BetterTrades
Fundamental or Technical? What's the Better Trade Off?
Fundamental or Technical? What's the Better Trade Off?
Before you put good money into the market, you'll need to be able to analyze a trade and make sure the odds of success to make a better trade are in your favor. In order to do that, you'll need to look at the potential purchase through an analytical lens.
Your two alternatives: fundamental analysis vs. technical analysis.
Which one is better when it comes to making a financial decision? It all depends on the type of trader you consider yourself.
Fundamental analysis is preferred by the traditional buy-and-hold investor. Fundamental traders look at the inside of the company and see if it a well-run, well-funded organization. Fundamental investors want to buy a stock that they view as undervalued and hold it until the price rises back to where it expected to be.
Technical analysis evaluates stocks through market statistics and tends to focus on historical prices and trends, which provide an indication of where the stock may be headed. Technical analysts aren't concerned with how the company is operated, but instead look at the historical price chart to project where the stock may be going. Most buy-and-sell traders depend on technical analysis.
Fundamental analysis usually starts with a company's financial statements. Analysts use fundamentals to measure a company's value through looking at cash-flow statements, income statements, and the balance sheet. They swap the financial information back and forth.
Fundamental traders take a long-term approach. They're willing to leave their money in the stock for years, if necessary, and sit through recessions and retracements. They wait for the stock to rise to what is considered to be the proper or correct level. Fundamental traders look at the quarterly earnings statements and financial statements to get a grip on how their stock is faring.
Technical traders don't believe there's a need to look at company's fundamentals, since that information can be discerned through properly reading a price chart. Technical analysts use indicators like Bollinger Bands and moving averages to try and determine where a stock is headed. Technical analysts believe a stock will trade in a similar manner because many people buy and sell the same stock over and over. So while the stock is an inanimate object, it is purchased by people who have emotions.
Technical analysis is a short-term approach to trading. Technical traders buy a stock when the price is low and then sell it when it increases in value, then do it over and over again. Technical traders aren't willing to hold a stock for years and years; they often trade options, which come with time limitations.
Some critics see technical analysis as sort of like voodoo and will criticize or mock the methods. Traditional Wall Street investors lean to the fundamental side, but technical analysis has gained more mainstream success over the last few years.
It's funny to see both sides look at each other. Fundamental traders see technical traders as reckless people or individuals who live for thrills. The technical see fundamental traders as potted plants or people without a pulse.
So, which is the better trade off? Both methods work. It all comes down to styles and comfort. It comes down to whatever is best financially for you.
