There is a long battle between who has the more profitable approach. The technical trader who uses only charts to predict future price movement, or the fundamental trader who looks at the company's financial performance to make a decision from that basis. Well, these days the technical traders seem to be more interested in company fundamentals and it seems that fundamental traders are looking at charts more so than ever before. So what are fundamental traders looking at?
So a fundamental trader may have many reasons for buying a stock but for the sake of simplifying this article let's just say they are looking for a profitable company. This profitable company shows a history of growing sales and profits and all around has debt under control. After much research the fundamental trader makes the assumption that this trend will continue which will lead to better returns for the stock price. So where does he get in?
Many fundamental traders will look at a chart in it's most simplest of terms. Just because a stock has fundamentals that show a good opportunity doesn't mean that today is the time to jump in. A fundamental trader does not want to overpay in the short term for a long term investment. Using one simple tool he can patiently wait for his entry.
The first is a simple moving average. Anyone can use this really. The magic of say a 20 period moving average is just to see what the price of the stock is trading at relative to what the average is over the last 20 days. If the stock is trading 6% above the average one may wait for a slight discount. LIkewise if it is trading 6% below the moving average and you want in for the long term then it could be said that you are getting a discount in the short term relative to your long term valuation.