Creepy Stock Market: fundamental and technical analysis

I don't know who you are. I don't know if you are new to the trading and investing world or if you are experienced. I don't know if you have a degree in finance or related subjects or not. However, what I know is that when you started probably you felt confused because let's be very, very frank, the investing world use a lot of terminology that is very hard to understand at the beginning. A lot of technical terms that confuse people. And the more you look for explanation, the more technical terms you find. So there is maybe something you don't understand. What is fundamental analysis? And then you look for information, then you find many other weird terms and then you look for all of them and it's a never ending process. But it's very important to note these terms because when you are watching a video or reading a book, these terms are used and if you don't know them, you will not be able to understand what they are saying. And of course this will also affect your profitability. So that's why I wanted to start this new set of videos where I want to go through some of the basic terms that are used in the investing and trading world. And hopefully for those of you who are new, this will be very helpful because it will be something that you can use to quickly understand the main topics. But for people that are more experienced maybe will also be useful because sometimes it's good to go through a review of the basic terms. So today we are discussing about fundamental and technical analysis that again, if you are new may sound something crazy. Oh my God. Fundamental, technical, what is that? But actually at the end of this video you will realize that it's nothing complicated. I made a video in the past where I was discussing the difference between investing and trading and I was mentioning technical and fundamentals. But let's clarify in this video, let's start with fundamentals first. Here you see Reuters, that is a website where you can find information about company and we use as example Apple. So when you go to financial you will see something like that income statement, balance sheet and cash flow statement. Fundamental analysis is looking at these numbers to give you suggestion about buying or selling. And these suggestions are based on the analysis of the business behind the stock. What do I mean by that? Let's start with income statement. What do you see here is that you can have annual or quarterly information on stuff like the revenue, the net income and things like that. So this is related to what they sell, how much they gain and then what is the net income they keep. Then we have the balance sheet. Balance sheet is actually showing you the asset, the debt or liability and the equity of the company. What do I mean by that? Debt is, you know, for example, the company is taking some loan to the bank or any other debt. And then you have the total liabilities and then you have the equity. Equity is when the company is releasing shares to the market. And then when buyer buy, they get money so they can get money by equity. So shares in the market where people buy the share and they get the money at the beginning or buy debt. So maybe they go to the bank and they take a loan. And one of the principle of accounting is that the asset that is here, total asset must be equal to liabilities plus equity. Okay. And we can check if you want. Let's see, For example here we have total liabilities, right? So it's 258578. And then we sum the total, the total equity 107147. And then we should get. That's right, the total asset 365725. You see the same number. So this means that again this principle of accounting, the total asset is equity plus liability is true. And what about the cash flow? Well, if you look at the cash flow, you have as the name said, cash flow. Why is it important? Because in the income statement you can see things like revenues. But if I record a sale, then maybe we get the cash later. So it may be good to know what happens in terms of cash flow. Because a company may be recording a lot of sales and revenues. But actually if the money is coming much later, this can be a problem. Especially if there is a lot of debt and you have to repay debt or interest. So what is the idea of fundamental analysis looking at these things like income statement, balance sheet, cash flow statement, understanding the strength of the company and in addition deriving what is called intrinsic value. Because remember, when you do fundamental analysis that is linked to usually long term investing, you want to buy the business that is behind the share. So if the business is good and the price is good, then you can buy. So if the business is good, how to know? Well, you look at these numbers. Now we don't go into the details of what an analyst can do to understand the strength, but just for you to have an idea, you, you look at these numbers and you know if the company is solid or not. And then after that again from these numbers you can derive a fair value or intrinsic value for the company. And I made a video about real estate investment trust in Singapore where I was showing a few methods that you can use to derive this number. And then what is the idea? Well, if the current price is below the fair value, well, potentially I can buy. Okay, so in this way we want to buy a business, but we don't want to overpay for the business. So this is the idea of fundamental analysis. Let's move to technical analysis. So technical analysis is what? Analysis of the price chart. And here again we have Apple. We are using TradingView, that is a free website where you can see charts. And if we click here, we can even see the usual Japanese candlestick, this kind of green and red bars. What is the idea of technical analysis? The idea is that by looking at the price movement, you want to find some kind of insight that is used to decide if you want to buy or sell. And to do that, usually technical analysts or chartists, sometimes they are called, they derive indicators, indicators that can be based on volume or price or combination of both. And what is the idea? The idea is that these indicators can help you understand what will happen next. Of course it's not a prediction, nobody knows, but at least you should know what is more likely to happen. And we can see some of them here. For example, let's see. Well, Bollinger bands is very common. So what is Bollinger band is this kind of thing you see here. So this line in the middle is a moving average. Okay, so moving average is basically the average of the last, in this case 20 days price, closing price. And then here you have these two lines that are related to the volatility. So some people, they trade this way, they say, well, when the price is touching the upper band and you see that the price is going down, for example with a red candle, then you can short sell. And when the price on the other hand is touching the lower band, and then you see a bullish candle, so a green candle, then you can potentially buy. So this is one example. Then we have, let's see other indicators. Well, one very, very common as that I also mentioned right now is the moving average. Okay, so the moving average is this line, this is the nine we can change from, for example, 50 is quite common. And the idea here is, for example, when the price is above the moving average, you may go long, when it's below, you may go short. Of course this is very simplified. People also combine these indicators. But what is the idea? If you look at the list of indicators, you realize there are very like this, a never ending list. And imagine all the possible combination you can get. And that's why sometimes people, they Come out with some trading system that is combining this and that signal and hopefully they will be more reliable in their, in their forecast, in their prediction of what will happen. Okay, and when you do technical analysis, the idea is that you're not even interested in the. As for the fundamental analysis, you're not, you're not even interested in what is the company, what they are doing, is it strong, is it not? You don't care if you are purely technical analysis driven. You will just look at the chart. Because the idea is that everything that happened to the company is already reflected in the chart, in the price. And this is of course a strong assumption. How do you use technical analysis? Well, if fundamental analysis is mostly used for long term investing, technical analysis is more utilized for trading speculation because as I said, you are not buying the business behind the stock. You are just looking at the chart. And if it's more likely that the price is going up, you buy. And if otherwise you sell. That's all. Of course there are people that combine different techniques, so you may have some fundamental information, for example to screen out potentially good companies and, and then you can use technical analysis just to time the market so to say, okay, if I want to buy this company that is strong, fundamentally I put it on my watch list. And when the chart is good enough, according to your technical criteria, you buy. So this is also possible anyway to summarize fundamental analysis looking at things like income statement, balance sheet, cash flow. To do what? To derive first an intrinsic value, to understand if the price, the current price is below the intrinsic value, so it's good potentially you can buy or if the price is too high given the current intrinsic value, so you should wait for a retracement. And second of course to understand if the company is solid. Because if you're looking at a long term investing horizon, it was something that will survive in the long term. On the other hand, technical analysis, looking at charts, looking at price pattern, looking at indicators and finding strategies that tell you when to buy or sell according to what is happening in terms of price and volume. And again, technical analysis is mostly used for short term trading speculation. So I hope this video clarifies what are the differences between fundamental and technical analysis. If you have any questions, please write a comment below the video. I will reply. And also if you have a request for some of these terms or concepts that are confusing to you, again write me a comment and if possible I will make a video to explain that. And with that I would like to thank you for watching and as usual see you next time.