Technical Analysis in Share Trading

[DrewChan]

Does technical analysis have any place in Share Trading?

I have started throwing some play around money into shares and would like resources on trading

 

[Ancalagon]

Yeah, there is room for analysis.

You typically analyse things such as the accounting ratios of the firm - current ratio, quick ratio, debt to equity ratio, etc etc. You can also start looking at gross margin, earnings per share, dilutive earnings per share, inventory turnover, etc etc.

Lots and lots to analyse and lots to look for. You will basically be looking at the current and past accounting statements of a company to try estimate the firm's strategy and how likely it is to succeed.

 

[Jehosefat]

You typically analyse things such as the accounting ratios of the firm - current ratio, quick ratio, debt to equity ratio, etc etc. You can also start looking at gross margin, earnings per share, dilutive earnings per share, inventory turnover, etc etc.

Lots and lots to analyse and lots to look for. You will basically be looking at the current and past accounting statements of a company to try estimate the firm's strategy and how likely it is to succeed.

That is usually referred to as fundamental analysis rather than technical analysis. Technical analysis usually refers to using transforms of the price and volume data to determine whether to enter, hold or exit a position (in more advanced systems other data are looked at as well).

Fundamental analysis is generally used to decide on long term investments and technical is usually used for shorter term trading.

 

[bchip]

You typically analyse things such as the accounting ratios of the firm - current ratio, quick ratio, debt to equity ratio, etc etc. You can also start looking at gross margin, earnings per share, dilutive earnings per share, inventory turnover, etc etc.

This is called a fundamental analysis.

A technical analysis is purely only looking at the price without considering any other views.

Both can work if you apply them strictly and dont mix methodologies...
Garth Mckenzie is about the only SA trader that I know that applies technical analyis profitably,
so if you were to start trading it might be a good idea to watch how he does it.

You get many ways to decide when to buy and sell, its not only limited to technical or fundamental analysis,
everybody seems to have their own answers on how.

 

[bchip]

Fundamental analysis is looking at anything thats off the charts,
in other words, balance sheets, income, potential for future growth, etc

Technical analysis is only looking at the price and volume action,
some people even ignore the volume and simply look at the price.

 

[bchip]

Some interesting facts...

Fundamentals analysis and economics are the same worth as toilet paper since the days central banks
have stepped in and figured out how to print more money.

Fundamentals and the stock market have little to do with one another as more free money keeps
getting pumped into the system.

Example of the week:
http://www.investing.com/news/technology-news/twitter-fourth-qarter-revenue-rises-97-percent-326791

Headline Twitter beats expectation
Twitter posted a net loss of $125 million in the fourth quarter, or 20 cents per share. Excluding certain items, Twitter earned 12 cents per share, surpassing analysts' average estimate of 6 cents a share.

Here you have a company thats posting losses and it is considered fantastic cause the loss was less than expected...:wtf:

 

[Ancalagon]

Thanks guys, didn't know that.

 

[borga]

Headline Twitter beats expectation
Twitter posted a net loss of $125 million in the fourth quarter, or 20 cents per share. Excluding certain items, Twitter earned 12 cents per share, surpassing analysts' average estimate of 6 cents a share.

Here you have a company thats posting losses and it is considered fantastic cause the loss was less than expected...:wtf:

You are not buying a company for its past performance, you buy it for it future performance, as such you would exclude certain items in your evaluation, such items could include profit on sale of property, write-off of assets or many other events which are not expect to occur year to year.

You also don't just consider profit/loss in isolation, Revenue is also important (along with managing cost).

Also sometimes with online company profit isn't considered that important in the short term, User numbers is also looked at. Just take Amazon for an example, they barely make any profit yet it share price keeps climbing.

 

[bchip]

You are not buying a company for its past performance, you buy it for it future performance, as such you would exclude certain items in your evaluation, such items could include profit on sale of property, write-off of assets or many other events which are not expect to occur year to year.

You also don't just consider profit/loss in isolation, Revenue is also important (along with managing cost).

This is what most people said in 2000...until the bubble popped.
Buying a company with negative earnings, no matter what the story is just stupid IMO
I'll buy it only once it proves itself to profitable.

 

[Gnarls]

Fundamentals tell you what to buy and technicals tell you when to buy it. That being said too much technicals or fundamentals can lead to analysis paralysis.

Cheers

 

[skayfe]

Fundamentals tell you what to buy and technicals tell you when to buy it. That being said too much technicals or fundamentals can lead to analysis paralysis.

Cheers

This pretty much nails it.

Fundamental analysis is important as it gives you a way to compare companies to their peers, whether they are cheap/expensive relative to others in the same sector/industry. Technical analysis allows you to manage risk when deciding when to buy and sell. They both work very well together.

It is true that if you were only limited to using technical analysis it would be easier to place short term trades vs the fundamental side which is seen as looking further down the road expecting the finacial health of the company in question to improve/deteriorate...which obviously takes time.

Here's a practical example: your portfolio manager at Coronation decides that company X is undervalued relative to its peers and based on his model it is trading at a discount on the market. He decides to buy a million shares and gives the order to the inhouse trader on his team. The traders mandate is to buy the required amount of shares at the lowest price as quick as possible. His job is to some extent to use technical analysis, amongst other tools, to figure out how he is going to get the best entry, if now is the best time to do it and technically what could possibly happen price-wise over the duration of him filling that order.
At a retail level, which is most of us, traders use technical analysis as a kind of shortcut to determine the current health of the company's stock as reflected by the buying and selling of market participants. The disconnect can be that technically there is demand for the stock and hence a healthy looking share price movement but fundamentally the company's financials are in tatters. This is why a decent understanding of both sides is beneficial for YOU, the investor.

Technically speaking, they both have a fundamental place in a good traders arsenal

*Typed on my phone so pls excuse spelling*