Stock Selection
Technical Analysis
Technical analysis is a concept that you will repeatedly
come across through your trading journey. It is arguably the most effective tool at helping you understand market psychology and herd behaviour. It essentially relies on charts and historical data to establish patterns that are believed to keep repeating. Click the below button if you would like to explore some of the most common tools in technical analysis.
Fundamental Analysis
The stock market is a very strange place. Normally, if an item becomes more expensive, demand for it wanes pushing its price down. Not in the stock market though! It is not uncommon for a stock to become more desirable and sought after just as its market price increases. Consequently, valuations are pushed high beyond any justifiable reasons. On the other hand, some solid stocks fall out of favour for no apparent reason and their market prices go down below their true values. This is where FA comes in handy. But do keep an open mind and remember that it is more of an art than a science. It is almost impossible to tell if a stock is over-valued or under-valued until after the fact. Even if you manage to spot an “under-valued” stock, you might be beaten to it by other astute investors and professionals, who will in turn push the price higher. Always keep thinking of the other side of the trade: to be able to buy or sell, you need a counterparty that is willing to sell to you or buy from you.
Sometimes other traders have very valid reasons why they are buying from you or selling to you. So, instead of guessing, you would ideally have some type of a scientific approach to assess what you are trying to get into. Fundamental analysis may answer some of your questions based on hard facts... and only a bit of guesswork!