001 Stock Investing Masterclass: Technical vs. Fundamental Analysis. Which is Best? | LST Pro | Barry Moore | Skillshare

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001 Stock Investing Masterclass: Technical vs. Fundamental Analysis. Which is Best? | LST Pro

teacher avatar Barry Moore, Certified Finaincial Technician IFTA

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Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Lessons in This Class

4 Lessons (29m)
    • 1. Introduction

      2:07
    • 2. Economic Theory & Reality

      6:03
    • 3. Dow Theory: Market Tides, Waves & Ripples

      20:28
    • 4. Summary

      0:21
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About This Class

This class will cover the most important core concepts that nobody teaches, but that you need to understand when beginning to learn investing. 

What is this class about?

This class will help you understand the difference between Technical Analysis and Fundamental Analysis.

These are the two most important concepts that underpin all investing decision marking in the stock market.

What will you learn?

Technical Analysis is the study of stock charts and the underlying supply and demand in the financial markets. 

Fundamental Analysis is the study of economics, business financials, and company health.

Understanding the difference between the two approaches enables you to get a clear understanding of how they can be used together to give you a well-balanced approach to investing your money.

In short, fundamental value, income, or growth investing will go hand in hand together with technical analysis to enable you to create superior investing strategies and execute better decisions.

After completing this course you will understand the pros, cons, and differences between technical analysis (trading) and fundamental analysis (investing).  This critical lesson will lay the foundation for your future knowledge and learning.

Who am I?

Barry is a Certified Financial Technician with the International Federation of Technical Analysts. He has been independently researching, trading, and investing in the stock market for over 20 years. Back in 2010, I founded liberatedstocktrader.com a business that has helped educate over 40,000 people so they can take control of their own investing decisions.

Meet Your Teacher

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Barry Moore

Certified Finaincial Technician IFTA

Teacher

Hi, I'm Barry, a Certified Financial Technician, with the International Federation of Technical Analysts. I have been independently researching, trading, and investing in the stock market for over 20 years.

Back in 2010, I founded liberatedstocktrader.com a business that has helped educate over 40,000 people so they can take control of their own investing decisions.

I have also authored numerous original high-performing investing strategies, and an Amazon 5 star rated book called “The Liberated Stock Trader a complete stock market education”.

I help people by providing honest, unbiased investing education, so they can make better investing and trading decisions.

My classes are serious education for investors and traders based on over 100 years of ... See full profile

