Before one dives into the world of online trading, it is imperative to gain knowledge about the equity market through stock market analysis. It helps investors and traders to arrive at the genuine value of a stock. Fundamental and Technical analysis are the two prominent tools of stock market analysis.
What is Stock Market Analysis
The stock market analysis allows an investor to understand the intrinsic value of a stock before he decides to trade or invest in it. Experts conduct in-depth research before creating stock market tips for investors. Stock market analysis also aims at finding the future path of a stock, sector, or market.
Stock analysis helps traders reach equity buying and selling calls. The study and evaluation of past and current data assist investors in having an edge in the market through informed decisions.
Why is Stock Market Analysis Relevant
Thorough research of the stock market can help an investor make accurate assumptions about value and future performance of a stock. Even if an investor follows stock market tips, he should do some research to ensure that his investment decisions are correct and would increase his chances of profit generation. Investment requires a person to put his hard-earned money into the stocks of a business. Therefore, one must have adequate knowledge of where he is putting his money.
What is Fundamental Research
Under fundamental research, an investor tries to find the value of an equity share by looking at the fundamental statements of the share-issuing company. By studying these statements, you can draw conclusions about factors like the financial soundness of the business, the quality of its management, and the competitive advantage the company holds over its competitors.
It shows the relative attractiveness of a business for investment. In this case, one assumes that the market price of a stock does not show the true value of a company because of external uncontrollable factors like investors’ sentiment. In the long run, when the market gains equilibrium, the real value will become the same as the market value. If one pays a higher price for the company’s stock, it will have a negative impact on the buyer’s return on investment.
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Key Indicators for Fundamental Research
- Return On Equity (ROE): An analysis of how much a company earns on shareholders’ equity. It informs the investor if the company’s operations are efficient or not.
- Debt-Equity Ratio (DER): It throws light on the portion of a business’s assets that it is using to finance the assets of the business. It shows how much funds the company’s owners and borrowers have given.
- Earnings Per Share (EPS): It tells an investor how much earnings a company is making on every share.
- Price to Earning Ratio (PER): It compares the running price of a company’s shares to the earnings per share.
What is Technical Research
Technical stock market research is based on the study of past stock prices to make predictions about future stock prices. It shows the direction of price movement of stock to the investor. An investor can use technical analysis to predict if there will be a sharp rise or fall in the price of a particular stock in the future. Technical analysis does not have a dependency on recent events or news which have already become a part of the share’s price.
Investors’ psychology keeps changing according to the events and news in the market. Therefore, technical analysis underlines the use of stop-losses. Stop-losses protect an investor from facing significant losses in the coming times. You can use technical analysis for stocks that get traded in large volumes and are in demand. Various types of charts such as candlestick chart, bar chart, etc., help the investor to understand the pattern of stock prices through technical analysis. Traders who make short-term trades in the stock market use daily charts to study the immediate ups and downs in stock prices. For medium to long-term earnings, traders use weekly or monthly charts.
Conclusion
When you step into the world of stock trading, you must do your own research and analysis in the stock market and not blindly believe anyone’s and everyone’s advice. Diversify your investments after analysing the fundamentals and price movements of a company’s stocks.
