Investment Newsletters Decoding the Fundamentals vs. Technicals
Investment Newsletters Decoding the Fundamentals vs. Technicals
Guest Blog Post from Simon Shepherd | The Investment Newsletter Group
Simon Shephers and Providence Advisory Group ABN 20 273 384 386 is an Authorised Representative No. 1277819 and Credit Representative No. 518421 of FYG Planners Pty Ltd ABN 55 094 972 540. Australian Financial Services Licensee and Australian Credit Licensee No. 224543
Fundamental analysis and technical analysis are two different approaches to stock investing. Fundamental analysis evaluates a stock by looking at the underlying business and its financial health, while technical analysis uses historical price and volume data to find patterns and trends.
Fundamental analysis is generally considered more reliable than technical analysis for longer-term investors, while technical analysis can be a helpful tool for finding short-term trading opportunities. Many successful investors use a combination of both fundamental and technical analysis to make investment decisions.
What is fundamental analysis?
Fundamental analysis evaluates a stock by looking at the underlying business and its financial health. This includes the company's earnings, revenue, debt levels, and competitive landscape. Fundamental investors believe that the true value of a stock is found by its underlying fundamentals and that the stock price will eventually converge to this value.
Fundamental analysis is used in stock investing to find undervalued or overvalued stocks. This is done by evaluating the underlying business and its financial health. Fundamental investors consider a variety of factors, including:
• Financial statements: these supply a detailed look at the company's earnings, revenue, expenses, assets, and liabilities.
• Industry trends: information can be used to find growing and declining industries and the company's competitive landscape.
• Economic data: can be used to assess the economy's overall health and potential impact on the company's business.
How do I apply fundamental analysis to stock picking?
Once fundamental investors have gathered and analysed this information, they can develop an estimate of the company's intrinsic (or "fair" value). This is the value that the company is worth based on its underlying fundamentals. If the current stock price is below the fair value, the stock is considered undervalued and may be a promising investment. Conversely, if the current stock price is above the fair value, the stock is overvalued and may be a riskier investment.
What if I like a stock, but it is currently overvalued?
This is where the use of a "watchlist" becomes handy. A watchlist allows an investor to check a list of potential stocks for when their prices move down to more attractive levels. Many of the newsletters covered offer some form of watchlist facility.
What is technical analysis?
Technical analysis is used in stock investing generally to find short-term trading opportunities. This is done by analysing historical price and volume data to show patterns and trends. Technical investors believe that these patterns and trends can be used to predict future price movements.
How do I apply technical analysis to stock picking?
There are many different technical indicators and patterns that technical analysts use. Some of the most popular include:
• Moving averages: Moving averages are a way to smooth out price data and find trends.
• Support and resistance levels: Support and resistance levels are areas where the price of a stock is likely to stop and reverse direction.
• Candlestick patterns: Candlestick patterns are graphical representations of price and volume data that can be used to find potential trading signals.
Technical investors use a combination of these indicators and patterns to develop their trading strategies. For example, a technical analyst might use moving averages to find a trend and then use support and resistance levels to show potential entry and exit points for trades.
Which type of analysis is better?
This question has no definitive answer, as both fundamental and technical analysis can help make investment decisions. It's important to understand the drawbacks of each and to find an approach that suits your personality type.
Fundamental analysis is generally considered more reliable than technical analysis for longer-term investors. However, fundamental analysis is not a perfect science; for example, there is the risk of inaccurate or incomplete financial statements. There is no guarantee that stocks considered undervalued will outperform the market in the future. However, fundamental analysis can be a valuable starting point for finding potential investment opportunities.
Technical analysis can often be a helpful tool for finding short-term trading opportunities. Still, it is essential to remember that it is based on past price and volume data, and there is no guarantee that past patterns will repeat themselves in the future.
Many successful investors use a combination of fundamental and technical analysis to make investment decisions. This allows them to better understand the underlying business and its financial health and identify potential short-term price movements.
• Deep Data Analytics
• Marcus Today
It is also important to note that fundamental and technical analysis are complex subjects, and learning how to use them effectively takes time and effort. If you are new to investing, it is essential to do your research and possibly consult with a financial advisor before making any investment decisions.
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