What kind of Investors use Technical Analysis and What Kind of Investors use Fundamental Analysis? Though I am more inclined towards technical analysis I will try to answer this question from a neutral point of view.
When to use Fundamental Analysis
If you are trying to invest into companies business and can remain invested into the stock for few years, you should focus on the fundamentals of the company. Something I did when investing into Hitech Plast about 15 months ago.
When to use Technical Analysis
If you are a day to short term (aka weekly) trader you should focus more on the technicals of the stock because fundamentals of the company has very little impact on the daily or hourly price movement.
When to use both the right way?
The scenario looks pretty clear as to what kind of investors use Technical Analysis and What Kind of Investors use Fundamental Analysis but most of us do not fall into the above categories of trader and investor. We are mostly a positional trader or short-term investor.
- By position trader I mean those who take up position with a time frame for a month or two and expect good news outcome and profit out of that news.
- By short-term investor I mean a positional trader with an investment horizon of 6 month’s to a year’s time frame.
And this is where the actual dilemma of what you should be using – fundamental analysis or technical analysis comes in.
The one that works best for me is I use fundamental analysis and technical analysis both. Fundamentals of the company lead me to the stock and the technicals decide when I get in & when I get out of that stock. You can see how I use my long-term portfolio to trade for profit.
I have seen most people use both the analysis in the wrong way which is they take a technical trading position and keep holding the stock based on good fundamentals or vice versa.
What you do?
So my question is what you use – Technical or fundamental analysis and how? Share your strategy in comments below.