Question

Do you believe technical analysis is complementary or competitive with fundamental analysis? Why is the consideration of trading volume regarded as important?

Answer 1

Technical analysis should be used in complimentary to the fundamental analysis and not in competition. The reason why this is applicable is because markets are not efficient and eventually even if you can determine that there is a price gap between intrinsic value and the market price by using the fundamental analysis, you can actually use the technical analysis to find the right price of entry in that security because eventually your profit is going to be determined by the difference between the price at which you bought and price at which you will sell. Technical analysis can actually help in deciding the suitable entry and exit strategy points.

Trading volume is regarded as an important indicator because when it is used in combination with other indicator it can give buy or sell signal about the stock, lets say the stock is at all time high but still the buying volume is very high so it signals that there is still potential to rise in price. Similarly, if the stock price has fallen but the volume is very low at that point that means there are investors who believe that price should not go down further.