Wednesday, 3 September 2014

A Brief Story about Technical Analysis

Many investors (especially fundamentalist) always have a question: "If I manage to choose a good company, why should I need to know technical analysis? Stock price of a good company(increasing profit) will definitely go up". You are right about it, buy not exactly right.

There are two loop holes about this statement.

1 High profit will not necessary followed by stock price increases.(at least in the short run)

Stock prices are caused by the buying power of investors. There are too many stocks in the market nowadays. Investors will not monitor every stock every time. There will be some stock left over for certain reason. Therefore even with high profit, if not spotted by investors will not have any impact on the price.

2 Maybe you are wrong

There are many criteria determine the fundamental of the company. And usually we will miss some part. If the part that we miss is very critical, then we might judge the future of company wrongly.

For me, technical analysis has two benefits which will compensate for the disadvantages of fundamental analysis.

1 Technical analysis can tell you when the investors will pay attention to the stock.

By looking only the volume, you can know more investors are joining the stocks.

2 Technical analysis give you the whole picture about the perspective of investors about the stock (at least for now)

I emphasize on whole picture because stock price alone is the result of the perspective of all investors about the value of the stock currently. If there are investors think the price is cheap, they will buy more and cause the price to increase. Unlike fundamental analysis, price will not have bias or hidden secret.

I only mention why we need technical analysis in this article since the main focus of this blog is on financial report. The teaching of technical analysis will in my next blog which is on the way of writing.

1 comment:

  1. 谢谢月夜的分享,让我受益无穷:)