Welcome everybody, we are going to talk today about technical analysis, what it is, why we use it versus fundamental analysis, okay. Before we begin, I am going to be very upfront with you. The secret of trading is that there is no secret, there is no secret in trading, there is no gimmicks, there is no magic and when you watch TV and when you read certain publications, there is plenty of stuff being sold to you the trader to help you improve performance and/or buy low, sell high, red light, green light. and, from my years of experience I can tell you right now, none of it works, none of it will ever work and stay away from it.
Trading is about work, hard work and some flair, so whether you trade stocks or you fly a plane or you perform surgery, it all boils down to one thing. Having discipline and putting in a time and the work.
Intelligent traders, let us talk about intelligent traders. Intelligent traders pay attention to the technical component and the fundamental component. Fundamental, when we say fundamental we are talking about the key forces in the economy. Economic numbers, economic indicators, quarterly reports, annual earnings reports things like this. But, that is not what we are going to pay attention to it. We pay attention to, because we are intelligent, but we focus on the technical side of the trade. We are looking to identify trends, we are looking to identify reversals, and we are looking for something that I always say, something that sinks my teeth into.
Fundamental analysis, what is it? Fundamental stock analysis requires among other things, a close examination of financial statements, 10Qs, you know like I said before, quarterly reports, annual reports, future growth, profitability reports, and the current management, what is in the company’s pipe line. If you are writing this down, stop writing this down, these are the elements that we define as fundamental analysis.
Now, a great deal of relying is placed on this, in terms of the investor or in terms in what you see on TV, on CNBC what ever other business, you know, business shows you may watch. We are not concerned with the competitive landscape that faces each and every company we trade. It is not an issue to us and it is only going to fill your brain with opinions and ideas about the company and that is the worst thing a trader can do.
So, simply put fundamental analysis is the basics of how businesses are our valued. Okay, those reports in those earnings have merit, but in the end of the day in our world that we live in is not applicable.
Problems of fundamental analysis, it does not help you as a trader. Assess risk and help you with timing, two very important elements of trading, risk and timing. It is not suitable for short to midterm traders, because the amount of time that is required to read those reports, the amount of research you have to do, that is a whole separate profession and it is very subjective in its results, because what one person might deem as quality another might deem as crap.
And, earnings reports comes out, one professional says, “Great numbers, great earnings, great forecast,” and the other one says, “Okay, moderate growth,” and the other one might say, “Horrible, we expected much better.” So, it is subjective among the individuals in that arena, it does not help us.
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