The Study of Buying and Selling Stocks
Money can be made and lost in the stock market. With hundreds of companies being traded in the Philippine Stock Exchange daily, how do we pick the best stocks that will help us achieve our goals in the next 5, 10, or 15 years?
This is where Fundamental and Technical Analysis comes in. These two ways of studying businesses and the markets help us determine the best stocks to buy for our investment and trading goals. Read on to find out how I use these techniques to choose the right stocks to buy!
Fundamental Analysis
Fundamental Analysis can be summarized as value investing. It is a method of studying which stocks to buy by analyzing the value and growth of a business. Fundamental Analysis uses present information to predict the future worth of a company.
ALI's consistent earnings growth makes it a great company to invest in (at the right price, albeit)
Investors who use Fundamental Analysis study the financial reports, balance sheets, news reports, as well as macro and microeconomic status and policies that affect a company's stock. They are concerned with growing corporate earnings, manageable debt, expansions, market sentiment, and much more. A good company draws in more investors, which in turn, makes the stock price go up.
Personally, I look for companies that are growing (increasing earnings, good cashflow, aligned with the macroeconomic status and policies) and have a great business model that will keep them relevant for years to come.
Technical Analysis
Technical Analysis can be summarized as a study of price action- supply and demand. This method of choosing stocks to buy entails studying the buying and selling pressure that causes prices to rise and fall over time. Technical Analysis uses past information to predict the future movement of a company's stock price.
The stock price of SM Investments Corporation on a candlestick chart with various technical indicators
Investors who rely on Technical Analysis study price charts that show the historical movement of a company's stock price. They study candlestick charts, technical indicators, and price trends. Past movements help us gauge a stock's tendency to fluctuate and move in price, making it easier to predict where it might go next. It is not a sure science, but it acts as a guideline and lessens the risk of a trader or investor.
Learn how I do my technical analysis for swing trading and position trading.
Putting it All Together
All things considered, Fundamental and Technical Analysis should not compete with each other, but complement each other. It is when we are able to buy companies with value and at the right time that we are able to maximize the potential of investing and trading the stock market.
How about you, how do you do your own Fundamental and Technical Analysis? Let me know in the comments below!