Analysis

Technical vs Fundamental Analysis

Fundamental Analysis is the study of information about the company's operations, products, management, supply/demand balance and finances as well as rumors and news. Goal is to reach a "fair value" of a company's stock

Flaw of Fundamental Analysis is that the information can be highly suspect and unreliable to those who aren't in the know or who aren't deep inside the company.

Technical Analysis anticipates future price movements which reflects the demand and supply, buying and selling regardless of the company or commodity. The chart patterns reflect supply and demand and the behavior of the crowds and should be consistent through any time frame as long as there is active trading. It also helps to provide signals for the practitioner (to buy/sell etc) without the emotional aspect.

Flaw of Technical Analysis is that technical indicators can indicate mixed signals. Furthermore while it gives possible entry and exit points, the forecasting is not 100% accurate/

Investor vs Trader

Investors are typically long-term traders usually five or more years. They also tend to rely heavily on fundamental analysis, with the theory that great companies will be successful over time regardless of short-term losses due to economic or market conditions.

Traders typically do not have a specific holding period in mind when they buy a security. Their goal is to cut losses short and let profits run. They seek to buy a security at the correct moment and exit the trade when charts and indicators tell them a change is coming, which means their profits will erode. They are unconcerned about anything except for what the charts are saying about the price movement (focus on TA).

Shorting

Shorting a stock is the practice of selling securities the seller does not then own but has borrowed from a brokerage firm or bank in the hope of repurchasing them later at a lower price, thus making a profit if the price goes down (and incurring a cost if it goes up). Shorting is done on a margin account (have revolving credit to buy more stocks than you have the money to buy).

Margin Call is a notification from the broker that you must either add more money to the account or buy back some of your shares to meet the margin requirement. If nothing is done within the time limit set by the broker, your broker will do it for you.

Entering and Exiting a Trade

When should you enter a trade?

When should you exit a trade?

• Taking profits on the trade

• If price action contradicts or fail to confirm the expectations of your position

Important things to take note

1. All long-term trends begin with short-term moves

2. There is no room for hope in the market. The market goes its own way without regard to you or your position