An approach for analysing financial markets
with some risk management and mitigation
using a combination of
Fundamental Analysis and
Technical Analysis.

Why do this?

By using a clever combination of Fundamental Analysis and Technical Analysis, we are actually doing some risk management to eliminate from our view the stocks that are more likely to under perform, and to focus on those that are more likely to perform.


  1. Use a Fundamental Analysis approach to produce a list of companies in which you are happy to invest. Call the list a Watch List, or your own Stock Universe. And don't forget that this list should be revised monthly - perhaps take some companies off the list, and add some companies to the list.

  2. Use Technical Analysis to determine an appropriate time to make your purchase of shares in a company from your Watch List, and then to subsequently exit your position.

Question: Now does this sound like Sensible Investing?

But don't we already do this?

A lot of people will be saying that they already do this. Or the pure technical analysts will say it's a waste of time. Or the fundamentalists might say that it is only the fundamentals that matter.

Sure, some people do do this already without thinking about it. But let them be challenged!

I am suggesting here that we use Fundamental Analysis to spot quality stocks for our watchlist. So that we can eliminate the potential losers. Eliminate the over-geared and under performing stocks. And be careful about future projections. 

Look keenly at historical performance year-on-year. Things like ROE (or ROC or ROA). And look at gearing levels, because very highly geared companies do run the risk of problems with debt financing when the economy softens or turns sour.

And it is important to use some objectivity and structure in our analysis. And for goodness sake, don't over complicate it and spend a lot of time on it. Draw the line at some point, and keep it relatively simple.

Why Funda-Technical Analysis?

Fundamental analysis

There is some merit in using fundamental analysis when searching for companies in which to invest. This will help us to invest only in "quality" companies that should be able to stay around for the long term, and which should be able to produce acceptable returns on an ongoing basis.

BUT! there is a limit to how much we can rely on fundamental analysis. Many people used nothing but fundamental analysis during the GFC period (Global Financial Crisis of 2008-2009), and look at the results! Some people lost a significant portion of their savings.

Some of the more successful investors use between 5% and 50% fundamental analysis for their investing decisions.

Technical analysis (charting)

Now before the uninitiated laugh and scoff, this is worth reading (and it really has nothing to do with tea leaves). 

Note that Technical Analysis is the study of price charts in anticipation of future price movements. It can be said that price charts do reflect the mood and sentiment of the share market, and they also reflect all known news about the company (well, almost all "known" news).

Many technical analysts (chartists) who properly analysed the market and properly followed proven strategies during the GFC of 2008-9 actually made profits during the down turn when others were making losses. So, there is a great degree of merit in Technical Analysis. Some of the more successful investors/traders use between 50% and 95%  technical analysis for their investing decisions.

Logical conclusion - Funda-Technical Analysis

It seems most sensible that a combination of Fundamental Analysis and Technical Analysis could be very beneficial - let's call it Funda-Technical Analysis. The "Funda" comes first, because it is the first thing we do in this process, and the "Technical" comes second because we apply this analysis to the stocks in our watchlist that came out of the Fundamental Analysis.

Some people might suggest to select stocks using charts, and then apply the fundamental analysis approach. This really seems to be putting the cart before the horse. Do the Fundamental Analysis first and produce the Watch List. This will not change much from month to month; but it might change significantly in each half-yearly reporting season.

How much fundamental and how much technical?

Now this is the $64,000 question, and there are many right answers.

The short answer is to use whatever you feel is right, and which you enjoy using. Some people really enjoy the analysis of company data and the manipulation of worksheet-based financial model - that's okay. Many people don't like this so much, but really love to study the price charts - and that's okay as well.

Which is right? And when we hear the professionals in the finance industry tell us to stay invested for the long term, how can we justify selling out early? Well, the short answer to this is that their advice is based on an underlying premise that down not apply to many investors. If you are keen to capture short term profits and prevent the losses from getting bigger, then use technical analysis (a clever exit strategy, or stop loss), to reduce or close the position early.

Remember: Price charts summarise the opinions and emotions of the market participants.
Every chart tells a story. It pays to understand the stories in the price charts.

And - Be aware of the state of the market

I have already written some material about the Key Lessons from the Global Financial Crisis for the future benefit of investors and traders. It carries the sub-title "Beware the Bears (they are never far away)".

You can see that material on this web page. And the PowerPoint slides from an updated presentation of the same name.

And also be aware of the Brainy's "3Ways Rule (in 3Times)" to help you understand the state of the market, and the different trends that can be in play.

The Funda-Technical Analysis logo

The specially designed Funda-Technical Analysis (FTA) logo has the following key elements:

  • The two letters F and T are intertwined to remind us that both approaches are key parts of the strategy.
  • The top of the letter T represents a 5-wave upward trend (representative of healthy uptrends), to remind us that we have an increased chance of success if we follow a sensible strategy based on uptrends.
  • There are clues imbedded within the lines of the letter F to remind us of the three key elements of Fundamental Analysis (more details in the Members Area).

More details please?

Okay, so exactly which Fundamental Analysis criteria should we use to prepare our watchlist?

Well, it might be some or all of the following: Return on Equity (ROE), Return on Assets (ROA), Return on Shareholder Funds, P/E, P/E Growth, Debt to Equity ratio, Dividend per Share (DPS) or Revenue Growth. 

A suggested list of exactly which fundamental criteria to use is available in the Members Section of
Brainy's Share Market Toolbox - available only to Toolbox Members

The 4 Windows approachAnd which Technical Analysis criteria should we use? There is a suggested list of technical indicators for use as starters on a weekly market review basis already published. I use these on a weekly basis for my own market analysis, and in publishing my Weekly Market Update newsletter for interested people. Also consider the 4 Windows approach to help get started.

And a sensible Stop Loss approach is very strongly recommended to help minimise any losses, and
to protect our profits.

Even more information?

For more information about some of these key topics, just follow any of these links:

Good luck with your investing - may your capital protection strategies prove successful.

Robert Brain (aka Brainy)

Home  |  About Us  |  Contact Us

Copyright 2009-2018, R.B.Brain - Consulting (ABN: 52 791 744 975).
Last revised: 9 November 2018