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There are 3 methods that you can use when you are stock picking. The first method is fundamental analysis, the second is technical analysis and the third is a combination of the two which I will call ‘techno-fundamental’ analysis.

The most common method of stock picking that is used is fundamental analysis. I believe that is because it is an easier concept to grasp. It is where you assess the ‘health’ of a company and then make an investment decision based upon the health relative to the price.

What are the things that you use to assess the ‘value’ or ‘health’ of a company? Well we look at things like revenue, profit, and future growth prospects of the company. There are a lot of financial measures that you can use. The values will often be calculate so that they show ‘per share’. This allows to you easily compare with other shares. It is important when you are share picking that the companies that you select are not only good but they are priced well.

There is a lot more to fundamental analysis and it is a great place to start. You also have technical analysis which is completely different. Technical analysis is more about how the market is reacting to the fundamentals. To do this you need to read charts and have a good understand of indicators like momentum.

Technical analysis is a more advanced form of stock picking and not everyone agrees with its principals but there have been some very good traders who have used it. The theory is that all known information is priced into the asset so you are able to read that from the chart.

Why not combine the two types of analysis for your stock picking? ‘Techno-fundamental’ is a great way of getting the best out of both. Buy good quality stocks with a high intrinsic value but let the technical part of the analysis guide you into the market.

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