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How to do a Stock Market Analysis? (Introduction)

stock-market-analyze1Analyzing stock market for investment purposes might have been a dilemma for a lay man who seeks to gain something from investment alternatives. However it might be a great option if you learn the basics of stock trading. Company level analysis of stock market trading may assist you taking your stock trading decisions. I am going to present the entire scenario in a whole simple way so that the stock traders may resolve their knots. Lets’ have a snapshot of analyses rationales:

A stock trader seeks to analyze the stocks for one or many of the following reasons

  1. Understanding the price fluctuations
  2. Forecasting the expected return (on the basis of historical price patterns)
  3. Understanding the trend of the company
  4. Putting a try to judge whether the company will stay profitable
  5. Comparing one stock’s profitability to another
  6. Understanding Company’s allocative and operational efficiency
  7. Future prospects of the company (Inferring by one’s own self on the basis of grabbed information)

Above mentioned rationales have called up several techniques to read the market. However there is no certainty in numerical analysis while subject analysis is a far cry. No doubt that a mathematician can play stock market but it has thousands of assumptions on the back stage. John Moore quotes here, “Love your portfolio, it will love you tenfold in return.” This means to stay concerned and pay proper attention towards the stock market in order to be a player. Following are the types of two broader categories of analyzing a company to make an investment decision:

  1. Technical Analysis

It is a game of shapes. It is all about reading charts. There are proven shapes and patterns that let you know about prospective price fluctuations. All those will be discussed in detail in the upcoming series of articles. Technical analysis, or any other forecasting technique, will not work in an efficient market where information walks randomly all along (Random Walk Through). However the wiggle watchers make huge returns everyday through the jiggling techniques and their experience, indeed. The efficient market hypothesis has been made over simplified contradictory to the actual scenario. Perhaps the markets are efficient, but up till now, there is no tool to measure the efficiency.

  1. Fundamental Analysis

Stock trading is a spectacular phenomenon if you have been plunged in it. “A witty person is a good stock trader”- Irene Peter. Indeed, if you can make rapid decisions in right time then you can rock the market. Witty decision can only be made if you have sufficient knowledge of market and industrial scenario. Being a stock trader, it is suggested to attain knowledge of both kinds of market analyses. In the contemporary scenario of stock trading, it has been made so much easier to analyze the market because the information is readily available through hundreds of sources. To analyze a stock market fundamentally, a stock trader may use following information (each will be discussed afterwards):

– Accounting Information through financial statements

– Accounting Ratios

– Public announcements

– Management Signaling

– Block Trades

– Stock Splits

– Mergers and Acquisitions

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