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Fundamental Analysis
Fundamental analysis is a method of evaluating a security by analyzing its underlying fundamentals, such as its financial statements, management, and industry trends.
Keywords:
Earnings: The amount of money a company makes after paying its expenses.
Revenue: The total amount of money a company brings in from its sales.
Debt: The amount of money a company owes to its creditors.
Cash flow: The amount of money a company generates from its operations.
Management: The team of people who run a company.
Industry trends: The overall direction of an industry, as measured by factors such as growth, profitability, and competition.
Economic outlook: The expected state of the economy in the future.
Definitions:
Earnings per share (EPS): The amount of money a company makes per share of its stock.
Debt-to-equity ratio: The ratio of a company's debt to its equity. A lower debt-to-equity ratio is generally considered to be better.
Positive cash flow: A company that is generating more cash than it is spending.
Strong management team: A team of experienced and capable managers who are running the company effectively.
Growing industry: An industry that is expanding and becoming more profitable.
Favorable economic outlook: An economy that is expected to grow and prosper in the future.
Good Numbers to Look for:
EPS growth of at least 10% per year: This indicates that the company is growing its earnings and becoming more profitable.
Debt-to-equity ratio of less than 1: This indicates that the company is not overleveraged and has a strong financial position.
Positive cash flow: This indicates that the company is generating more cash than it is spending and is not reliant on debt to finance its operations.
A strong management team: This is a subjective measure, but a strong management team will have a track record of success and will be able to lead the company through difficult times.
A growing industry: This indicates that the company is operating in an industry that is expanding and becoming more profitable.
A favorable economic outlook: This indicates that the economy is expected to grow and prosper in the future, which will benefit the company's profits.
Technical Analysis
Technical analysis is a method of evaluating a security by analyzing its price movements and trading patterns.
Keywords:
Price: The current market price of a security.
Volume: The number of shares of a security that are traded in a given day.
Moving averages: A series of averages of a security's price over a period of time.
Trendlines: Lines that connect consecutive highs or lows on a chart.
Chart patterns: Patterns that emerge on a chart and can be used to predict future price movements.
Indicators: Mathematical formulas that are used to analyze price movements.
Definitions:
Uptrend: A period of time when prices are generally rising.
Downtrend: A period of time when prices are generally falling.
Breakout: A sudden and significant increase in price that occurs after a security has been trading in a range for a period of time.
Breakdown: A sudden and significant decrease in price that occurs after a security has been trading in a range for a period of time.
Good Numbers to Look for:
Moving averages that are sloping upwards: This indicates that the security is in an uptrend.
Chart patterns that are bullish: This indicates that the security is likely to continue to rise in price.
Volume that is increasing: This indicates that there is increasing interest in the security and that the price is likely to continue to rise.
Fundamental analysis and technical analysis are two different methods of evaluating securities. Fundamental analysis focuses on the underlying fundamentals of a company, while technical analysis focuses on the price movements of a security. Both methods have their own strengths and weaknesses, and the best approach is to use a combination of both methods.
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