What are some basic assumptions employed when using technical analysis?

When you use any technical method to analyze stocks, it is generally thought to be based upon a few assumptions. Some assumptions include: that the price moves of stocks are completely dependent upon supply and demand for that stock, or for any stock; that human trading behavior is observable and repeatable over time; that important technical indicators and rules of when to buy and sell have been tested over many market periods; and that the historical price movements have a similar shape and form, indicating what might happen in the future to a security's price.

Technical analysis is the method of understanding the patterns and trends of stock prices in order to make smarter investment decisions.

Technical analysis is the method of understanding the patterns and trends of stock prices in order to make smarter investment decisions.

What is "fundamental analysis"?

Fundamental analysis is the analysis of the effects of various economic indicators and reported financial information that have influenced (and may influence) the prices of stocks in financial markets.

How does fundamental analysis work?

Investors employing fundamental analysis may look at a company's financial information and other economic data in order to gain an understanding of the company's ability to use capital wisely to create products and services, and to generate earnings in what is considered the most productive way.

What are some basic assumptions employed when using fundamental analysis?

When you use fundamental analysis, you must assume that the reported financial information is legitimate and correct. Experts also often assume that a company's past performance and metrics may continue into the future. You also assume certain factors about the economy and market conditions, and hope they will continue to be favorable from the time of your analysis into the future.

What information does a fundamental investor often review?

A fundamental investor may analyze a company's ability to generate profit and sales growth, and reduce expenses (cost-cutting measures), which can influence a company's profits. He may also analyze macroeconomic variables such as jobs reports, trade data, oil prices, and interest rates in order to predict a stock's future price. Fundamental investors also analyze a company's inherent value, and try to discern if the shares trade at a premium or discount to this valuation of the company.

 
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