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Welcome to my first instalment of CANNAINVESTOR MAGAZINE’s technical analysis of the American Cannabis market. I am happy to be writing about this subject for you as charts and cannabis stocks have become passions of mine over the last couple of years. Though its usefulness is often disputed, it is my belief that a combination of a fundamental understanding of a company coupled with the technical analysis of how the stock has performed in the past is better than the strict use of only one of the aforementioned strategies alone.
Allow me to briefly explain:
A strict fundamental approach is one that takes a long look at the inside and outs of a company. The fundamentalist assumes that so long as things like product quality, capacity, management strategies, revenue, debt, share structure, etc are aligning for a company then so too will the share price. In many ways there is nothing wrong with this assumption and often this strategy can yield success. The problem with the fundamentalist arises in the fact that mostly all of them will employ a ‘buy and hold’ approach and for the most part are unable or unwilling to attempt to take advantage of the many fluctuations in share price that we experience in today’s volatile public markets (especially the cannabis stocks).
Conversely, a strict technical approach is one where the trader doesn’t really care about the ins and outs of a company but rather whether or not the company’s chart is set up to one’s desires (this may vary on the trader and with experience). The Technical Analyst believes that all of the fundamentals that matter for a company will be reflected in the price and volume being traded in the stock. Many Technical Analysts actually find that when they know information about a particular company outside of what they are observing in the trading market, that it might allow emotion to get in the way of their decision making. The Technical Analyst is strict in their entry and exit rules.
My belief is that much like anything in life, too pure of an approach that leans in strictly one direction can be restrictive therefore a combination of both strategies will enhance your returns in the market over the long run whilst minimizing risk to the downside.
Given the wide range of readers of this magazine and this being my first issue in America, I plan to keep this article simple both to avoid confusion and as it tends to be my preferred method of analyzing charts. So, without further adieu let’s get to some charts!