We believe that stock charts reveal changes in fiscal and monetary policies, international news, political ramifications, corporate fundamentals, management changes, insider trading, mergers and acquisitions, new products, and even fear and greed. The purpose of this short course is to introduce you to some basis chart analysis techniques. Neither fundamental nor technical analysis can claim absolute precision since they are only barometers to help forecast the future price of a security. There are two values of a security the actual value , which is estimated, and the market price , which is known. The actual value of a company is the price for which it would theoretically be worth if someone were to actually buy it.
Fundamental analysis tries to determine the actual value of the company.
This value is useful because it acts as a magnet to the market price, pulling it back from extremes of overvalue and undervalue. But actual value is not an absolute since it too is subject to market pressures of supply and demand. This is true even if its fundamental characteristics remain stable. The problem is that we do not buy the assets of the company. We buy the stock at the market price, which in the auction market is affected by crowd psychology and the alternating emotions of confidence and fear.