Technical analysis focuses on the study of past market action
to try to predict future price movement.
Fundamental analysis concentrates on data
from sources including financial records, economic reports,
company assets and market share.
Would you rather look at a picture or read five pages of fine print to make a decision to buy or sell a stock or EFT? “Show me the picture” is my basic methodology. A picture is worth a thousand words – is the price going up, down, or sideways? Is it weak, strong, blah, overactive? Over the years, particularly since the 2009 market implosion, technical chart analysis has become imperative for me, and is the primary focus of my investment practice.
I absolutely subscribe to the observation that charts represent all known information by buyers and sellers, especially in this electronic world of instant information, and believe that charts are an immediate reflection of news. Charts are the ultimate indicator of supply and demand. Technical analysis exploits the fact that market psychology influences the price and trading patterns of a security and that these trading patterns are repeated time and time again. Reading charts comes naturally to me as I am very visual.
It amazes me to see the rhythm and personality of charts. They are always changing; what looks awful in May can look energized in July, after a change in trend and pattern.
Here are two charts with data through March 26, 2013, from TC2000, to help make my point: one appears to have many potential trades and the other very depressed and depressing:
QUALCOM – On January 2, 2000, the price closed at 68.03. On January 2, 2013, it closed at 54.75. Over the years, I have had many, many short term trades in QCOM.
(click photo to enlarge)
Source: Charts provided by Telechart 2000 by Worden Brothers.
APPLE – If you bought Apple a long time ago, you are profitable. If you bought it in September 2012 at the peak of 705, you are down 34% through the close on March 25, 2013. Apple has had many up and down moves of 30-40%, which one should try to optimize. As of this moment, it appears Apple is trying to break up through a down trend line from the high. During this decline, many analysts had price targets of 800 to 1100, based on fundamentals.
(click photo to enlarge)
The calculations may not be exact. The securities listed above are for example purposes only and are not to be taken as an indication of profitability. Investing in stocks/securities requires risk and you may lose money.