renga73 said:
Dear Mr. Traderji,
Tell me what are the factors to be considered before one decide to buy a share at current market price.
Renganathan.
There are two primary analytic methods for deciding when to take a position in the markets: fundamental analysis and technical analysis. Fundamental analysis involves using economic data and company results to forecast likely future price action. Technical analysis involves analyzing past price action of the market itself to forecast the likely future price action.
While there are differences of opinion about the relative merits of the two approaches, almost all successful traders emphasize technical analysis. There are a number of reasons for this. First and foremost is the difficulty of obtaining accurate fundamental data. While various analyst and research companies these numbers are gross estimates at best. With the current global marketplace, even if you could obtain accurate current information, it would still be impossible to predict future supply and demand with enough accuracy to make profitable trading decisions.
Technical analysts argue that since the most knowledgeable participants are actively trading in the markets, the current price trend is the most accurate assessment of future supply and demand. If someone is correct that for fundamental reasons, prices will likely move up strongly in the future, the participants who have the greatest knowledge and influence on the markets should certainly be moving the price upward right now. If price instead is moving down, a lot of very knowledgeable people must think price in the future will likely be down, not up.
For this reason, almost all successful speculators learn to follow price action and not try futilely to predict turning points in advance. They seek to trade in tune with the large participants who move the markets.