| Everyone who has been trading even for only a | | | | schools of thought where one school says that the |
| short time has heard the adage the Trend is your | | | | other is wrong. At we believe that both schools are |
| Friend. If we are trading against the trend we are like | | | | right, but give us different information. A useful way |
| salmon swimming upstream. However we should not | | | | to think of it is the fundamentals will tell you Why a |
| only know the trend of the stock because a stock | | | | stock is moving and the technicals will tell you When |
| will often move in sympathy to how the overall | | | | the stock will move. |
| indexes are moving. So first we must identify the | | | | Technical Analysis |
| trend of the indexes. Then ideally if we can find an | | | | There are entire books written on technical analysis |
| industry moving in the same direction of the index | | | | and it is beyond the scope of this course. Some of |
| we would like to pick a stock from that industry to | | | | the tools that we use at are things like overbought |
| trade. For example if the S&P is trending up and | | | | and oversold indicators like Stochastics, Momentum |
| the overall banking industry is moving up we could | | | | indicators and Bollinger Bands, which are standard |
| purchase stock in Wells Fargo (WFC). | | | | deviations to tell us when a market is going to |
| 1.Identify the trend of the overall indexes (the | | | | reverse direction. |
| S&P, Dow and Nasdaq) | | | | Fundamental Analysis |
| 2.Identify the trend of an industry. | | | | This school looks at things like price to earnings |
| 3.Identify the trend of an individual stock within that | | | | ratios, the amount of debt a company has, and |
| industry. | | | | earnings per share to determine the value of a |
| How To Identify The Trend | | | | company. It is important to look at both technical and |
| There are many different ways to identify a trend. | | | | fundamental factors when deciding which stocks to |
| The method we use for determining the trend on an | | | | buy or short sell. Because if you buy a stock that is |
| index or industry is looking at the Weekly Charts. | | | | technically ready to move up it is better to purchase |
| When the market breaks above the highest high of | | | | one that also has good fundamentals as well because |
| the past 3 weeks then we say that the market is in | | | | this makes it likely that the stock will move up more |
| an uptrend. If it has broken below the lowest low in | | | | than one that doesn't have good fundamentals. |
| the past 3 weeks then it is in a down trend. | | | | Summary |
| For an individual stock we use the monthly charts | | | | 1. Identify the trend of the overall indexes (the |
| and if it has broken above the highest high of the | | | | S&P, Dow and Nasdaq) |
| past 3 months then the stock is in an uptrend. If it | | | | 2. Identify the trend of an industry. |
| has broken below the lowest low of the past 3 | | | | 3. Identify the trend of an individual stock within that |
| months than it is in a downtrend. | | | | industry. |
| Technical Analysis Vs. Fundamental Analysis- Technical | | | | 4. Technical Analysis tells you when a market will |
| analysis is the study of price action and timing to | | | | move |
| enter the market. Fundamental analysis is the use of | | | | 5. Fundamental Analysis tells you why a market |
| information about the company's financial condition to | | | | move. |
| make investment decisions. | | | | 6. All of these factors are important for deciding |
| These are two different and often competing | | | | which stocks to buy or short sell. |