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 Analysis

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.


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'.
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Technical Analysis

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.

Mechanical Analysis

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.

Judgmental Analysis

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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