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

    What Are A Stock's "Fundamentals"?

    The investing world loves to talk about fundamentals, but do you know what it means?
Frequently Asked Questions
  1. How does the number of credit card accounts I have affect my credit score?

    Your credit score, which is also referred to as your FICO score, is a measure that creditors use to assess your potential ...
  2. What is the 'three-legged stool'?

    The "three-legged stool" was a retirement terminology from the past that many financial planners used to describe the three ...
  3. If I am looking to get an investment banking job, what education do employers prefer? MBA or CFA?

    If you are looking specifically for an investment banking position, an MBA may be marginally preferable over the CFA. The ...
  4. Is a Simplified Employee Pension (SEP) IRA tax deductible?

    Learn everything you need to know about your SEP IRA, including the benefits to employers and whether or not a SEP IRA is ...
Trading Center