Fundamental analysis examines the overall state of an economy or an investment product. This type of analysis focuses on broader aspects that technical analysis. While technical analysis focuses on trends, fundamental analysis explores qualitative aspects.

This discipline analyzes economic, financial and other quantitative factors that can affect a particular financial instrument. Furthermore, fundamental analysis studies the economic health and macroeconomic factors. For example, fundamental analysts look to the broader economy or industry conditions before forming an opinion.

Practically every day, there is news that affects the global financial markets. It is important to know the economic agendas and schedules of events and news occurring in the world. However, a trader should know what news is important and which influence their own style of trading and negotiated instruments.

For this many use a financial calendar as the example below.

G R A F I C A

Technical analysis is based on the idea that the market provides the best information on what is happening with the different values of the exchange, with the assumption that they behave cyclically.

Many times when the market is bullish, most stocks go up without fundamental analysis giving us clues as to the reasons for these increases. And what can sometimes be worse, without giving us clues as to why it went down.

 

What is the origin of this analysis?

This analysis began in the nineteenth century when companies were not required to report its results and financial statements. So what was left was to analyze the market itself.

Technical analysis looked relations that existed between supply and demand and how it affected the values of the securities in order to have assumptions about future developments.

 

What are we going to use?

For technical analysis we will mainly be based on in quotations and trading volumes (what has been bought or sold and at what price).

This information seems difficult to obtain, is also provided in the form of graphs (also called 'charts') so you can draw your own conclusions to help you make the best decisions to buy or sell at a given time. In addition we will provide expert technical analysis so you can see, also in a graphical manner, reflections and recommendations.

 

What conclusions can we draw?

Try to anticipate changes in both the market trend of a particular title, so you can make decisions to buy or sell in advantageous conditions for us.

 

Is this analysis infallible?

Obviously not. Like anything that has to do with the stock market there is nothing infallible. Starting hypothesis

1. The market offers enough information for us to predict trends 2. Prices vary according to particular movements or behaviors 3. The past determines the future, ie, the market is cyclical


Main Concepts Trend:
It indicates the direction up or down of a value, so we can talk about bullish or bearish trend or a sideways trend when the value moves within a not too fluctuating set of prices.
A trend is formed when the value follows flows based on indicators easily found on the chart:

When a maximum (or elevation) is higher than the previous minimum (or valley) is also higher than its predecessor, we are in a possible or current bullish channel.

When the maximum that follows another that is lower or when the minimum follows another, reaches a value under its predecessor, we face a possible bearish channel.

Volume:

It’s the total number of shares traded in a given period. It is useful to anticipate potential changes in the direction of a certain value: a drop of trading volume may indicate a change in trend

Correction:

The phrase "the experts have anticipated a market correction ..." has become famous. A correction is merely a 'sudden' change in trend (usually down). When the market has risen dramatically, usually a sharp drop occurs to rebalance some overvalued stocks. A clear example was the sharp correction in the Dow Jones index in New York Stock Exchange, on October 19, 1987:

Support:

A technical support is that level in which the share price bounced upward. A support often represents the minimum level that a stock will fall, in addition, the more times the stock 'bounces', the stronger the support and the harder it is to break.

Resistance:

A technical resistance occurs when the share price reaches a certain maximum. It represents a price that is hard to beat in the future for that given share.

Rupture:

It occurs when the stock price breaks or a resistance or a support. Indicates movement in the same direction.
In addition to these concepts, there are others that helps us to make investment decisions. Some of the most basic but also the most used are: Moving averages:

There are three types of moving averages, however to simplify our discussion we will refer only to the first:
• Simple moving average (SMA)
• Weighted moving average
• Exponential Moving Average (EMA)

SMA is the most common of the three and the easiest to calculate. You just have to take the closing values of a period of time and calculate the average value over the period, ie the moving average of 30 days is the average price of those 30 days.

Using this value serves analysts to lower market fluctuations and avoid hasty decisions by sudden changes in short periods of time. Normally, when the medium cuts the stock chart, it’s time to sell and, on the contrary, when the moving average is cut by the stock chart, it's time to buy....But beware! The shorter the period chosen, the average will be more sensitive to changes.

The most used are the averages concerning 50 trading days and 200 days. Combining these indicators in the same graph, we can get ideas for our investment decision: when the average MM (50) intersects the MM (200) and lies above it would be time to purchase and when the MM (200) is above cutting MM (50) it is time to sell:

 

As seen in the chart, a moving average can help a lot: when the MM (50) cuts the price chart at pt. 1, the value after a short fluctuation, never returns to cut the MM (50) until pt. 2, which will indicate when to buy again.

The recommendations of both buying and selling based on crosses of MM (50) and MM (200) are given a little later, which served more to confirm trends previously bookmarked based on more sensitive indicators.

The basic message is:

Do not base your investment on a 'graph', but consult and analyze the graph before making a decision to try to avoid any technical trap in the market. Moreover, such is the people who believe in this type of analysis; that trends can be formed as a result of people's reactions to any type of market signal.

Types of Graphics

Now that you know the basics, we can take a look at the main types of graphics that we can find as well as some slightly broader concepts:

Histogram or bar chart:

It informs you of the opening price, high and the low of the day and the closing price. At the end of the graph the volumes are represented in bars:

 

Continuous line diagram:

They are the most common in representing variations in the stock price. The line represents the closing price of the share of each day, week, month or year. There is also the intraday chart, with minute to minute quotes:

 

Candlestick Chart:

It shows the same data as the bar graph, i.e., the opening and closing prices as well as the maximum and minimum of the shares. The interior color of the candle can be black or white:
• The black color means that the closing price was lower than the opening, i.e., the price dropped that session.
• Instead, the white color shows a rise; the closing price was higher than the opening price.

 

Head and Shoulders:

It is one of the most characteristic patterns in technical analysis. The figure shows three consecutive rises (with its two corresponding valleys), being the second the highest rise or the maximum of the other two, and the second valley, also higher than the previous.

 

The right shoulder is created in an attempt from investors to keep prices up. When the price falls below the line of the neck, there may be a new attempt but usually prices fall quickly.

The volumes are in turn very important. These are much higher in the left shoulder that in the head or right shoulder. It should be noted that a decrease in volume may indicate a change in trend, as investors do not behave as aggressively as before. Of course, as the share price starts to drop, the volume will increase giving reliability to the downtrend.

The opposite case is also given, i.e., when the head and shoulders are reversed. Like the above, indicates a change in trend, this time going upward:

To learn more about technical analysis please contact us on the form below.

 

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