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Author Topic: Fundamentals versus Technicals
chrispete
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As I am just learning how to invest, I have been reading about analyzing stocks. Through my research I think that I would be more in the fundamentals style of thinking about businesses. In running the businesses that I have in the past, the "fundamental" factors are what I considered to be the basis for my read on how my business was doing at any one time, regardless of how the industry in general was doing at the time or where it was going. Using technicals seems to me to be more of a method for taking an entire industry and boiling down the probable trends of the businesses in that industry on the macro side (picking a few companies from 10,000,) and making a guesstimate of future performance of a company based on industry price trends plus the company's historical price trend. Basically, I'm seeing technicals as a way to quickly make performance indications, regardless of factors affecting the individual business. Am I missing something here? Does the technical view also take into account other factors affecting the health of a company (i.e. a new PR guy or new exec that can turn the company's image around?)
Posts: 65 | Registered: Oct 2003  |  IP: Logged | Report this post to a Moderator
Jeremy
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Well ideally you want to base your stock picks and investments by looking at both fundamentals and technicals. Because a company with strong fundamentals will typically have a longer term increase in price and performance.

But at the same time, technicals rarely lie. Even with penny and sub-penny stocks, things like resistance, support, relative strength, MACD crossovers, divergance, price channels, cup and handles... etc a lot of times still signal upcoming changes or trends in the price.

With that being said, there are many companies in the penny and sub-penny realm that have very poor fundamentals, yet people can still make a killing by trading the stock based solely on technicals. But like I mentioned, if the company is broke or spiraling out of control, it typically isn't a long-term investment due to the fundamentals of the company. But the chart and/or price may still follow trends or signals regardless of this in the short-term.

So, that is my trading style and how I approaching picking stocks. If I'm just looking for a really short-term trade to make some quick bucks, I could care less about every detail of the company's history, or every SEC filing or what month it may have recently lost money... if the chart and technical indicators show a possibility to make money, it's good enough for me.

But if I'm looking for a stock to hold for 6 months, a year, maybe longer... then fundamentals play a more important role than the technical aspect, as good fundamentals will lead to long term growth and value of the stock (while still following technical patterns).

So it depends a lot on your investing style, whether you want to hold onto stocks, or get into a stock that is signaling it is ready to break out, and sell it a day or two later.


Posts: 1051 | From: Michigan | Registered: Sep 2003  |  IP: Logged | Report this post to a Moderator
   

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