Unless you want to take classes or get a degree in business to understand the complexities of investing and trading in the stock market, you will need to be selective about what you learn, then build on it. As with any subject or structure, start with a foundation. All of the sophisticated information is a refinement of the basic information, which is easier to learn. You can dig as deep as you want, but knowledge of the basics can create the best starting point; plus, it is better to add to your knowledge on a daily basis since the market changes constantly.
There are two main approaches to evaluating companies and how their shares may rise and fall: fundamentals and technicals. Although most would assert that fundamentals are the only way to truly evaluate a company, technical analysis also has its followers. What makes the difference between successful companies and unsuccessful ones are the fundamentals, but technicals move the market, especially the penny-stock market. And even the basics can be skewered by the unique state of cannabis stocks since most operate on the OTC.
Fundamentals deal with economic factors. They include financial statements that indicate revenue, cash flow and profit, and they tell you the intrinsic value of the company. Good fundamentals are essential for long-term growth and indicate investment potential. This information is easy to find either on the company’s website or in SEC filings, and it is often reported on the major brokerage websites.
Fundamentals may not alert you to something like toxic financing, a problem in the cannabis sector, but by paying attention to these fundamentals you can see other signs of strength or weakness. This data only comes out periodically so naturally the analysis is based on this flow and does not reflect day-to-day price changes; in other words, what is seen on the chart is not an indicator of fundamental value.
Technical analysis is more about following the charts, which “technicians” believe hold all of the important information that is needed, such as price trends, volume and moving averages. It is used more for short-term trading. Technical analysis is not universally accepted as a valid discipline for predicting price movement, but it is good to remember that volume can still move some prices.
Millions of dollars of sales or purchases can seriously affect the price but can also cause other shareholders to follow suit when they see this movement. It can take even less in the cannabis sector so watch for extreme price changes. The ultimate examples would be a panic sellout or buying frenzy but even on a smaller scale price movement alone can affect whether people buy or sell shares. It is helpful to understand how it works, whether you practice it or not. Fundamental news will be released quarterly whereas price and volume may change daily, with such technicals possibly indicating short-term potential.
It is also possible for unethical entrepreneurs still present in the cannabis space to use this to create market movement which is then followed by other short-term traders ,artificially changing the share price. Some might see this as increase in value when it is only an increase in daily share price. It is critical to know the difference.
Whichever way you choose, fundamentals will always be essential to the success of a business but knowledge of technicals can complement your knowledge. For example, if you have decided that the fundamentals are strong, but you see that the daily price on a particular day is too low because of selling activity, you could use that opportunity to buy more shares at a discount. Conversely, you could also sell shares that have risen in price or become overvalued due to market activity. You may already know of financial weakness in the company’s fundamentals that may indicate future loss of revenue. Volatility and penny stock status leave cannabis shares vulnerable to extreme price fluctuations, which show up in charts triggering technical calls.
It is more complicated than this, but think of fundamentals as long-term investing and technicals as short-term trading.
If you understand certain basic principles it can serve you to start investing and adjust as you learn to refine these same points. The market changes daily and information is disseminated daily, so learn as you go. You can’t watch the market once a month and stay current so refining your knowledge daily is the best plan. Along the way you will recognize patterns as you become used to seeing fundamentals, and you start to understand the difference and the influence of technical charts.