Fundamental analysis takes into account all possible factors and
elements that influence the market. However, the problem with
this
strategy is its shortfall in pinpointing the trends of stock
prices. It
may be able to predict upward or downward movements of prices
but can
not predict a close price range of the movement. Considering
various
factors will also create noise in the analysis process. Note
thatmarket factors are also dynamic and will not always cause the
prices to
move at a specific direction.
Technical analysis is used topredict future movements of prices using historical
information
available to traders. Traders know that prices follow a
so-called trendor pattern. Normally, stock prices go down or go up at
certain
identified levels in the trend. Although historical trends
are quite
established facts, the dynamic characteristic of the market
makes it
foolish to think that the stock movement in the future will
also behave
like the past. However, past movements can be regarded as
signals based
on a common pattern or path in which the stock prices follow.
Technical
analysis may not be practical for newly issued stock due to
the limited
available historical information about the movement on which
to base
the analysis. Technical analysis allows traders to determine
its entry
and exit trading points in a rational way. Read
more