Fundamental versus Technical Analysis
There are two basic means of analyzing stocks, commodities, stock options, or futures contracts. One is fundamental analysis and the other is technical analysis. The question is when do you use fundamental versus technical analysis and when do you need to use fundamental and technical analysis to most profitably predict the movement of stock prices, commodity prices, options prices or futures prices? When a biotech company invents a new wonder drug, that fact is fundamental information. So is the information about the progress the drug is making through the steps that the Food and Drug Administration (FDA) requires in order for doctors to prescribe the drug to humans. The market reacts to any new fundamental information such as a new cancer drug passing a stage three trial in about a nanosecond. Those who have done their homework will have an idea about how the new drug could be priced and how much money the company could make selling it. This use of fundamental versus technical analysis is critical as it will dictate the immediate reaction to the news. The next part of fundamental versus technical analysis will be reading the market’s reaction to the news and to the rise in stock price. At this point the use of Candlestick analysis will help the trader read market sentiment and anticipate further stock price movement.