Different types of Investors

Technical Analysis vs Fundamental Analysis

What type of an investor are you?
 
Most investors fall into either one of the above 2 categories. There's probably other categories such as "I have no idea what's going on" and "people buy I buy".

Technical Analysis

Technical Analysis (TA) simply speaking is based on 3 assumptions.

1. The current market price of a stock is a fair reflection of its value
2. The price of a stock follows certain trends
3. History tends to repeats itself

Technical analysis involves to study of price charts to predict the movement of share prices based on certain patterns that form or have formed in the past. TA investors are interested in price movements rather than value, and make their trades based on several technical indicators. TA investors in general do not tend to hold onto their positions for long and are looking for to make generate profits from each trade.

There is a multitude of indicators and since I'm not a TA investor myself, I am not qualified to speak much on it. That said, support and resistance, which I will cover in a later post, is important, even for the Fundamental investor.

If you are interested, Investopedia has a pretty decent summary/introduction on TA
http://www.investopedia.com/university/technical/

Fundamental Analysis

Fundamental Analysis (FA) involves research into a company's background and management, financial strength, competitive position and growth potential to value a company. Typical FA investors would look for a strong company which is undervalued by the market currently.

"Stock price is the least useful information you can track". - Peter Lynch

The current price of any stock may not always be a reflection of its value. Fundamental investors pride themselves on being able to pick stocks that are undervalued and hope to sell them when the market realizes its value.

Probably the most famous fundamental investor of all time is Warren Buffett and he learned from Benjamin Graham, widely known as the father of value investing.

Being a fundamental/value investor who started with zero financial knowledge, I shall share what I've learnt over my time investing and hopefully save you some time and money. The main perks of being a value/FA investor is that you do not have to monitor your portfolio that frequently, expect bigger profit margins in the long run, enjoy dividends and the effects of compounding profits.

You might ask which method is better.

Just like choosing a girlfriend, is it too much to ask for a great personality together with a pretty face? I am an advocate of FA but some knowledge of TA such as supports and resistance may provide certain clues as to when to enter the market.