The process can be broken down into two parts.
1) Fundamental analysis
2) Technical analysis
Fundamental analysis is the structural components of the present financial state and the potential future financial state of a stock. While they are important to a long term approach, they often have little value in the time line for a short term trader... Pretty Dry... isn't it, yet experience tells me though, it is important in avoiding turning your money (stock shares) into wallpaper if you get caught on a bad trade in the short term. So what are you? A fundamental type person?
If so... and you have lots of patience like in years maybe you will likely win out in the end, but there will be many times you could have used a swing trend strategy to protect against losses and lock in profits... that's the game changer.
Technical analysis as in charts is a study of the the stock considering the Fundamental state at the present time the Technical analysis (charting) is undertaken, that presents a picture, that tells you at what position the stock is in it's fundamental state. The fundamental state has nothing to do with the fear and greed mentality of market.
Technical analysis does not predict... rather is a measurement. The biggest reason people fail at technical analysis is that they analyze stocks with poor speculative characteristics.
In the old days online trading was non existent, but now is prevalent in the market... with the influx of inexperienced traders came a wave of volatility that erased the value of fundamental analysis as the prime motivation for stock price appreciation.
After having said all that... you must expect to make bad decisions... and you must have a plan to cut losses and run with winners.
Today... fundamental analysis... if done with accuracy, does have an affect of protecting a speculators cash in that it provides a barrier to insolvency of a business (stock shares) that can take your ownership in shares to a state of dead money for a period of time instead of lost money. So in that respect, fundamental analysis does have an important place. Better to have some dead money than lost money, but is that the best strategy to follow?
The difference between the two can have a profound effect on the state of your portfolio.
It is said in the small cap world (mining stocks for this trader) that only 2 to 5% actually make it to being a mine in the commodities world.
It's a pretty tough game to play where the professionals have a distinct advantage and no conscience...
Price these days is ruled by sentiment fear and greed manipulated by professionals using promotion in the form of News Releases. "Sell on News" is a condition that has a profound effect when the market is moving down. Not many stocks will rally on news in a down market and in most cases is just bull bait.. The market reacts to NRs differently at different times... In a bullish market, the same news will make some aggressive trend direction north, so the gorilla consideration that can help a person to avoid the most obvious pitfalls is to target their trading in a bullish broad market..
Dave GLTA
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