In finance, there are two major ways to make decision about stocks and other instruments.
1) Fundamentals - these are the 'facts' of a company. For McDonald's- it's how many burgers they sell, the cost of labor and other quantities you can measure on a balance sheet.
2- Technical - a system that relies on reading the charts of a stock. Keys to this system are volume and price and an underlying understanding of what Wall Street and hence 'stocks' are really all about.
So, what is Wall Street- It's an auction. The reason you can buy and sell 'by the charts' is - the action of the auction itself gives clues about the strength or weakness of a particular financial instrument (whether it be stock, bond, commodity or other)
I use Fundamental research to pick the companies to purchase. How many burgers sold and the costs associated IS what I'm buying about McDonald's. The chart-only folk ignore the importance of reality on the auction. It doesn't happen in a vacuum.
I then use Technical research to find my entry point. I don't buy the name at any price. Here is the McDonald's example.
I find the 'range' of a stock or the top and bottom of pricing (averaged) over a period of time.
For $MCD over this time-frame, the basic range is effectively 94-99. The basic theory is to put your money in at the bottom of the trading range. If you bought your shares near the bottom of each dip on the chart, you would be quite happy today.
In summary, I pick what stocks to buy based on fundamentals and pick when to buy on the charts.
Note- this isn't a buy or sell recommendation for McDonald's or any particular stock or investment. It's about how I do finance. I hope you enjoyed this post.
From Las Vegas,
Stephen John Moran