Fundamental vs. Technical Analysis (Tom O'Brien 2002)
With the onset of very fast, inexpensive,
and efficient computers, the stage is set so that virtually every
trader has the ability to evaluate a stock or market based on its
action, using a set of rules and principles to arrive at their own
conclusion, and act accordingly. Numerous software programs and
spreadsheets like the Tiger Financial Fibonacci Confluence
Calculator are the tools available to you to improve your odds of
becoming a successful trader.
Fundamental analyst place their reliance on analyzing Wall Street,
reading balance sheets, profit and loss statements, The Wall Street
Journal, Barons, listening to CNBC, etc. They are looking for
companies with long-term growth prospects. This type of information,
while valuable, is always ‘after the fact’. Once this
information is in the market most of the gravy is out of the trade.
If an investor goes into a stock for three to five years and can
turn the TV off and not read any papers he may stay in the trade.
Experience has shown me that what got them into the trade in the
first place will also get them out - NEWS.
|ABOUT THE AUTHOR
Name: Tom O'Brien
Tom O'Brien is the CEO and founder of Tiger
Financial News Network. Host of two radio shows,
author of two newsletters and author of critically
acclaimed book 'Timing the Trade'.
Click Here for Complete Bio
The market price of stocks tends to lead, not follow news. Thousands of
examples have shown us over the years that whether we agree or disagree,
like it or not something happens to impact the price before news breaks or
a quarterly report is made public. It may not even be illegal insider
information that drives the price up or down. It may be a vendor that has
gotten a huge order for raw material from the company, and he mentions it
to his brother-in-law who is an investor and can put two and two together.
It may be a banker servicing the company notices that they are having cash
flow problems and decides to sell his shares. The possibilities are
endless. The simple fact is that you and I will not have that information
as quickly or as directly as others. For that reason it is important that
we understand how the simple law of supply and demand will force prices to
move up or down, and that we can learn to recognize major moves in advance
through technical analysis.
Is technical analysis always right? Not necessarily, but why not
improve your odds of a successful trade with good technical analysis? Is
fundamental analysis always right? No. How many times have you watched a
company stock value languish or fall, in spite of the fact it has a
beautiful bottom line? Many a fortune or college tuition has been
vaporized on trades made on companies with a beautiful PE and five
quarters of sequential growth.
There are many different mechanical systems that give buy and sell
signals in the market. Some are as simple as a Head and Shoulders
patterns, top or bottom formations, or computer biased proprietary
systems. These systems are evaluating many indices occurring in the market
and will give you signals from which you can make your trading decisions.
A judgmental trader is going to be using several principles applied in
certain market conditions to produce consistent results. This approach
relies heavily on observations of the market and using those principles to
find the particular stock or market to trade. This is the focus of the
information in this book. The more you study these principles, the higher
the degree of proficiency that you will attain. The more I learn, the more
I realize there is to learn and that the learning curve is never ending,
forming a full circle of continuous education and opportunity.
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