Combining Chart Patterns With Fundamentals

A lot of people try to pick the exact bottom of a stock by taking into consideration the fundamentals of the company.  However you can increase your odds of getting into a profitable trade if you combine fundamental analysis with Chart Patterns.

There are 3 major reasons why chart patterns and fundamental analysis can make a good combination.

1.       It gives you a point to buy

Instead of just guessing when to buy a stock you can use an indicator such as a chart pattern breakout to give you a point to get long on.  Fundamental analysis gives you a clear picture of what could happen in the long run, but unless you combine it with some sort of technical analysis you are missing the opportunity to get in at the best possible point.

2.       Added Pressure

A fundamentally strong stock that has just broken out of a chart pattern has two forms of pressure on it.  Fundamental investors put pressure on the stock when they buy it at an undervalued price and technical traders put pressure on the stock by buying it because the stock broke out.

3.       It lets you cut your losses short

If you are just buying fundamentally strong stocks without a game plan to exit the trade you could be really hurting if the market does not go your way.  Luckily chart patterns give you a point to cut your losses.  If you buy a stock on a chart pattern breakout and it goes back into the pattern that is a sign that the stock will probably go down lower and it is time to exit the trade.

Holding a fundamentally strong stock as it falls 50%, 60%, 70% or more can make sense if the company is overall secure, but it still doesn’t look past the fact that holding through down times can give you a huge loss.

It is safer to use technical analysis to give you an exit plan if things don’t turn out right. You can always buy it back later after the stock is done falling.

For more on chart patterns visit http://www.stocks-simplified.com/chart_patterns.html