Fundamental Analysis involves looking at a particular company's financial details. Profits, Losses, Expenditure and Management.

Based on these fundamental results, investors make a decision as to whether the company will remain profitable in the future.

This type of analysis is most important when buying shares as a long term investment. The criteria for long term investing is very different to that when trading for the short term.

Technical Analysis involves charting or graphing a shares trading history.

Using different tools, such as trendlines & support and resistance, we can analyse the supply and demand of a stock. All the information we need to do this is already in the company's stock chart.

In basic terms, as technical analysts we study the prices and volume of a stock. These two combined form patterns we can identify on the stock chart, and they offer signals of possible future movements.

Most people think Technical Analysis is not enough information to base trading decisions on. My experience has found that not to be the case.

Personally I use both Fundamental and Technical Analysis, but their use is dependant on which strategy I am implementing.

As I mentioned, when buying shares as a long term investment, Fundamental Analysis is most important. In fact it is essential. I would never buy shares without assessing the financial strength of a company first.

Once I have selected which shares I wish to purchase, I would only do so after assessing the stock chart. In other words, I would use BOTH types of analysis for this particular strategy.

However, when Options Trading............

I am more interested in what the share price is doing right now!

Professional Options Traders make many of their decisions using technical analysis and just a few simple patterns.

There are several ways to display the price data. The common methods are Bar Charts and Candlesticks. There is no wrong way, however my preference has always been Bar Charts. I specifically look at the open, high, low, close price bar.

> THE OPEN is the price of the first trade for the period: day, week, month. This is especially important as it indicates the price after all interested parties were able to ‘sleep on it'.

> THE HIGH is the highest price the share traded for that period.

> THE LOW is the lowest price the share traded for the period.

> THE CLOSE is the last price the share traded for the period.

The relationship between the open and the close is considered to be highly significant.

The relationship these bars have with each other on a chart determines the direction of the trend of the share. We can see the trend by drawing lines across the top of ‘The Highs' and across the bottom of ‘The Lows'

We draw up trending lines below the chart and down trending lines above the chart.........

Whenever professionals look at a stock chart, the first thing they do is draw trend lines.

The trend indicates 3 key points about the stock price :

•1. Direction - Uptrend, Downtrend, Sideways trend

•2. Health - The length of the trend determines the health of the stock. The longer the trend has existed, the more likely it will be sustained.

•3. Intensity - This is the steepness of the trend. The steeper the trend the more momentum needed to fuel it. Generally not sustained for a long period of time.

Mastering trendlines is extremely important when identifying chart patterns.

We also draw Horizontal lines on the highs and lows of these bars. These price points are called Support and Resistance. A Support line is drawn at the level indicating where the sellers do not see the price falling through. Think of support as a 'floor' holding the price up.

A Resistance line is drawn at the level indicating where the buyers do not see the price as breaking through. Think of resistance as a 'ceiling' holding the price below.

Besides the highs and lows helping us decide trend directions, there is other information in the bar we need to consider in our trading decisions.

We need more than one price bar to determine if there are any patterns evident . Beside some common chart patterns that are easily recognised on a stock chart, the price bar itself can indicate a buy pattern.

A call buy pattern occurs when today's high and low are higher than yesterday's high and low. The price needs to have opened near the low and closed near the high.

A put buy pattern occurs when today's high and low are lower than yesterday's high and low. The price needs to have opened near the high and closed near the low.

Some price bar patterns can also indicate a possible change of trend.

Lets look at one:

The Outside Day occurs when today's price action engulfs yesterday's trading range completely. An outside bar can appear in uptrends and downtrends and can be a very good indicator on it's own. I tend to use them however, as exit signals more than entry signals.

The art of trading using Technical Analysis does not rely on one tool alone to base any trading decisions on. You should have a thorough understanding of the mechanics of charting and a solid trading plan that incorporates sound money management rules.

There are 2 reasons why people lose money when investing:

1) Inadequate knowledge.

2) Doing too much, too quickly, with too little skill.

Invest in your education of any trading strategies prior to investing in the strategies themselves. Once you've been educated, practice before committing large sums of money into the market. During your practice you want to ensure that you are trading successfully on a small scale and only then should you consider increasing the size of your trading bank. It is not unusual to allow yourself at least 6 to 12 months of practice before proceeding further.

Rushing into any trading strategy is like driving a car without understanding the road rules - extremely dangerous! Even after learning the road rules, you need sufficient practice behind the wheel of a car before proceeding to drive at higher speeds. The same principles apply to trading.

It is wise to obtain qualified professional financial advice before committing heavily to any strategy.