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Transcripts

1. Introduction: Hello and welcome to my class on investing with technical and fundamental analysis. This class we'll cover the most important core concept that nobody teachers but the unit to understand when beginning to learn investing. My name is Barrymore, a Certified Financial technician with the International Federation of technical analysts. I've been independently researching, trading and investing in the stock market for over 20 years. Back in 2010, I found it liberated stock traded.com and business that has helped educate over 40000 people so they can take control of their own investing decisions. I've also authored numerous high-performing investing strategies and an Amazon five-star rated book called The Liberator stock trader. A complete stock market education. But enough about me. Let's talk about you and about this class. The main focus of this class is to help you understand the difference between technical analysis and fundamental analysis. These are the two most important concepts that underpin all investing decision-making in the stock market. Technical analysis is a study of stock charts and the underlying supply and demand in the financial markets. Fundamental analysis is the study of economics, business financials, and company health. Understanding the difference between the two approaches enables you to get a clear understanding of how they can be used together to give you a well-balanced approach to investing your money. Ensure fundamental value, income and growth investing will go hand in hand to enable you to create superior strategies and execute better decisions. After completing this course, you'll understand the pros, cons and differences between technical analysis, trading and fundamental analysis investing. This critical lesson, we'll lay the foundation for your future knowledge and learning. So let's get started. 2. Economic Theory & Reality: As you begin talking to friends, families, work colleagues, or even people in the financial industry, you may hear some terms thrown around such as random walk theory and the efficient market hypothesis. So you need to understand what they mean and where they fit in. Is two theories abandoned around mostly by academics. And if we look at random walk theory, the two tenets are that stock price movement is Siri, independent. So they assert that the price of a stock is random. It essentially moves around with no basis or no relation to its historical price. Now, as we will see in the future, when we study charts in detail, that history does have actually an effect on stock price. And you will see with support and resistance, trend lines. And the interaction of stock price in market cycles is very much an actual factor of the way the market works. Terms of the efficient market hypothesis, at torques around the area, the prices fluctuate randomly around an intrinsic value. However, when we see the boom and bust scenarios that have happened to us in 2008200947201987. And in the early seventies, you see in these boom bust situations that they don't fluctuate randomly around intrinsic value. Essentially, there are so many factors in the marketplace that can't be accounted for in modern economic theory. So although economic theory is all well and good, we see that holds very little bearing in the actual market itself. And what we will be studying is what actually happens in the market and how to make money out of those various actions and forces they exert themselves in the marketplace. The efficient market hypothesis also recommends a buy and hold as opposed to try and beat the market. Now, if you want to have a very hands-off approach to investing, then it may well be worth purchasing something like an index tracking ETF, where at the bottom of a bear market would be the ideal place to get in and just buy and hold. However, as we know, the S and P since the early seventies has produced around six to 7% return investment year on year on average. Now, six or 7% isn't going to make you a millionaire until you retire depending on your age. But we're talking 30 to 50 years before that happens. And that's really not an ideal situation to be in. So this course will be all about beating the market. Beating the market averages. The thing is, the more you get drawn into academic debate about economics, the last time you can do vote to making money in the marketplace. Technical analysis can be applied to all markets, foreign exchange, futures, commodities, and stocks. This training course will focus it study on fundamentals and technicals in the area of stock prices and the stock market using potentially tools such as options, shorting and buying long, simply buying stocks, such summarize this section. We're not going to polarize ourselves in the fundamental camp or the tango camp. In reality, it's a combination of both. In terms of fundamental analysis. Great companies have great fundamentals. Great fundamentals in general means higher company valuations. And also, the higher the company value, the higher the stock price. That's basic business. However, on the technical side, great fundamentals do not always mean large moves in stock price. There are too many external factors that can influence the stock price. We want to use supply and demand integrated with fundamental analysis. So we'll use both technical analysis, how to analyze the supply and demand through price, stock price, volume, and sentiment, the psychological side of the market. So I hope this has given you a good overview of the different approaches to the market and set the tone for what we're going to learn in future study will have sections on fundamental analysis, both looking at the overall context and friendliness of the economic environment to business, it's very important that we understand that. And also how to value a company, things to look for in great companies. If you can, uh, choose two stocks to buy. One company is losing money, but the stock chart looks great. And another company is making a lot of money and expanding rapidly. And the stock chart looks great. Which one are you going to choose? That's why you need to understand fundamental analysis. However, we're also going to use and focus on technical analysis. We need to understand supply and demand, how that affects stocks, how that will affect the marketplace, and how to understand what a great looking stock chart really is. What indicators really make a difference, and how you can use them to make money in the marketplace. 