Lesson 2: Introduction to Technical and Fundamental Analysis
What is Technical Analysis?
Pure technical analysts try to predict the best time to buy or sell a stock. They spend most of their time making and interpreting stock charts tracking the past movements of the stock, as well as its volume to find clues about what the future holds. The chartists hope to use this information to view how the crowd has responded to a stock in the past, and then use the trend information to determine where the stock is going in the future. They believe the market is 90% psychological and only 10% logical.
What is Fundamental Analysis?
Pure fundamental analysts believe the exact opposite is true, that 90% of market moves can be determined by logic and 10% by psychology. They spend very little time looking at past price movement, but rather seek to determine the proper valuation. They consider growth potential, dividend payout, interest rates, and risk. Fundamentalists use all these numbers to come up with an estimate of the security's intrinsic value. They believe that ultimately the market will reflect the security's real worth. It is estimated that 90% of Wall Street security analysts consider themselves fundamentalists.
