| This is one of the first questions that a new trader | | | | (and sometimes trade volume) by using charts and |
| needs to think about. Usually, a trader will end up | | | | or statistical indicators. |
| focusing on one of these approaches. | | | | They each have their strong and weak points. |
| Let's first define each approach: | | | | Fundamental analysis is more respected and |
| Fundamental analysis uses economic and financial data | | | | widespread on Wall Street. Most billionaires, such as |
| to decide what stocks to buy. It can involve following | | | | Warren Buffett, believe in it. Fundamental analysis can |
| the latest news reports, studying sales and earnings | | | | help you avoid stocks that are going nowhere. On |
| about a particular company, and/or researching the | | | | the downside, fundamental analysis does not give |
| economic fundamentals affecting the whole market, | | | | precise buy and sell points. Also, fundamental analysis |
| or a certain sector. For example, a fundamental | | | | can become tricky because, besides knowing the |
| trader interested in buying an electronics company | | | | information itself, you have to guess how the market |
| may be interested in how a new law may affect | | | | will interpret it. |
| imports. | | | | Technical analysis appeals to many small traders |
| Technical analysis assumes that all fundamental | | | | because it gives precise buy and sell points. The |
| information will get reflected in the price of the stock. | | | | downside is that you may pick a stock that is stuck |
| So, instead of following fundamentals and news | | | | in a rut, because there is no fundamental news to |
| reports, the technical trader will simply analyze price | | | | move the stock. |