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One of the worst things that traders still do to this day is ignore stocks at 52-week lows, even when it comes to the biggest stocks in the world.
But to be honest with you – that’s exactly when you want to buy. When everyone else is selling and becoming fearful of big named stocks, buy.
The question then becomes – how can we tell where the bottom is?
We simply abide by what herd mentality and momentum is telling us, which we can decipher using several technical indicators and fundamental analysis.
In early 2018, the reins of the Federal Reserve were handed to Jerome Powell.
With it, came concerns the central bank could raise interest rates.
Of course, it had many on Wall Street terrified of a potential market downturn like we saw at the start of February 2018 and again in March 2018.
All of a sudden, there’s a gap in the chart of your favorite stock.
Surprise news, earnings, something unexpected caused a bout of extreme optimism or pessimism that resulted in the move.
Look at Palo Alto Networks (PANW), for example. In early June 2017, shares closed at $118.59. However, shortly after the close, news of a massive cyber attack began hitting headlines. Orders come flooding in overnight. The next day, the stock opens at $140.
It’s always interesting listening to fundamental and technical analysts argue.
Just as fundamental investors like to laugh at technical analysis, technicians laugh at the absurdity of investing just on fundamentals. It’s a never-ending, laughable fight.
Fundamental analysis shows us what’s under the hood, and whether or not an asset is over- or underpriced, as compared to the competition. In fact, Warren Buffett, Baron Rothschild and Sir John Templeton subscribed to this school of thought and made a fortune. They seeks to uncover the intrinsic or true value of an asset, and is dependent on future sales, earnings, and estimates. It’s pain-staking research at times.
Make no mistake, technical analysis is just as important as fundamental analysis, and some of the most influential traders in history have made fortunes by proprely applying technical analysis in their trading methodologies.
Let's take a look at how technicians have learned from Jesse Livermore:
“The price pattern reminds you that every movement of importance is but a repetition of similar price movements, that just as soon as you can familiarize yourself with the actions of the past, you will be able to anticipate and act correctly and profitably upon forthcoming movements.”
We’re often told that technical analysis is a waste of time.
Traders are often told to ignore it altogether.
“Technical analysis is fundamentally flawed,” says Forbes.
“Technical analysis is stupid,” blared The Motley Fool.
But it’s just not true. In fact, technical analysis is just as important as fundamental analysis.