4. Dow Theory: Market Tides, Waves & Ripples: Dow theory. To understand Dow theory is to understand the birthplace of technical analysis. In 1882, Charles Dow, and that would James form the Dow Jones and Company. Out of this company, and more importantly, out of the mind of Charles Dow came the theories that formed most of the basis of technical analysis today. In 880 for Charles Dow published the first step is stock index, the Industrial Average consisting of 11 companies. In 1897, Charles Dow created a rail or what is now known as the transport index. In 1928, the Industrial Average grew to 30 stocks. The famous DJ 30. And this is how it still stands today. I'll end our theory later in my career and wished I'd learned earlier. It's so powerful and Poet's Market and analysis into perspective. It wasn't even gifted. Think the theories of tau boiled down to essentially six tenants. What we will discuss now and the descriptions you will see our simplified for readability from the actual texts of Charles Dow. You'll need to get copies of the articles he wrote in The New York Times. If you want to see the originals, as he never wrote a book, he only got published in the famous newspaper. Having created the very first stock market index, Charles Dow was able to deduce the following ideas. Firstly, the average is discount everything. Charles Dow asserted that the market participants discount everything, including past information, present information, and future expectation. Also built-in to the market. Stock prices are emotions, fads, and trends. And this is very much a new idea back then, dow also asserts that the market has three trends. Hope this consists of prices making higher highs and higher lows. Down. Meaning prices making lower highs and lower lows. And sideways, no major new highs or lows. He also says that each trend has three moves. The primary MOOC, which is the major directional move. It compares this to the tide of the sea, the secondary move, which he likened to the waves of the sea. And the minor move which he compared to the ripples on the waves. This is a fascinating analogy because it has huge meaning and understanding the market. The tide is fairly predictable. We know the times of the tide and more or less the distance the tide moves in any direction. The waves can vary in size, but they depend on the movement of the tide for direction. And the ripples on the waves are essentially chaotic, unpredictable movement that has. No real effect on the overall movement of the oceans. Now you can see I'm displaying a chart which should help you visualize the ocean. This is a char of the Dow Jones Industrial Average from the early eighties through the end of 2009. Now according to douse description, of course, this is my interpretation. But you can see here I've marked some of the primary uptrend moves. So here, 1995 to 1987, I was a primary uptrend or primary move. And you can see this as being part of the time. And here, 1987, as we will know, the stock market crash back then, What's a primary move downwards in the tide was moving downwards. Here again throughout the nineties and an even an acceleration towards the end of the 19th, we saw a huge uptrend, a primary move according to Tao, which represents the tide. But to get more granular here you can see I'm showing the waves. So you have the main tide moving upwards, but waves lapping backwards and forwards on the seashore. Also you can see here the primary change in sentiment and market direction of the top of 2000 going through to 2003 when the recovery was finally beginning to take hold. Now we can see a primary uptrend resuming trap, the early part of the 2000s all the way through to 2008, where we have witnessed the primary downtrend, the tide was moving back down. And here you can see we're starting to witness a recovery again. So you can visualize the market as the tide, the waves and the ripples down asserted that the rebels are essentially chaotic and random. The waves essentially dependent on the strength of the move of the tide. So primary, secondary, and minor moves. Now what is exceptionally interesting is the Dow asserted that major trends have three phases. And what's fascinating about that is, as we move back to the chart I just showed you, he asserts that there are three phases and accumulation phase, a public participation phase, and the distribution phase is very important because it stands true to this very day. The accumulation phase is when the n-fold buyer or the farsighted investor seize the opportunity ahead is positive. Business climate is changing and there is strong and value in the marketplace, they begin to invest. So if we look here, we can see, we can imagine that the accumulation phase of the smart investors who get n at the beginning of the huge bull market advances would perhaps be in this area here. This area here. In 90, in the early nineties, for example. And in 2003 time area and from March 2009 onwards when the market bottom, this she could assert would be the area of the accumulation phase where the farsighted smart money is getting into the market at the bottom. There also mentioned the public participation phase. This is where the general public sees that the market is going up. The crisis has been aborted, and things start to look positive. The public starts to invest. Now if we bring that into recent contexts with just having or just had the accumulation phase, some points in the public participation phase might start kicking in. We can assume that once the unemployment data starts improving, an employment starts dropping in the US and in all the other developed countries with a lot of debt and they start clearing up. Then you can imagine that the public's view of the stock market is going to improve. And then more people are going to start investing in the stock market. And that's what's known as the public participation phase. Now here, if we look back historically, you can see here, let's say in 198889, you can see this search here. I could very well be public participation phase. And here, really up to 2000, there was a huge public participation phase in 1999, everyone and their dog was trying to invest in the stock market. Everyone thought they would get rich off the stock market. And that was a huge public participation phase that I witnessed in my lifetime. When even your hairdresser or your plumber was giving you tips on hot stocks and every new strand again, on every new IPO in the marketplace. When everyone is screaming and ranting, raving about how they can make money in the stock market. Then that's probably the top of the part public participation phase and could essentially be the top of the market. So be very, very aware of that. That also discussed the distribution phase. And this is fascinating. This distribution phase begins while the market is going up. As the farsighted investors begin to see that the economic climate is worsening. Company fundamentals, how weakening and they sell into the rally. So for example, if you look at the top of 2000, when the tech bubble really taught the smart money, realized that the expectations on the Internet and tech stocks that time, We're insane, evaluations were crazy. Companies I never made a profit will be in valued higher than the, some of the biggest companies in the world. And they had no way of measuring up. And once those tech stocks started to miss those expectations, the market crashed. Not just for those particular companies, but for most IT stocks and most of the market, in fact, in general. So as that, as the market starts turnaround, the distribution phase, the smart money, the far side investors was selling into that rise in 2000. Something to be very aware of. Also more recently in two thousand, seventy thousand and eight, the beginning of the slope of decline hand this is where distribution starts to happen. No more new highs and the market, the index itself starting to drop, stop stance drop because the smart money realized that the economic conditions for the marketing for business, we're looking very unhealthy. Many companies were very highly leveraged and credit was being severely restricted and knows no trust in the banking and financial system. So people start sell and sell extremely strongly. And you can imagine the smart money in the far side investor was selling into the rise in two thousand, seventy thousand and eight. As they knew this, this had missed most of the economists and academics in the world. You can see this was going to happen from the technical side, what was happening in the market. So that's where combining fundamentals, technicals is vital for us. And assessing market direction is absolutely critical for us. This is why I'm focusing on Dow theory here because