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Technical analysis:
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Typically technical analysts are loved when the market keeps moving in one direction
for long periods and are hated during uncertain times. Technical analysis essentially
relies on past events to predict the future. It takes into account the price and
volume patterns and subscribes to the axion that history repeats itself. The most
common argument against technical analysis is that after adjusting for trading costs
and taxes, one does not make a profit trading by technical analysis. But, post tax
nobody makes too much money in any way.
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The most diligent investors use technical analysis in combination with fundamental
analysis.
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The most used kind of fundamental analysis by the full time stock players is relative
analysis. While they also use anticipative approach - figuring out future earnings
of a company, and absolute approach - valuing a company based on money it would
take to replace its assets, they rely on comparative valuation a lot more in a dynamic
market. They move their money from relatively expensive stocks to cheaper stocks
with similar prospects.
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Some companies' stocks quote at a premium to the market because of their better
market performance and prospects while many quote at a discount for good reasons
like lack of growth and suspect management.
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