Fundamental and Technical Analysis
In analyzing and predicting price movements in your SECURITIES, AFS Investments uses a combination of the Fundamental AND Technical Analyses. Where many firms use one or the other, AFS Investments finds the importance of using both; similar to using two hands to play a piano instead of one.
Through years of experience, AFS Investments easily identifies key factors using both the Fundamental and Technical Analyses giving you peace of mind to know that both routes are addressed before decisions are made.
Fundamental Analysis—Shows WHAT to Buy
- Considered more logical and pragmatic
- Reviews financial soundness and business prospects
- Revenue, Earnings per Share, Price to Earnings Ratio, etc.
- Creates a type of “price prediction”
Technical Analysis—Shows WHEN to Buy
- Considers psychological aspects of the market
- Analyzes past market movements for future movement
- Creates patterns on charts for price projections
The Relationship Between Buyers and Sellers
In economics, the term Supply & Demand describes the market relationship between prospective
1) buyers and
Everything, whether it be an actual product or a service, is priced based on the constant battle between buyers and sellers. This is a concept widely understood at AFS Investments and implement daily into your portfolio management and review.
We watch each STOCK in detail for more buyers (price increase) or more sellers (price decrease). When relating to your stocks and bonds, the major stock exchanges (New York Stock Exchange, NASDAQ, etc.) provide the perfect battleground for us to closely monitor the struggle of buyers and sellers to determine the points of when to buy or sell.
Point and Figure Charts
Created in the late 1800’s by Charles Dow, founder of the Dow Jones Company, Point and Figure Charts provide a simple and logical way to record share price movements of publically traded stocks. Based on certain chart patterns, your Financial Investor can quickly see and easily interpret short, intermediate, and long-term trends. With the addition of trendlines provide additional buying and selling guidance by showing the support and resistance levels in a stock. As can be seen in the sample point and figure chart below, columns marked by an “X” indicate periods when the stock was rising, columns including “O” show when the stock was falling.
Sample Point and Figure Chart
The purpose of the Point and Figure analysis used at AFS Investments is to produce charts that are logical, clear and simple to read.
Unlike other forms of stock charting used in the industry, AFS Investments uses the “3-box reversal” method, requiring a rally or pullback of 3 points (or boxes) before moving the chart from one column to another. This type of method allows your Financial Advisor to see a clear picture where patterns emerge and trend lines can easily be drawn by filtering out the noise of small price fluctuations and confusing volume indications.
Point and Figure Rationale
Consider the way a leading expert describes the Point and Figure’s rationale:
“The premise of Point and Figure charting is to provide a logical, organized and sensible way of recording the supply and demand relationship in any particular security or sector. When it is all said and done, if there are more buyers in a particular security than there are sellers willing to sell, the price will rise. On the other hand, if there are more sellers in a particular security than there are buyers willing to buy, then the price will decline. If buying and selling are equal, the price will remain the same. This is the irrefutable law of supply and demand. The same reasons that cause price fluctuations in produce such as potatoes, corn and asparagus cause price fluctuations in securities.”
~Tom Dorsey, “Point and Figure Charting”
Tom Dorsey is one of the founders of Dorsey Wright & Associates, a firm primarily dedicated to serving investment professionals and today’s leader in the point and figure methodology. AFS Investments uses Dorsey Wright’s dynamic system to immediately get feedback on publically traded stock. For more information about the use of Point and Figure Charting, please visit www.dorseywright.com.