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Q: I see that The Motley Fool doesn't subscribe to the day-trading phenomenon. What does the Fool think about technical trading? -- C.S., via the Internet

A: There are two major schools of thought on stock analysis. Technical analysis dwells on looking at charts of stock price movements and trading volume. Fundamental analysis, on the other hand, focuses on determining the value of a company, studying such things as a firm's business, earnings and competition.

While investors from the fundamental school (Fools!) want to understand a business from the inside out, technicians mostly remain on the outside, observing how the stock has behaved in the past.

Technical analysis assumes that certain chart formations can indicate market psychology about either an individual stock or the market as a whole at key points. However, the statistical work done by academics to determine whether any chart patterns are actually predictive has been inconclusive at best, as detailed in Burton Malkiel's, "A Random Walk Down Wall Street." Much of the faith in technical analysis hinges on anecdotes, not any kind of long-term statistical evidence.

In short, technical analysis has all the power of tea-leaf reading, though it costs a lot more to pay for a technical analyst's advice than for a carnival palm reader's.

Still, that doesn't stop Wall Street "gurus" who think they can predict where the market is going over the short term based upon the study of charts and intuition about investor psychology. Investors who use technical analysis try to determine where the big, institutional money is going, so they can put their cash in the same places and try to remove their money shortly thereafter. Technical trading is attractive to people who are not trying to participate as owners in the growth of businesses, but who instead simply believe they can outguess other investors and score a quick profit.

It's truly amazing to us Fools to think that technicians might study a stock chart, see a particular pattern, determine that the stock is "breaking resistance" and then buy shares. All this is typically done without understanding what a company does or what its prospects and circumstances are. We Fools just don't get it.

The second major problem with technical trading is that it is still, of course, trading. Buying any stock with the intent of holding it for only a couple of hours, days or weeks is just foolish (as opposed to Foolish) in our opinion, because of the transaction costs, the time and worry involved, and the capital gains taxes incurred.

The Motley Fool isn't merely trying to teach people not to day trade; we're also saying that any investment philosophy that can be called "trading" is, to us, not really investing at all.