beginners guide how to analyze the stock market

Analyze the Stock Market For Dummies

There are two schools of thought in stock market analysis. Some investors believe the best way to analyze markets through fundamental analysis. While others believe technical analysis is the way to go .it’s probably a good idea to understand both and use a little of each .

Fundamental analysis is where you investigate the underlying value of the company. Using this method analyst will try and predict how the share price will change. You will ask yourself if the current stock value of a company is over or under valued. You will use many tools to determine test.

First you want to find out which stocks fall into each of the following categories: Value stocks (are undervalued and are seen as purchase bargains); Growth stocks, income stocks, momentum stocks (are those with prices on a rapid rise usually seen in emerging growth companies.)

once you have determine what type of stocks the company has, you then need to look at the fundamental volume and value of the company. This can be done with the number of tools including investigating company earnings. These determine the value of a company. Earnings per share EPS is the amount of money as a stockholder you get per stock you hold. Price earnings or P/E ratio will tell you if the stock price is reasonable. Aim for a company with a P/E ratio between 5 and 20, above or below this could spell trouble. The market cap of the company will indicate how solid of the company is and tell you its liquidation value. There are many other indicators for fundamental analysis but these are the most widely used.

Technical or quantitative analysis is the use of mathematical and statistical information mostly through chart reading. Investors relying on technical analysis have faith in the charts and that they will move in a predictable pattern. You must remember though, the charts are showing a past history of what has happened on the market not what is about to happen. True patterns can emerge and it is these that the technical analyst will be relying on to make their judgments. The candlestick or bar chart is perhaps those useful because of the amount of information it provides, recording the high, low, opening and closing prices. The bar chart can be a very indicative tool. It is wise if you are a technical analyst to go back over to chart once you’ve made a decision/ where the charts are useful predictor? Do you interpret them correctly and make sound choices? whichever form of analysis you use beware it is smart to investigate some fundamental data of the company if you are going to rely heavily on technical information and if fundamental analysis is for you it doesn’t hurt to take into account the numbers as well. A combination will probably give you a better picture but always remember these and little tools will only give you a prediction not a sure-fire way to win on the stock market.