preferred approach based on my experience thus far. I often wonder the type of investor my reader base is. Are you a technical, fundamental, day trader or have you developed your own unique strategy?

2 Comments - Post your comment below.


Santana
Dec. 14, 2006

My $0.02

# Technical analysis:
more on psychological pattern.
i.e. The resistance tells us that there are traders who still have stock at that price, so when the price hits that resistance, many of those traders would sell their stocks, and the stock will go right back down

# Fundamental analysis:
more on 'what if'.
i.e. What if the employment rate is high?
What if the oil price is below $20.
What if the company is merged with company B, and so on.

I am a technical analysis person and would be happy to see other fundamental and technical persons' performance at http://www.wikinancial.com. So everyone will know who wins and who loses.

This kind of debate has been going on for years and those people are hiding their performances.

See you there


Rukas
Apr. 14, 2007

I am currency trader, and 100% going with technical analysis. After more than a year i've been studied most of the indicators i found that the currency market is simply like a jigsaw puzzle where you can test your organizing skills. Whereas the fundamental side of it is like a miracle, it turn the market in any direction it wants to without following the technical analysis, but eventually in the end it will back to normal following the technical analysis.

So in order to be a good technical analyst, i think you should posses the ability to solve the jigsaw puzzle to find the right position in your daily trading.

Visit my technical analysis blog at www.revenues.blogspot.com there are lot of things i write about technical analysis and indicators.

Subscribe to 22Dollars RSS Feeds
Subscribe to 22Dollars via Email

Proud Member - 9Rules Network

SEARCH SITE

Nasdaq