Which Type of Analysis for Stock Trading is Best?

The million dollar question….

Throughout your journey as an aspiring stock trader you will find strong advocates for each type of analysis.

Do not be fooled by these one-sided extremists! One is not better than the other…they are all just different ways to look at the market.

At the end of the day, you should trade based on the type of stock market analysis you are most comfortable and profitable with.

To recap, technical analysis is the study of currency price movement on the charts while fundamental analysis takes a look at how the country’s economy is doing.

Market sentiment analysis determines whether the market is bullish or bearish on the current or future fundamental outlook.

Fundamental factors shape sentiment, while technical analysis helps us visualize that sentiment and apply a framework to create our trade plans.

Those three work hand-in-hand-in-hand to help you come up with a good trading ideas.

All the historical price action and economic figures are there – all you have to do is put on your thinking cap and put those analytical skills to the test!

Let me pull out that three-legged stool again just to emphasize the importance of all three types of analysis.

Take out one or two legs of the stool and it’s going to be shaky, right?!

In order to become a true stock trader, you will need to know how to effectively use these three types of stock market analysis.

Don’t believe us?

Let us give you an example of how focusing on only one type of analysis can turn into a disaster.

• Let’s say that you’re looking at your charts and you find a good trading opportunity.You get all excited thinking about the money that’s going to be raining down from the sky.You say to yourself, “Man, I’ve never seen a more perfect trading opportunity in $WEB. I love my charts. Mwah. Now show me the money!”
• You then proceed to buy $WEB with a big fat smile on your face (the kind where all your teeth are showing).
• But wait! All of a sudden the trade makes a 10% move in the OTHER DIRECTION! Little did you know, that one of the major news that day Pagcor didn't give a chance for that gaming company to renew their licence! Suddenly, everyone’s sentiment towards $WEB stockholder turns sour and everyone trades in the opposite direction!
• Your big fat smile turns into mush and you start getting angry at your charts. You throw your computer on the ground and begin to pulverize it. You just lost a bunch of money, and now your computer is broken into a billion pieces.And it’s all because you completely ignored fundamental analysis and sentimental analysis.

Ok, ok, so the story was a little over-dramatized, but you get the point.

Remember how your mother used to tell you as a kid that too much of anything is never good?

Well you might’ve thought that was just hogwash back then but in stock, the same applies when deciding which type of analysis to use.

Don’t rely on just one.

Instead, you must learn to balance the use of all of them. It is only then that you can really get the most out of your trading.

Source: www.babypips.com