Fundamental and Technical Analysis

Information of any kind, be it on the Stock Market, individual shares, horses and even the weather, loosely falls into two categories:


As with anything in life, both sides have their supporters and both have their detractors. Both have their uses and both techniques can be incredibly accurate and terribly wrong.

Fundamental Analysis for Stock Markets is the study of Industrial, Company and Economic conditions (amongst other things) to determine the value of a company’s stock.

Technical analysis is the study of prices with the aid of charts and numerous technical indicators.

There are only two things that make the two techniques perform so differently. They are time scale and herd mentality.

Fundamental Analysis can be manipulated, false reports can be filed (Enron and World Com spring to mind) and rumours abound. This sets it at odds with whatever is actually happening in the markets.

You only have to look at the Dot.Com boom and bust. Companies were making no money, in actual fact they were losing money hand over fist and yet their share value was leaping.

The fundamental analysis was perplexing because the market kept on going. There was no rational reason behind it.

And there in lies the problem for anyone who studies fundamental analysis. The markets are not run by reason or governed by rational thinking. They are driven by emotions, namely fear and greed.

Technical Analysis on the other hand displays the open sentiment of the market. The fear, greed and the utter chaos behind the herd mentality.

The unique thing about technical analysis is that it is a self-prophecy.

Because all of the chart patterns and indicators are known and watched and acted on by all of the traders, they immediately follow the path that they are expected to take.

The conclusion to all of this is that fundamental analysis will be proven right in the long run. But the question that must be asked is “How long is the long run?”

So, although I believe that there is credence for both techniques, I believe that fundamental analysis is a complete waste of time and energy. Anything that has you sitting around waiting for the hammer to fall cannot be very productive.

I say get out and enjoy the ride, just change directions when your path comes to an end.

As for time scale, the shorter the better. There is nothing worse than buying a share and watching it rise and fall over the course of a year.  Why not catch every rise and fall that it makes.

Our aim is to trade a stock or an index or a commodity, at least once a day.

And this is how we go about doing just that, using technical analysis as our guide.

Now, before panic sets in and you start to believe that you are going to have to learn all of the chart formations and indicators, let me set your mind at ease.

You will need to know and recognize a couple of formations, but that is it. That is unless you want to spend all of your time learning stuff that has no relevance.  Rather you than me, but hey, each to their own.