There are two schools of thought about how a stock will behave relative to the market, and like any investment strategy or philosophy, both have their advocates and adversaries.

  • Technical analysis, which involves detecting patterns in security prices, goes on the assumption that the price of a stock - like the price of everything else - is a matter of supply and demand. Technical analysts, or technicians, generate and interpret charts of the price and volume histories of stocks to predict movement in stock prices according to perceived trends.

  • Fundamental analysis, which examines the earning potential of the company issuing a stock, goes on the assumption that a share of ownership of a company has an intrinsic value that is a function of the underlying value of the company as a whole. Fundamental analysts report which shares are undervalued by the investor community and which are overvalued, then trust the market to make corrections.

In the world of stock analysis, fundamental and technical analysis are on completely opposite sides of the spectrum. Earnings, expenses, assets and liabilities are all important characteristics to fundamental analysts, whereas technical analysts could not care less about these numbers. Which strategy works best is always debated, and many volumes of textbooks have been written on both of these methods. We'll discuss each in turn.

Technical Analysis

Related Articles
  1. Investing

    Technical Vs. Fundamental Investing - Friends Or Foes?

    Making money in the stock market has been likened to gambling by some, but experienced investors who do their homework usually profit by doing market analysis. However, even experienced investors ...
  2. Investing

    Fundamentals And Technicals: Together At Last

    It's a big mistake for a fundamental investor to ignore technical analysis. Find out how to become chart smart.
  3. Investing

    Understanding Fundamental Vs. Technical Analysis

    The methods used to analyze securities and make investment decisions fall into two very broad categories: fundamental and technical analysis. Learn the core differences in these strategies and ...
  4. Investing

    Basics Of Technical Analysis

    Learn how chartists analyze the price movements of the market. We'll introduce you to the most important concepts in this approach.
  5. Investing

    Fundamental Analysis For Traders

    Find out how this method can be applied strategically to increase profit.
  6. Investing

    What Are A Stock's "Fundamentals"?

    The investing world loves to talk about fundamentals, but do you know what it means?
  7. Trading

    Debunking 8 Myths About Technical Analysis

    Investopedia exposes a few common myths about technical analysis.
Frequently Asked Questions
  1. What's the Best Way to Contact Warren Buffett?

    Learn how to contact Warren Buffett and what kinds of contact is most likely to receive a response from him or from his company, ...
  2. What is the Financial Services Sector?

    A diverse group of companies, beyond banks and credit unions, comprises the financial services sector.
  3. Who are Whole Foods' (WFM) main competitors?

    Whole Foods' main competitors are Sprouts Farmers Markets and Trader Joe's. However, the recent acquisition by Amazon my ...
  4. What caused the Stock Market Crash of 1929 that preceded the Great Depression?

    Find out what led to the stock market crash of 1929, which in turn led to the Great Depression. It sparked a nearly 90% loss ...
Trading Center