By now you may be wondering why so many investors talk about P/E ratios and other financial terms. You have just been told that technical analysis is all you need to figure out if the stock, or some other financial instrument, is likely to go up or down.

The truth is that there are two aspects to the financial markets. The one that you are learning about now is commonly called trading, or perhaps even short-term trading, and the other aspect is investing. The goals are different and the approaches are different. With trading, the chief influence on the prices is how other buyers and sellers perceive the stock or financial security. The timescale is just too short for there to be any real building of wealth that should be reflected in the price.

On the other hand, with investing the buyer is looking for something to put his money in that he may possibly almost forget about for several years. He wants something that will increase his capital steadily and without too much risk. The investor is characterized by the phrase buy-and-hold. Typically he is putting money away for a “rainy day” or for retirement.

When you are talking with people about spread betting or buying and selling shares, you need to be clear on the timescales involved. With spread betting there is a set expiration date, even though you can automatically roll over the daily bets to another day. Anyone who invests would not consider such a device for their money, as they intend to hang on to the investment for a long time and do not want regular charges or payments.

A typical example of a very successful investor is Warren Buffett. He is always at great pains to analyze any company before investing in it, and given his wealth I’m sure he finds he can talk to any of the company officials if he wants information. He is a billionaire, and shares in his company trade for six figures – each! But he has hardly any turnover on his holdings. He buys shares in excellent companies and hold them for many years.

You may find some financial advisors who are like this. They spend their life studying the markets, sometimes specializing perhaps in the energy field, they know company accounts back to front, and have a good idea of what they expect companies to do in two or three years. The financial expert in energy may not know much about the banking industry, as it takes some effort to become familiar with a particular market sector.

That is one way in which technical analysts are much better off than fundamental analysts. You see, because of the way technical analysis works, you can get a good idea what prices are going to do tomorrow or next week without going through all the accounts. You can apply the skills that you learn to the foreign exchange market or to commodities.

There are a couple of other notable differences between technical analysis and fundamental analysis. As they look long-term, fundamental analysts tend to consider only which are strong companies, ones they can go “long” on, buying shares. The technical analyst is not restricted in this way. He doesn’t care if the company is strong or weak, if the price is going up or down, as long as he can predict the right direction. Sometimes more money is to be made by trading “short” in companies, as prices can fall faster than they rise. Either way, the trader can make money whatever the market decides to do.

Rather than considering the foreseeable future, years away, as an investor must do, the trader is able to choose the time period preferred, as long as it is relatively short term. For instance, day traders may go in and out of trades every few minutes whereas some swing traders may make money over a week or two. It’s still not so long that fundamentals make much difference, but by looking at different time scales on the charts traders can apply the same principles to many different periods, as suits their disposition and available time.

This concludes the introduction to technical analysis. You need to learn all about it so that you can see what devices are available for you to learn to spread bet profitably. Just because it’s called technical analysis you don’t have to worry about it, you don’t have to do much mathematics as there are many tools to do that for you. If you can learn the principles, then you can experiment and come up with your own unique way of trading that suits your disposition.