you need to understand market direction while potentially drive the market. How to envisage how the market develops and moves up and down. The next of downs tenets are the averages must confirm each other. Now this is very interesting. Dao indicated that we can clearly see when a new bull markets in place when both the Dow Jones industrials and the Dow Jones transports the DJ 30 and the DJ 20 price as recent past, a previous secondary PE. This graph should show you more or less how to visualize this aspect. So here you can see the Dow Jones Industrials, this purple line here, and here, the black line, the Dao Joe transports. So what he's saying here is both averages must confirm both averages have to start moving in the same direction to confirm each other. There is some background that because the industrials rely on transport. So if the transportation industry to shape and move all these goods is working well, that confirms the fact that the health of the industrials is in good order. So there is some good economic background to this. See here I've tried to map some potential areas where you can see there is mutual confirmation both on the upside and downside. And Dow said that the major bull markets and markets could be indicated by Dow Theory and by the fact the averages must confirm. She can see here I've drawn a line and where the two averages cross right here is essentially where both averages have surpassed a previous secondary p. So here's the secondary peak in 1904. And in the middle, 95 percent of surpassed that. And that would indicate in my interpretation of Dow Theory, a major bull market. And that bull market essentially continued up. You can see here there's a pullback in 1998, but then it resumed the way up to 2000. I've also noted here, just at the beginning of 2001, there was a bear market flagged as the price failed to be a previous secondary peak. And in fact both started moving down below support levels here. And you can see that according to Dow theory, again, in early 2003, you can see above the average is confirming the price of the average beating a previous secondary peak right here and here. And also then the bull market continuing up and reinforcing itself then later in 586. And then here, most recently in mid 2008, both industrials and the transport drop below their previous secondary peak. This would have been an ideal place to be getting out. As you can see then the huge drop that ensued after that. Absolutely vital, that some people talk about Dow theory but also complain that it gives signals to lay, for example, the signal here in 2003 in C that, that essentially happened After the bottom has been hit here at the bottom and the right, the beginning of 2003. Yeah, the bull market was only signaled midway entity 1003. And there are various analytical techniques that we'll use in future sessions so that we can refine selecting what market direction we're actually in. However, Dow theory does form the basis of most of this in any case. Another point to note here is that when I do technical analysis, I don't always use the transport in the industrials as a comparison. Our first use the industrials, the S and P 500, even the Russell 3 thousand. You can use any combination of the indexes that you choose, whichever you prefer. However, I prefer to take a broader look at the market in general. And we'll discuss, when we discuss advanced declines and new highs and new low indexes, we can discuss more on this topic. However. And the choice of which indexes you use to mutually confirm each other can be essentially down to your preference. So it's worth experimenting and finding out what works best for you. For example, if you trade in the UK, you could use the footsie all share index, the ASX versus the footsie 100 for example. Okay, the next 10, it from Dow asserts the volume must confirm the trend. Down stage. The volume should go with the trend. And most technical analysis hold this true to this day. Markets rise on increasing volume and fall on decreasing volume. Any significant drops in volume during a rising market means that the demand for stocks at the current prices are dropping. And lower demand means sellers may be selling for less, therefore price may decrease. Of course, Dao suggested. This is not as important a rule as the previous stated rules. However, you will see in future chapters a whole area dedicated to volume analysis. And this is really a very detailed topic that we will go into as it's vital for the technical analysis and traded to understand volume levels and what they really mean. So to describe and show you visually how volume might have an effect on the market and doesn't have an effect on the market. You can see here the very same chart. This is the Dow Jones industrials and dow Jones transports. Again the same coloring, a magenta color, and the black color for the transport. You can see the previous markings and Bowman band market starts here. But also along the bottom, I've plotted the volume for the indexes during these time periods. So as we mentioned, volume should increase in the direction of the major trend. So you can see a really from the bull market here you can see a strong increase in volume or weight to this period. But then you can see here that volume is starting to drop off right here and increasing up again. And you can see here is the market prices start to drop so its volume. And then at the start of this new phase of the bull market, you can see here this is the 2003 start with the bull market there after the 2000 crash right here. You can see essentially that we have an increase in volume that tracks the index itself. But you can see here from 2007, the volume starts to drop off yet the stock price is increasing. And what happens after that? We get a huge drop-off in price to the bottom of the crash at the beginning of 2009 in March where we had a huge volumes spike. Seeing C avoiding does give us some general indications of potentially the power behind the rally. So stock prices are increasing. More people are buying, driving, the stock price is higher than you would expect to see more volume there. And volume is the buying plus the selling. And as stock price increases start to fatigue, you would expect that volume starts to decrease. So onto the final piece of Dow Theory, which is a trend, is in effect until it gives a definite sign reversal. This essentially means that the direction of price move is in existence until it proves that it is moving in an opposite direction. Well, how do we know this? This is where the whole art of trend lines and support and resistance lines come in. We will deep dive into this subject in detail in a later chapter. Now you've taken the first steps to understanding the methods of approaching the market and have an appreciation of Dow Theory. These ideas you will see repeated in a more sophisticated methods in future chapters. But remember Charles Dow and the opposing camps of technical analysis versus fundamental analysis. The reality is that fundamentals have an effect on the technicals, but also the tentacles have an effect on the fundamentals. For further reading on the subject of mutual interactivity between the two. It may be worth having a read of George Services book, the alchemy of finance, particularly where this is a pretty tough read. 6. Summary: Well, I hope you enjoyed this class. Don't forget if you like the class, please leave a review in Skillshare. Also, don't forget, I've provided a detailed project for you to complete. This is a practical project so you can build investing experience, upload your project. And I promised to give you feedback.