Technical analysis: learn to invest your money at the right place
Making money is important but doing it smartly is all we want, in this whole series we will learn how to read the chart patterns? How to trade stocks? Buy and sell stocks based on this reading and many more… I know many people who want to start investing and have got rid of lame tutorials on a video. In this series, we have created something simpler than an advanced tutorial, something you and I can understand easily, something that helps people who have never traded in their life to make their first trade. We wanted this course to be simple, and have depth but most importantly, firststands wanted this course to be free. After reading this whole series I can promise you that your understanding of trading, reading price charts, understanding price movements in stocks or crypto all of it will grow significantly by the end of this series.
So, the first part is about understanding the basics of fundamental and technical analysis.
Fundamental Analysis VS Technical Analysis
The first thing we have to understand is that the rewards of trading and investing are great because it compounds over years and can change generations. So, don’t think about changing the 21 days, think about changing the generation ahead, your next decade ahead, because it is just a powerful thing that no one talks about. Trading is like a skill that you need to acquire and think of the initial capital as an investment into the skill, or a better analogy is its business.
So, let’s start with investing, I guess people know we’re looking over the long term, right? But what are you looking at? For example, let’s have a look at farmland of onions, in this case onion is the asset, this is something that the farmer, who is the INVESTOR, is investing his time, his energy and money, but why is he doing it? So that, the produce of the next year will be of good quality, he’ll get the wages, and then earn back his money. What do the investors do? He says okay, can I judge the management, quality of a company, do they have a vision, can the company grow? And then he might be, what are the cash flows? Are they able to bring the cash flow in?
Seeds, tractor and harvesters
Savings of farmers to meet expenses
Loans taken by the farmer
Company’s cash flow
Company debt obligations
For example, you might think petrol, diesel their era is shady, the future is electric. I think electric cars will do well. Now there is no Tesla in India but they’re actually battery manufacturers. You might conclude that the demand of battery manufactures will increase in the future. So you’ll see, does the founder understand the battery industry? Can he distribute it? Are their any modes? Etc, etc. So that is fundamental analysis.
There is another analysis type, technical analysis. Fundamental is when you’re analyzing the company, in technical analysis You are Looking at something completely different. Like what? So in technical analysis you look at DEMAND AND SUPPLY, So if all these banks are buying a stock and the price goes up, technical analysis can tell you that.
People assume trading means short term, but trading is intent to sell. Let’s understand this, before you buy something, you say, I am buying this today, I will sell it in 2 months, or next 1 year. Like you say I believe in batteries, will that happen in 3 years or 3.2 years? No one knows, right! so there is an intent to sell but it is a long time. Here is something really interesting about technical analysis: all these people who perform fundamental analysis, the smarter ones, like FIIs, and the banks and guys having millions of dollars. How do you think they’ll deploy a billion dollars into a bunch of companies? They do their fundamental analysis and say xyz company is doing good. So, do you think they place their 100 million dollars in one shot? No, obviously no. So, do you think they’ll stagger their investment over say, three years and keep checking every quarter to see their result? What do you think the price would look like over a long period of time? The price will keep high consistently, due to its consistent demand. So essentially technical analysis is gauging demand or supply.
Analysis company’s financials
Predominantly used for long term investments.
Finding an undervalued stock to invest for long term
Requires business domain knowledge
Analysis company’s stock price
Predominantly used for short term trading
Finding repetitive patterns to create trading opportunity
Does not require business knowledge
In the next blog, we will learn what a beginner's approach toward trading should be. Once done we will learn how to analyze charts as well as technical analysis.
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