Most brokers favor one of two types of analysis when analyzing stocks, commodities or indexes.. The two are referred to as fundamental analysis or technical analysis. Brokers who side with the fundamentals look at the overall health of a listed company, its yearly reporting, its chairman and officers, and overall competitive and technology trends. It’s similar when it comes to commodities this relates to the analysis of the supply and demand for the product, weather conditions, farmer’s outlook and other economic situations.
When it comes to technical analysis, traders who rely on it generally ignore most of the above. All they are interested in is past history and statistical representation on graphs or charts. By looking at these charts and analyzing them, they can use their past experience with these types of charts and predict a trend line of where that stock or equity is going to end up.
The reality of how these somewhat contrarian ideologies compared to each other is that they have always worked and will continue to work for those traders who are good at using that information. In other words it’s never been proven statistically that one is better than the other. Even as someone wanting to learn options trading this is critical information as well.
For example one of the most infamous investors of all time Warren Buffet completely relies on fundamentals. He probably wouldn’t know what chart meant if it was drawn on his forehead. However, when I was working on the stock exchange floor many technical traders had their chart books out every morning recording data from the previous trading session. They wouldn’t be able to decipher a financial statement and probably wouldn’t even be able to recognize one. But let me tell you those traders made money consistently enough to work on the exchange floor for 25 even 30 years and earned very lucrative incomes.
Of course there are also those traders that take in a combination of both fundamental and technical analysis. Oftentimes brokerage firms will compare reports from both types of research analysts and then make their decision using both point of views.