Investors tend to think that stock-markets exist for their benefit. The reality is quite different. Markets bring investors and enterprises needing capital together desireably for mutual benefit.
However, many, perhaps a majority of new enterprises, will sooner or later fail to become profitable, destroying the shareholder investment. It is a mistake to think that it is only small companies who have raised new “venture captital” that fail; and perhaps poorly managed, highly leveraged companies. In fact most shareholder wealth is lost when large, even iconic, companies loose profitability through adverse trading conditions, or economic downturn. As a consequence, investing in the stock-market is a mine-field for the unwary, exploding when least expected.
It is the Fundamental Analyst monitoring company profitability who is best able to guide the conservative risk adverse investor. Most buy and sell recommendations are based on the appraisal of fundamental data by brokers and other financial gurus. But even this discipline has its pitfalls.
On the contrary Technical Analysis monitors market sentiment via price action rather than using past and present profitability as predictors of future performance. Future price movement is unknowable but more predictable is the role of the human psyche in trading situations that arouse fear or awaken greed. The inate herd instinct of all humans, investors and trraders included, creates scenarios of irrational boom, or despairing gloom at the top and the bottom of the market cycle respectively.
Traders employing Technical Analysis rely on sound money management stratagies to conserve capital, enabling them to fund more risky enterprises requiring venture capital, and increasing overall market liquity. In my opinion such traders are essential contributors in the kaeleidoscope of market participants.