Anyone who wades into the stock market should first ask this question: "Am I an investor or a trader?" The answer may help you to determine what type of investment research is best suited to your needs.

With each style of investing, the rules may change with respect to the best research tools for you to use. At the risk of overly simplifying the subject, there are basically two camps of investment research with which you should familiarize yourself: Fundamental Analysis and Technical Analysis. The former is arguably more relevant to long-term investing, while the latter is often the weapon of choice for short-term traders.

Fundamental Analysis

Most investors are more familiar with the language of fundamental analysis, which concerns itself with a company's finances. Listen to a media interview with a money manager and you will probably hear the language of the fundamental analyst: revenues, earnings per share (EPS), price-earnings (P/E) ratios, cash flow, dividend yield, etc. These and other common measures of a company's financial health are available from the quarterly 10K reports that publicly traded companies are required to report to the Securities Exchange Commission (SEC).

A company's numbers are available to the public and are widely distributed through thousands of services and web sites. An example of the type of financial statistics that are available would be from Zacks Research. Here is a summary of some of the more commonly used measures in a Zacks report on Coca Cola (KO).

Over a period of years, the price performance of a company's stock will often be heavily dependent upon its financial results. For this reason, most long-term investors will initially decide the merits of a stock based upon some form of fundamental analysis. Periodic revisits of the financial results can be made as often as quarterly, as a company's most recent earnings reports are released (or more often through other macro developments).

Though a given set of financial results is static, its relative beauty is in the eyes of the beholder, as the numbers can be interpreted in a myriad of ways. Most investment managers have their own "models" that crunch through the data and drive that manager's ratings on stocks. Many individual investors also have their own opinions about which financial ratios or measures are most important in finding winning stocks. The presence of these wide and divergent viewpoints is what drives the financial markets.

While fundamental analysis can be an invaluable tool for long-term investors, its value tends to diminish as one's time horizon becomes shorter. The question then becomes, if financial results are only reported every calendar quarter, what is a trader to do when his or her expected time horizon is only days or weeks? What is the best means of predicting a stock's behavior between earnings releases?

Technical Analysis

The research method of choice for many traders is technical analysis. Though not as well understood by the investing public, technical analysis has been widely used by professional traders for ages.

Many investors who are unfamiliar with technical analysis might be surprised to learn that it is relatively easy to learn and apply. Its key difference is that it uses only a stock's price and volume over a period of time as the basis for its methods. While a background in accounting would be helpful to the fundamental analyst, a grasp of math and charting is most beneficial to the technical analyst.

To the technical analyst, a company's financial condition is largely irrelevant, since everything that he or she needs to know about a stock is captured by how it is trading. Technical analysts often speak in terms of highs, lows, trading bands, and moving averages, and that is only the beginning. Over the years, statistical gurus have developed a preponderance of other charting methods and techniques for predicting the movement of stocks and markets. As with fundamental analysis, technicians adopt their own set of tools that their experience tells them are the most useful.

Market purists, including much of academia, to this day will often frown upon the value of technical analysis as a research tool. Admittedly, technical analysis flies in the face of the Efficient Market Hypothesis (or Random Walk Theory), which essentially states that price history bears no relevance to the future price. In other words, one can never predict a stock's behavior based upon its past. The fact that this theory is studied in most every business school may help to explain why technical analysis is sometimes dismissed.

Technical analysts certainly argue this point, sometimes on the way to the bank. Their belief is that over the short term, charting can and does provide the most accurate forecasting tools because it quantifies the relationship between supply and demand for stocks. Few would argue that rising prices, coupled with increasing volume, indicate rising demand for a stock. When demand outpaces supply, simple economics tells us that the price will go up. On the other hand, ask any trader why a stock price is falling, and you might be met with the timeless answer of, "More selling than buying." An irritating answer, to be sure, for a panicked investor, but what could be more strikingly simple than expressing the problem as one of supply versus demand?