So you decided to invest in stocks?
That's great.
Here's the problem.
There are approximately 6,500
stocks traded at the New York Stock
Exchange, and another 3,500
stocks are traded on the Nasdaq.
That's a total of
10,000 stocks.
Now, when I was new to trading,
I didn't know how to pick the stocks
to invest in.
Should I subscribe to a newsletter?
Or should I listen to the talking
heads on TV?
Or should I try to develop my own
trading system?
How do you decide what stocks
to buy?
Well, you see there are mainly two
ways to pick stocks to invest
in. Number one, fundamental
analysis and number two,
technical analysis.
Now, in this video, I will
explain both approaches and answer
the question, which is better:
fundamental analysis or
technical analysis?
So let's get started.
So what is fundamental analysis?
Now, here's how to pick stocks to
invest in using fundamental
analysis.
Fundamental analysis means that you
are analyzing the company's
key performance indicators.
Also called KPI to determine
the true value of a company.
And the most common used KPIs
are revenue,
profit, earnings per share
also called EPS, the price
to earnings ratio are also called
the PE ratio, the market
cap, and many others.
Now, in addition, you need to
consider some other factors when
using fundamental analysis
to determine the fair value of the
company, such as the business
model, the competitive advantage,
the management team, national
or global opportunities and threats,
and the list goes on.
Now, if you're right now confused
or feel overwhelmed, you're not
alone.
That's why many investors listen
to analysts on TV like
Jim Cramer or Rick Santelli,
just to name a few.
Or they rely on newsletters
to pick stocks to invest in.
The idea is that somebody else
who is supposedly smarter
is doing the analysis for them.
Now, here's the problem with
fundamental analysis.
Yes, there are some formulas
on how to calculate the hard data.
For example, the earnings per share
and the PE ratio.
But when it comes to other factors
like the business model,
opportunities and threats, everybody
has a different opinion.
And who decides which opinion
is right?
Only the market will tell.
And that's why fundamental analysis
is very difficult
and inaccurate.
Often the time horizon for
fundamental analysis is years
for a reason.
If you wait long enough, eventually
you will be right.
Here's an example.
Right here on the screen I'll show
you a chart of Tesla.
Now, as you can see, Tesla
has been trading between
$100 and
$350 for the past five
years. Now, there are many critics
who say that Tesla's business model
and management style doesn't work.
They're criticizing the CEO, Elon
Musk.
And when the stock went from $360
to $180 within
a few months, they said, "See,
we're right."
On the other hand, you have analysts
who are bullish on Tesla.
They love what the company does.
And when the stock bounced back from
$180 to over $400,
they said, "See, we
are right." As you can see,
both of them were right.
If you wait long enough, every
analyst will eventually be right.
But you see, in my opinion, this is
too vague to make money with it.
So let's take a look at technical
analysis now.
What is technical analysis?
Well, technical analysts use charts
and past price movements to
predict the next move of a stock.
And here's how to pick stocks to
invest in using technical analysis.
When using technical analysis
there are two main approaches.
Number one, chart patterns and
number two, indicators.
But let's talk about chart
patterns first.
The most popular chart pattern is
a so-called head and shoulder
formation.
Here's an example.
I'll show it to you right now on the
screen.
Now, there are also many others
flags and pennants, triangles,
cup and handle, double tops
and bottoms.
Just to name a few.
Now here's my problem with the chart
patterns.
I see them in hindsight, but
not while they are forming.
If you show me a chart right now, I
can show you every single
chart pattern that occurred in
the past.
But I could not tell you what chart
pattern is forming right now
because there is a lot of room for
interpretation.
So what's the solution?
Well, I personally love
indicators, and one of the most
popular trading indicators is
a moving average.
Here's an example.
See, the red line is a moving
average.
The idea is that prices are more
likely to go up when they
remain above the moving
average.
And the idea is that prices are more
likely to go down when
they are below the moving
average. Of course, this example
is very simple.
There are dozens of indicators,
and based on my experience, there
is no such thing as the best
indicator.
Now I personally found that a
combination of three indicators
is very powerful and I'll tell you
more about this in a minute.
But let me know thus far
is this helpful?
If it is, do me a favor and click
on like because this way
I can see which videos you like
and I can make more of these videos.
Anyhow, let's continue.
What is the difference between
fundamental and technical analysis?
Well, when using fundamental
analysis, you have to dig through
balance sheets, and profit and
loss statements, and you have to
analyze the cash flow, and the
assets of a company, and in
addition, you have to look at the
business model, the competitive
advantage, the management
team as well as national
and global opportunities and
threats. And as you can see,
fundamental analysis is difficult
and time-consuming.
And it leaves a lot of room for
interpretation therefore, it's
almost impossible for the private
trader to conduct a thorough
financial analysis to pick the best
stocks to invest in.
Now, on the other hand, technical
analysis is quite easy because
these days every charting
software has already all indicators
available to you so you can
use technical analysis to pick the
right stock in just a matter of
hours.
So what is better?
Fundamental or technical
analysis? How to pick
stocks to invest in, should you use
fundamental analysis or rather
technical analysis?
Well, you probably get
the idea. For me, technical
analysis is way
easier than fundamental analysis.
I love indicators and
here's why.
Indicators are scientific
and based on statistical analysis.
They are easy to understand and
use.
They are "black and white" either
prices are below the
moving average or they're above.
You don't have to guess.
You can use indicators without
any prior experience.
It's perfect for beginners.
And the best, these days
you have powerful software packages
that do all the work for you.
You see, I personally use three
indicators to pick the best stocks
to invest in.
And I made a video for you that
shows you exactly the indicators I
use, what settings I use
and when I buy stocks.
And if you want to see this video,
go to mytradingroutine.com.
I'll link to the video in the
description.
Okay, now you know the different
ways how to pick stocks to invest
in. And you know the difference
between fundamental analysis
versus technical analysis, and you
know which one is better.
So the next steps.
Check out my video and try it for
yourself, you're going to love it.
Hey, if you enjoyed the video,
please make sure that you give me a
thumbs up and subscribe to my
channel. And right now go to
the next video, it should be showing
right here or it's in the
description below so that you know
exactly what indicators to use,
with what settings and how to use
it to pick the best stocks to trade.
I'll talk to you very soon.