I wrote before that the key in stock trading is knowing when to get in and when to get out, when to buy and when to sell. In doing this, stock traders use certain analytical tools. There are two - some say rival - models in this analysis, the fundamental and the technical.
Fundamental analysis focuses on the corporate "health" of the listed company. It takes into consideration the company's financial statements, the strength of its management, their competitive advantages as well as their competitors and the state of the market.
Essentially, fundamental analysis compares the book value of the company's shares as against the market value. It assesses the company's management and their business performance, calculates investment risks, and attempts to predict future value.
The principle behind is that, even though markets may mis-price a certain stock in the short-run, the "correct" price will eventually prevail.
On the other hand, technical analysis makes use of trends and patterns in the recorded market price of the listed shares in order to predict future market price. The principle behind is that all information about the stock is already reflected in its price.
Since, we are not always well-informed about the specifics of most of the listed companies, it is advisable for people like us getting into online stock trading to be at least familiar with the methods used in technical analysis.
We need to know the significance of the opening and closing prices, the high and low, bid and ask prices, the market average and the volume of transactions. We should be able to assess the charts not only of the stocks but also of the Philippine Stock Exchange Index, also known as PhiSix.
We too must understand the meaning of terms like "support" and "resistance", among others. This way, we will be able decide for ourselves what stock to buy and what stock to sell, as well as when to do it.
For those who want to really learn, consider attending the Technical Analysis Seminar of Absolute Traders. I hope to be able to do so soon.