In many books and papers, Fundamental analysis is often presented as an direct opponent of Technical analysis. Typically the introduction would focus on the drawback of one method and highlight why the favored method is better.

Do not be confused. It need not be this way.

Fundamental analysis can co-exisit prefectly with Technical analysis. I often use both of them in my investment analysis. Oftentime while looking at the chart, I would also look at how the fundamental factors like the economy and market looks like.

In order to use them however, you would need to understand how each of them is applicable and to use them to the fullest effect.

I did some introduction to Technical Analysis and now let me do the same with Fundamental Analysis.

First a basic understanding of Fundamental analysis.

Fundamental analysis is a method of investment evaluation that uses economic, financial and other qualitative and quantitative factors to understand and predict future performance.

Unlike Technical analysis which presupposed trend, and therefore aggregated investor activities, as predictor of future direction, Fundamental analysis presuppose economic and macroeconomic factors as predictor of future direction

Fundamental analysts study factors that can affect the investment, including macroeconomic factors (like the overall economy, industry and political conditions) and company specific factors (like the financial condition and management of the company).

Since there are many factors to look at when using fundamental analysis, there are many methodologies within fundamental analysis itself, each with their supportor and detractor.

Most unit trusts (funds) invest based on certain fundamental analysis methodology. You might have come across terms like value, growth when reading a fund’s prospectus.

These terms basically means that the fund manager select stocks for the fund based on a fundamental analysis method that picks out value and growth respective. Here I will not go into the detail since this is an introduction.

As mentioned before, investing is a continuous learning process. As I learn more, I will be distilling and sharing what I gather here with you.

This article is part of a regular column on unit trust investing by Ken of 59Ideas published on Invest Insight. You may copy and use this article if you retain this message.

The beginning portion has nice technical overview of the US market (S&P500, NASDAQ) for this week.

Wonder what software is he using to do the charts and the video.

(Note that green is for up and red is for down in case your convention differs.)

The next question is how can investors actually use these TA techniques?

The answer lie on the ability to identify 3 important features:

• Identify a trend
• Identify that the trend is continuing
• Identify the trend has reversed

When applying TA techniques, you are always on a lookout for one of these three features.

Identify a trend

The first step for an investor is to identify a trend from the current data. Upon identifying an up trend, down trend or sideway trend, the investor can respond accordingly from the arsenal of investing strategies that caters to that trend.

Identify that the trend is continuing

The ability to identify that a trend is continuing allows the investor to “ride the trend“.

Continue to apply the strategy that had been working so far. If it is up, go with it higher. If it is down, follow it lower.

Identify the trend has reversed

When TA indicators signal a reversal in trend, the investors should be ready to change strategy.

The ability to identify reversal is considered the most critical in the application of TA. All the hard work leading up to the reversal can be wipe out if the reversal is not acted upon decisively.

Conclusion

So while one may understand the theories behind technical analysis, the successful application and ability to identify trend, whether continuing or reversing, is the hallmark of a successful TA practitioner.

Typically a wide variety of charts and data are examined to see what the past movement or trend can tell us about the future movement and trend.

The word forecasting tells us that the it is not an absolute certainly but a close possibility .

This, if you must, is first take away of Technical Analysis (TA).

The effective use of technical analysis can help investors anticipate what is “most likely” to happen. The investor may still need to assess TA result objectively based on information outside the domain.

With the advance of technology, investment decisions are made quicker and in short period of time. Short term investors and traders find that TA yield more insights that techniques such as fundamental analysis in the short time span.

TA is often viewed as a collective representation of the crowd. Their behaviors, expectation and level of optimism or pessimism can be interpretated from the various turning points, peaks, troughts and trend on the charts.

Online References:

• Technical Analysis: Introduction
• Chart School – What is Technical Analysis?
• Technical analysis terms

Books:

• Technical Analysis Explained by Martin J. Pring

Starting with this introduction, my plan is to share my notes as I further my TA education.
Join me in this journey to be a better investor.

Every week I take a quick look at the market to see the major theme and the direction the market is moving.

Using this information I then decide whatever to buy, hold or sell my units.

My method is quick and simple. Using the market indices chart from Yahoo Finance, I look at its movement and apply some technical analysis. If I have more time, I browse around for news to look for overarching trends and themes.

My plan is to update and share some of my analysis weekly.

Hope to hear your comments.