Chapter 19

Marrying Fundamental Analysis with Technical Analysis

IN THIS CHAPTER

Realizing the differences between fundamental and technical analysis

Getting familiar with the primary tools used by technical analysts

Understanding what to look for in stock price charts and how they can aid fundamental analysis

Using the options market to see the true demand for stocks

Buying the right stock at the wrong time is often worse than buying the wrong stock to begin with. Many beginning investors get frustrated after studying a stock’s financial statements and valuation only to end up losing money anyway.

Timing is one of the drawbacks of fundamental analysis. Just because a stock might appear to be cheap doesn’t mean it will rally anytime soon. Fortunately, for long-term investors, bad timing isn’t a huge problem because even attractively valued stocks can fall along with the market in the short term. Even so, just because a company’s historical fundamentals look strong doesn’t mean its business can’t deteriorate and put the company in jeopardy. On the flip side, sometimes companies that look like real dogs can turn things around and surprise investors on the upside. Don’t forget, too, that no matter how good you might be performing fundamental analysis, your assumptions might be off, leading to poor investment decisions.

These complications of fundamental analysis are big reasons why some investors consider adding a dose of technical analysis to their technique. Technical analysis, ...

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