Mastering Technical Analysis by Michael C. Thomsett

Fundamental analysis is the approach that uncovers gems, or companies with excellent market prospects, before the big investment firms find them out. Used by the world's most successful stock investors, it remains just barely out of reach of ordinary investors. Mastering Fundamental Analysis performs the valuable service of leading everyday investors into better investment decisions while allowing them to learn at their own pace through the use of worksheets, forms, graphs, charts, checklists, examples, definitions, sidebars, and step by step examples.

In comparison to technical analysis, investors also follow financial information with great interest. This activity is called fundamental analysis, which is the study of recent and historical financial results of a corporation for the purpose of forecasting future investment value.

All of investing is about cyclesthe unending tendency of events to move upward and downward, to be alternatively positive and negative, optimistic and pessimistic, good and bad. Cycles are devices that describe this tendency and that can be used to predict, track, and recognize cyclical movements.

For example, stock prices might be predictable, at least to some degree, based on the predictability of one or more related cyclesof price trends, seasonal volume, profitability, or industry, for example. Of course, other factors, such as the overall market conditions, corporate financial performance and management, and the perceived future value of the stock, all influence the stock price. However, because cycles accurately reflect up-and-down changes, a premise within technical analysis is that Cycles can be used to attempt to predict future stock price movements, because cycles establish a rhythm of up-and-down change.

To begin, let us define technical analysis. It is the study of stock prices and related matters, involving analysis of recent and historical price trends and cycles. The technician also studies factors beyond stock price, such as dividend payments, trading volume, index trends, industry group trends and popularity, and volatility of a stock.

The uncertainty of timing is what makes investing so challenging. You can understand cycles with great depth, but when it comes to knowing when to take action, you are in the same quandary as everyone else: Acting too soon, you lose opportunities; waiting too long, you miss opportunities.

How does the investor actually predict future price movement of a stock? Because the stock market is operated as an auction marketplace, the force of supply and demand determines the answer to that question. The auction marketplace is entirely at the mercy of that market. If there are more buyers (demand), prices go up, and if there are more sellers (supply), prices weaken and fall. This is the reality of the stock market. That does not mean that price movement is not predictable. It does mean that the real key to price movement prediction is found in an understanding of the supply and demand cycle.

If you are able to identify and understand the force of supply and demandas it relates to price movement in the market Because the stock market is an auction marketplace, the supply and demand cycle determines price movement. This is the key to technical analysis.

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