Two prominent schools of investment analysis are fundamental analysis and technical analysis. Fundamental analysis involves analyzing a company’s financial statements and health, its management and competitive advantages, and its competitors and markets. By contrast, technical analysis—in its purest form—assumes that all of these factors are reflected in the price of the company’s stock. As a result, technicians focus on the price activity and trading volume of securities to gain an understanding of the supply and demand to help them time buy and sell decisions. The hope is that the analysis of past behavior may uncover patterns that point to future price movements.
Even if they don’t consider themselves technicians, many individual investors employ some form of technical analysis when making investment decisions. This can range from simple chart analysis using technical indicators—mathematical manipulations of price or volume data—to employing advanced technical trading systems to decide when to buy and sell.
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