TRADING & INVESTING TERMS
In a fundamental trading strategy, a Trader or Investor’s key focus is on the events that are occurring in the company he/she would be interested to invest in. Based on the events, investors predict the trend and make the buying and selling decision. This technique is usually used by long-term Investors. Traders who use fundamental strategy are more focused on the quantitative data and metrics of the company such as cash flow statements, balance sheets, return on equity, revenues, price to earning ratio (PE Ratio), price to book ratio etc.
In technical trading strategies, Traders try to predict the movement of the price using volume indicators, trend analysis, historical data, and statistical analysis. Traders would assess the difference between the real value of the asset and the market value by using various techniques such as behavioral economics, reading charts. Traders would predict what would happen based on the past information. There are two approaches to technical analysis – bottom-up and top-down approach. In the bottom-up approach, a trader focuses on individual stocks and securities. However, in the top-down approach, a trader first focuses on the overall economy, then the industry they want to invest in, and then the company if they are investing in stocks.