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Replies to post #49561 on FuelCell Energy Inc (FCEL)
Technical analysis is based only on stock price or volume data. The objective is not to predict the future, but to identify the most likely scenarios. Price action is used as an indication of how market participants have acted in the past and how they may act in the future.
Technical analysts use chart patterns and trends, support and resistance levels, and price and volume behavior to identify trading opportunities with positive expectancy. Technical analysis does not consider the underlying business, or the economics that affect the value of a company.
Investors use techniques of fundamental analysis or technical analysis (or often both) to make stock trading decisions. Fundamental analysis attempts to calculate the intrinsic value of a stock using data such as revenue, expenses, growth prospects and the competitive landscape, while technical analysis uses past market activity and stock price trends to predict activity in the future.
Fundamental and technical analysis are two common ways to sort and pick stocks. How and when to use them can be a matter of personal style, but each has its strengths.
Fundamental analysis attempts to identify stocks offering strong growth potential at a good price by examining the underlying company’s business, as well as conditions within its industry or in the broader economy. Investors have traditionally used fundamental analysis for longer-term trades, relying on metrics such as earnings per share, price-to-earnings ratio, price-to-earnings growth, and dividend yield.
Technical analysis, on the other hand, bypasses the underlying company’s fundamentals and instead looks for statistical patterns on stock charts that might foretell future price and volume moves. The idea here is that stock prices already reflect all the publicly available information about a particular company, so there’s nothing to be gained from poring over a balance sheet. Given the focus on price and volume moves, traders have traditionally used technical analysis for shorter-term trades.
But does it have to be an either/or proposition?
Which type of analysis is right for you?
Both forms of analysis can reveal potentially valuable information, and focusing on just one style could cause you to miss important clues about a stock’s value. And since the intended duration of a trade may change, employing both forms of analysis might be your best approach.
Why not deploy them so their strengths complement each other? Use fundamental factors to select the candidate, and technical factors to dictate the ideal entry or exit price.
First, focus on fundamentals
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