Fundamental versus Technical Analysis

Fundamental versus Technical
Analysis
By
www.CandlestickForums.com

There are two basic means of analyzing
stocks, commodities, stock options, or
futures contracts.

One is fundamental analysis and the
other is technical analysis.

The question is when do you use
fundamental versus technical analysis
and when do you need to use

fundamental and technical analysis to
most profitably predict the movement of
stock prices, commodity prices, options
prices or futures prices?

When a biotech company invents a new
wonder drug, that fact is fundamental
information.

So is the information about the progress
the drug is making through the steps
that the Food and Drug Administration
(FDA) requires in order for doctors to
prescribe the drug to humans.

The market reacts to any new
fundamental information such as a new
cancer drug passing a stage three trial in
about a nanosecond.

Those who have done their homework
will have an idea about how the new
drug could be priced and how much
money the company could make selling
it.

This use of fundamental versus technical
analysis is critical as it will dictate the
immediate reaction to the news.

The next part of fundamental versus
technical analysis will be reading the
market’s reaction to the news and to the
rise in stock price.

At this point the use of Candlestick
analysis will help the trader read market
sentiment and anticipate further stock
price movement.

Fundamental analysis is important in
that it helps in long term investing in
stocks.

Investors will look for a margin of safety
such as substantial cash reserves,
property,

and the like that will provide a cushion in
case of stock market crashes or bad
news specific to the stock itself.

Likewise investors will look at stock
fundamental analysis to calculate the
stock’s forward looking income
stream, its intrinsic stock value.

For the investor interested in buy and
hold investing this information is critical
as he will rely upon its accuracy and
ignore shorter term price moves.

In trusting in fundamental versus
technical analysis the buy and hold
investor believes that by not buying

stock and selling stock on a routine basis
that he will save in commissions and
fees.

He also believes that the profits from a
well run company will outperform what
he could make as a trader over the
years.

To the extent that the investor is more
attuned to fundamental versus technical
analysis and to the extent that his “day
job” takes all of his time this strategy
makes a degree of sense.

However, when the long term investor
wants to buy stocks or sell stocks he is
still well advised to use technical analysis

tools such as Candlestick pattern
formations to optimize his profits in
selling stock and minimize what he pays
in buying stocks.

Fundamental versus technical analysis
comes out on the side of the technical
trader when traders are profiting from
short term stock price movement.

In this case the fundamentals are known
and it is market sentiment that the
trader reads and anticipates by
interpreting Candlestick stock charts.

By reading the easy to interpret signals
of Candlestick patterns it is possible for
the trader to anticipate stock price
movement and most profitably enter
good trades or avoid bad trades.

In this case of fundamental versus
technical analysis the trader uses the
technical tools of the market to profit in

the short term while keeping an eye on
fundamentals so far as they predict
longer term market movement.

Fundamental versus Technical Analysis

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