There are two types of stock analysis you can do in order to make a decision on whether to trade a stock or not, FUNDAMENTAL and TECHNICAL analysis. So which one is better and why not just do both to get a better overall picture of a company? Let's find out... FUNDAMENTAL analysis: Conducting fundamental analysis on a company is usually done by long term investors. This is what hedge funds and investors planning for long term retirement focus on. Some things took look at to interpret if a company is doing "well" are Profit margin (how much profit is the company turning year after year), free cash flow (how much "cash" does a company have on hand to spend on expanding their business), debt (how much money does the company owe), quarterly revenue growth (what's the average growth rate per quarter), dividend yield (does this company pay a quarterly dividend), and past earnings reports. Although all this is great, it's not what we focus on here and I don't recomend it for short term swing trades, here's why.
TECHNICAL analysis: is based off of using charts and different indicators to make your decision on a trade, but what indicators should you use? PRICE ACTION and VOLUME are the two single most important "indicators" you can look at. Volume is what moves stock price and stock price is what creates the chart you look at. The picture above is a FIT daily chart. They recently had excellent earnings release and experts say they have very good "fundamentals" as a company (arguably). But the chart reflects a series of substantial downtrends. The chart doesn't lie and the chart says this is not a good trade to take for a long position. This is why I prefer TECHNICAL analysis, because fundamentally a company can look great on paper, but if price is going down and volume is going down, turns out the company isn't as good as it looks on paper.
Fundamental analysis may take a very long time to do and still not give us a clue if a price will move up or down in the near future.
We are planning to post a lot more technical analysis here with chart examples, as this is our bread and butter. Give us a follow!
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