Trading Risks

Fundamental Analysis examines the trends a company has reported to pick a logical and reliable investment, or the selection of companies based on financial strength and performance.

The alternative -- technical analysis -- is described. Fundamental analysis relies on the most recent history of financial statements and the trends these reveal to pick companies. The technician analyzes price patterns and signs to pick a stock. These two approaches -- picking a company based on history or picking a stock based on price patterns -- are quite different.
However, both fundamental and technical indicators can be used together.

The value of using fundamental and technical indicators together is that this provides you with twice the information. Both sources are worth studying, and neither is exclusively 'right' or 'wrong' for everyone.

Traders are understandably concerned with improving the timing of their trades. So they seek entry and exit signals in order to improve their timing. These involve a wide range of indicators that work together or, of equal value, contradict one another. Contradictory indicators should warn a trader away from making a decision merely because there is no clear or strong signal. Traders need reliable and consistent signs.

When you find a company that appears strong in all of the fundamental tests, the technical indicators can be used as confirmation, an independent and separate method for verifying the strength of a company as well as assuring yourself that your timing is good. The same confirmation action can work in the opposite direction, with fundamental strength confirming the strength of a stock and timing that technical tests reveal.

Investment Risks examined a series of risks from a fundamental perspective. Technical Knowledge and Experience Risk takes another look at the risk issue, but from a technical point of view.

Key Point

Technical indicators are not only separate methods for timing entry and exit, but are also valuable as confi rming signals for fundamentally based investment decisions.

By Michael C. Thomsett
Michael Thomsett is a British-born American author who has written over 75 books covering investing, business and real estate topics.

Copyrighted 2016. Content published with author's permission.

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