We have now explained what fundamental analysis is, which is mostly used by value-investors.
As you might have noticed, it takes quite some time for proper fundamental analysis.
We will now go into detail about technical analysis, which is mostly used by speculators.
Once more, the differences between speculators and value-investors:
- A speculator is someone who is primarily focused on market prices and tries to predict future price movements, based on what has happened in the past;
- An investor is someone who is primarily focused on the fundamentals of real value-adding businesses and who sees him/herself truly as an owner (shareholder) of the business and its assets on the balance sheet;
We are value-investors ourselves and focus on buying magnificent index funds, stocks and cryptocurrencies (for example) for the long term.
We are not into speculating or daytrading, but we still do have a lot of knowledge about it!
Therefore we will be discussing more about technical analysis throughout our website and in future blog articles.
The point is, speculating is an extremely dangerous business, even for professional daytraders. There are theories around “a random walk”, which comes down to that all markets basically move in ways that are completely random and unpredictable.
You could look at it as a game of flipping coins. If you manage to toss 10 times heads in a row, there is absolutely no guarantee what you will toss next. It is a completely random walk!
More specific, even if you would look at a long time frame in the past (on price charts), it is still impossible to accurately predict future price movements.
This is absolutely true, but doesn’t scare away millions of speculators and daytraders.
These people focus mostly on price charts, price movements, patterns and news.
They don’t ask all of the fundamental questions that we have asked in the previous chapter.
Neither can they be classified as true value-investors, which focus on the real businesses that add real value in real life. They are only focused on making quick profits by trading in and out of the market, and trying to time to market!
This is why speculating or daytrading is so extremely dangerous. On top of all this, they often also use leverage, which is borrowed money to expand their investments (called positions).
More information about technical indicators that are used in technical analysis can be found in chapter 3.4. Indicators.
In later blog articles we will go into detail about moving averages, indicators, patterns, and much more! We will list these blog articles here on this page.