If you have just started learning about the stock market then you will find that there are really two different ways to approach it.
1. Fundamentals
Most people in the stock market focus on fundamental analysis because it just makes more sense to most people. That is because it focuses on how the company is doing and the idea is to invest into stocks that are backed with strong companies.
Over the long term this does seem to be the case. Fundamental investors will look for stocks that are backed by companies that are making money and have a good potential to grow. Also if the company offers dividend paying stocks and pays investors a small portion of their income that only sweetens the deal.
2. Learning Technical Analysis
Another school of thought is technical analysis. While it might be nice to think that the short term ups and downs are all about how much money the company made, it really isn’t.
Actually over the short term stocks are more influenced by supply and demand. If more people buy a stock then sell it then the price of that stock will go up. On the other hand if more people sell a stock then buy it then it will go down. Because people are predictable we tend to make certain patterns in the stocks that we are trading, by learning these patterns and trading off of them an trader can make money from stocks.
So, what should you focus on? Well this kind of depends on how you see the stock market and what your goals are going to be.
But there is one common denominator. They are on opposite sides of the spectrum. Technical analysis works better then fundamental analysis when it comes to short 1 day to 1 month moves. Fundamental analysis works better when it comes to longer moves that last years. So if you want to trade stocks over the short term take a look at technical analysis.
But if your goal is to buy strong companies and then hold onto them over the long term then it is a much better idea to focus on fundamental analysis instead.
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