Thursday, 3 May 2018

Stock Market Analysis- Fundamental Analysis and Technical Analysis

Stock Market Analysis

Among Various types of analysis techniques, there are two analysis types with the help of which we can do successful investment and trading. They are

  • Fundamental Analysis
  • Technical Analysis

Fundamental Analysis:

In fundamental analysis, most people believe that by checking the fundamentals, if we invest money in such stock, they will get immediate results. But this is not the case every time. There are stocks that look fundamentally strong, but remain stragglers for long time. Just on basis of good results one can’t force into the stock immediately. There are lots of factors that one must analyze before taking a decision. Symbolically, if we take a company as a certain make of bike, they its fundamentals are the fuel that drives the company, and the technical factors are the concerned person. The person may be having a great make of bike, but if the fuel is of low quality, and the person is weak, then the person can’t get far in that bike. The fuel of the bike means various positive developments in the company, which good be best results, or long term positive orders. Now how far the bike goes, where does it take halts, and in which direction it goes, depends on the person too.

The performance of the vehicle is weaken depending on the quality of fuel, for example, whether the petrol is high octane, of low quality. A vehicle with high quality fuel can give better performance, same way a company observing good results can give better results in longer run. When a good vehicle is reared by the good fuel and good driver, it goes far in the race. This is an just example for fundamental analysis. With the help of technical analysis, we are able to take advantage of short term as well as long term cycles.

In fundamentally and technically sound stocks, when markets face enough times in short term cycles, they are somewhat protected to the adverse effects during such periods. When good stocks decline a bit, they cover as fast, whereas much penny stocks after declining may never rise again, or even can go broken, where they are de-listed and no longer traded. Thatswhat always insist in putting money in fundamentally and more importantly technically good stocks.

In Stock Market, if we focus on that, rather than why, it can save lot of time and energy. Charts cover all the aspects into it. So if we focus on the trend, and stay invested till the trend remains intact, and if we have loss cutting (Stoploss) mechanism in place, we needn’t care about why the stock is moving up, as long it is moving up. Any stock we invest must be liquid enough to give us opportunity to exit when we want to. So the only filter we need to have is to extract speculative stocks having very low volumes. As at any stage the volumes can dry up and even if the price is good, there are no buyers, which can lead to consistent seller circuits, and the trader is not able to do anything but can watch helplessly.

Technical Analysis:

Technical Analysis is the assessment of the past price movements to forecast the future price movements. Technical analyst believes with the help of charts its possible to identify the trend, invest or trade based on trend and make money as the trend unfolds. Objective of technical analysis is to forecast the direction of the future price. It serves the purpose of the map. Without proper technical analysis, if we invest or trade in stock market, its like trying to aim by firing in dark. Short term traders can take advantage of charts by knowing short term supports and resistances, and make the most of it. Long term investors can use technical analysis to know the long term trends, so that trader can stay invested, and cancel out the short term volatilities, which could make them worry. On the otherhand, short term investors can use the same volatility to their advantage, and based on various supports and resistances, they can trade various ranges.

If we take stock market as a battlefield, then technical analysis serves the purpose of weapons. If we enter into the battlefield without any weapons at hand, the result is evident to all. So without the knowledge of technical analysis, if you enter the stock market, its like entering the battlefield bare handed. If anyone want to win in stock market, that person have to obtain the necessary skills to win in it. But by not doing this, Whatever the loss the person make, that person is responsible for it and not the market or anyone else.

1 comment:

  1. Thanyou for guiding us about how to invest in share market. Your post is very beneficial for stock market traders who are new in the market. Your post has created positive image in my mind. Keep posting such types of blogs.