How to Analyse the Stock Market?

How to analyze the Stock Market.

Analysis of stock market- Stock market analysing involves the evaluation of specific trading stock or the entire market. In the stock analysis, the traders attempt to predict the future price movement of any stock of the company. Stock analysis is done before buying or selling the stock so that they can earn good profits in stock trading.

The stock market analysing is divided into three parts fundamental, technical, and sentimental. Below we are stating these three types in brief.

Stock Market Analysis:

1. Fundamental analysis in the stock market:

The fundamental analysis mainly focuses on the data from economic reports, financial records, market cap, and the assets of the company. For fundamental analysis of the public Ltd company, the traders or investors usually analyze the measures on the balance sheet, cash flow statement, financial statements, footnotes, and income statement. These all company's statements are published in the form of a 10 k report using the database system, EDGAR, which is regulated by the US Securities and Exchange Commission (SEC). The company also publishes all Income reports while quarterly income press releases.

While analyzing the financial reports, the investors typically check the metrics of the company’s liquidity, profitability, solvency, efficiency, profitability, leverage, and growth trajectory. Several factors are used in analyzing like a quick ratio, and the current ratio is used to analyze the company’s ability to pay the short-term liabilities with its current assets. By dividing the current assets by present liabilities, the current ratio is calculated.

Fundamental analysis also consists of a comparison of the company’s current financial statement with the last financial information to determine whether the company is performing well or collapsing. To check the profitability investors compare the financial statements with other competitor companies' financial statements.

2. Technical analysis in the stock market:

The technical analysis mainly focuses on studying the previous and current price movement to determine the future price trend. In this method, investors analyze the market basically on volume and the price of the stock, and also the supply and demand factors that vary the market trend. Charts are an essential tool for investors in technical analysis as they indicate the graphical demonstration of the stock’s movement within the asserted period. By utilizing the charts, investors can mark specific areas such as resistance and support level. The resistance level is marked by the last high above the current strike price of the stock, and the support level is marked by the last low under the current strike price of the stock. The break above the resistance level will indicate the bullish trend while the break below the support level will indicate the bearish trend.

3. Sentimental analysis in the stock market.

The sentimental analysis involves measuring the market in terms of the attitude of traders. This method starts by assuming that the majority of traders are wrong. Otherwise, it’s said that in the stock market, there is a possibility of reversing when a large number of traders believe that the price will go in a specific direction.

While sentimental analysing traders often look to invest against the market view. Such as if a large number of traders are expecting the price hike of the stock, the sentimental analyzer will expect that the price of the stock will go down and disappoint the majority of traders.

Final Words:

All the above methods of stock market analysing can be used together or separately. However, it totally depends upon the traders which methods they want to use while stock trading.

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How to Analyse the Stock Market? was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

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