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Private and institutional investors use fundamental analysis as their basis for stock purchases, while short-term traders use technical analysis. Since the risk-reward ratio and time horizons used in investing and trading are very different, it makes sense that these two different methods are employed. Investing and trading are very different animals, and their differences are characterized by the investing processes that fundamental and technical analysis illustrate.

Fundamental analysis relies on economic supply and demand information for the long term and company’s financial health in the short term. An investor is informed of these conditions by a stocks annual growth rate, five-year, one-year, and quarterly earnings records, and P/E (price-to-earnings) ratios. Investors reliant on fundamentals are more interested ina stock’s performance year to year than they are in market behavior. They do not fret when the market plunges one day and surges another, because their goal is the end result of steady, conservative growth.

Although fundamental analysis provides highly valuable information, many people do not have the time required to research the fundamentals. Taking an hour or more to research one company’s new product potential and compare present and past earnings is too much for some, but certain fundamental concepts are simply invaluable. One such statistic is the EPS, or earnings-per-share ranking. Earnings-per-share are calculated by dividing a company’s total after-tax profits by the company’s number of common shares outstanding. You’ll want to compare the EPS of the company in question to other comparable companies in the sector to see how your investment stacks up within the industry.

Technical Analysis is the alternate method of stock research, focused on the study of timing, price fluxuation, and investor sentiment. The most common method of technical analysis is conducted with a chart that shows a stock’s price history. We know that the prices represented in the chart do not occur randomly, and it is the collective mindset of all investors that creates prices. These buyers and sellers create patterns because they operate from memory. Different types of charts can be configured to show a wide variety of indicators and everyone has their individualized favorites. By examining charts and price history a trader can attempt to predict market sentiment and stock price movement, but this is far from an neutral science.

Technical analysis and fundamental analysis are the two basic sectors of reasoning that constitute the way investors and traders go about choosing stocks, and you must follow your own financial strengths in determining whether daytrading or investing, and technical or fundamental analysis are right for you.

Predicting future moves in the stock market has become a science. This form of prediction has become known as technical analysis. Traders who take this approach to investing in the stock market usually hold stocks for a short time period and then sell their stocks once the predicted profit has been achieved.

The foundations to technical analysis can be found in the understanding that stock price movements are predictable. All the factors affecting the value of a stock are reflected in the stock market with the greatest efficiency that can be found in any type of market. Movements in the stock value follow predictable historical trends, coupled with the efficiency of the market make it doable to predict the direction the stock is going to go.

Technical analysis is a very short term method of investing because the potential long term growth of a company is not taken into statement through this method. Trades are timed to exactly reflect the upward and downward trends in the market so nothing is left to chance. Because buying and selling go through at specific times, losses can be minimized if the market does not move in the predicted manner.

Many methods of predicting the movement of the market have been developed for use in technical analysis. These methods for the most part are based on the ’support’ and ‘resistance’ concept. How this works is that, support is the level by which a downward price is predicted to increase by and resistance is the level by which an upward price is expected reach before coming down again. To place this in clearer terms prices tend to fluctuate between a support and resistance levels.

Market movements are predicted for a massive part through the use of charts (mostly bar charts). The horizontal axis represent time be it a minute, hour, day or week, while the vertical axis represents the price of the stock. By looking at the chart a trend for the stock value can be traced.

A trained analyst studies the chart and can see certain patterns in the chart that they can then use to predict for future movements in the price of stocks. As is the case with most things there is no one single pattern that fits all. There are hundreds of different types of movements, indicators and patterns that can be used. By combining a number of different indicators technical analysis can make it doable for an investor to become very successful on the stock market.