Fundamental vs. Technical

Every trader is looking for the holy grail - so to speak - of trading stocks.

There is always a debate of what is the best method of determining the next big stock....
....is it the fundamentals or the technicals?
Or put it another way - what the stock IS or what it is DOING?

Fundamentals :Many investors look for undervalued stocks, ones that show potential, they try to determine the stocks future in light of the world scene and coming needs. They look both to the past, present, and future.

Technicals : Some don't care about the stock itself but look merely to indicators - is the stock relatively oversold or undersold. These types may look for such things as moving averages and divergences between short term and medium term movements of the stock. They hope to find mathmatical formulas that will tell them everything they need to know on a stock and if and when to buy.

Combining techniques: Because both worlds are so vast - it is often very difficult to combine the two. Imaging try to blend karate and wrestling 100 years ago. There are hybrids now - but masters of both arts are jealous and do not like to share. Also, where do you start?

First you need to know the strengths and weaknesses of both. Fundamentals can tell you that a company is stable and currently worth is price. Technicals can tell you how the market feels about the stock right now. But what is the best way to foretell the future?

How much time you spend depends on what your objective is. Are you investing in this stock for life, or is this a one-month trade?

Let me tell you how I trade. First I look to stocks that gap-up. I like stocks that move and I hate investing in a stock that just holds my money for years. I screen all gap-ups after the market closes. Next I look a little closer at the fundamentals. I examine the stock to see WHY it gapped up. Was it a news item, a good report, a last bit of euphoria amonst the bulls? If the fundamentals do not tell me why the stock gapped up I then look to the technicals.

Basically, of the many reasons that a stock will gap, I only accept two. I want a stock that gapped to fill itself or to go back down to previous 'pre-gapping' levels. A good knowledge of fundamentals and technicals can tell you this. What happens next is a no-brainer. I watch during the first 1/2 hour of stock market activity the next morning to see if I am right. If I am I quickly short the stock and take a quick profit. Of course I use stop-losses in case I am wrong - as every honest trader will tell you - but mostly I am right.

My mentality is not to invest for the next 30 years and wait for a company to double in size. I only want 4% profit per day - which is reasonable and fairly easy to get if you know what to look for.

What does 4% per day relate to in profit?
If you started with $1,000 and consistently got 4% profit per day - and kept re-investing the profits every day - how much do you think you would have after 100 days? $50,0000!!!

How much would your $1,000 turn into at the end of one year?

83 billion dollars!!!

Yes, smaller profits that compound are worth much more to me than a stock merely doubling in one year. But again - we are not perfect and we must be happy with merely being millionaires and not billionaires - YET!

Source: http://www.eatmyshorts.ca


This article was written by stock market analyst - Dustin Hemmerling.