Two Ways To Approach The Stock Market PDF Print E-mail
Written by Shaun Rosenberg   
Tuesday, 10 August 2010 20:33
If you are looking for a brief Stock Market Tutorial you are going to have to be more specific. There are two ways to approach stocks.
by ShaunRosenberg


If you are looking for a brief Stock Market Tutorial you are going to have to be more specific. There are two ways to approach stocks.

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.

Fundamental investors will look at different ratios such as the PE ratio to tell how fairly priced the stock is compared to how much money the company makes. Also dividend paying stocks pay investors money just for holding a stock which can be a terrific extra bonus that they get. Basically fundamental analysis is a long term approach.

2. Trading With Technical Analysis

One other school of thought when it comes to stock market investing is technical analysis. While it might be very nice to sit back and think that all of the short term ups and downs that happen in the stock market can be explained by how the company made or lost money it really can'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 way should you focus on? Well that really depends on how you see the market and what your goals are.

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.

However if your goal is to find solid companies to invest into over the long term then fundamental analysis is normally the way to go about it.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

For more answers to stock market questions visit Shaun's page on Stock market questions This article, Two Ways To Approach The Stock Market is available for free reprint.