Understanding the stock market is one of the crucial roles for the novice and the experienced stock analyst in a stock market. To understand the organizational financial health, trading strategies, trends, and other specific information one undergo the marketing analysis. This helps for the organizational growth and financial status of the firm.
To determine the fair price in investing, the financial traders consider the historical information by studying the previous company’s financial performance. the traders acknowledges several factors such as the present financials, upcoming business goals, potential growth and more ,only to predict the future with the help of the above information.
Generally the Stock market analysis is classified into fundamental analysis and technical analysis.
FUNDAMENTAL ANALYSIS
The fundamental analysis determines and scrutinizes the company’s financial statements that included the income statement, balance sheets, cash inflow and cash out flow.
The financial records, Economic reports, organizational assets and market shares are the main elements to extract the information. These factors show the company’s financial health and its value.
Financial statements reflect the hard data that open up the insights as to organizational profitability, liquidity, and all- rounder financial position. The Managerial team, .competitive analysis, and the industrial strategy and trends, along with the accumulated information build the picture of organization’s target value. The above information guides the investors to take up best decisions whether to purchase, with holding, or auction the stock.
TECHNICAL ANALYSIS
Technical analysis mainly emphasis on the past and current price actions in order to predict the financial price movements. Here the market’s primarily concerned is in stocks, currencies, price, demand and supply components that runs the market.
The market trends and patterns tend to iterate over the time due to the collective market participants behavior. They use different tools and techniques to predict and point out the latest trends, sustenance and resistance levels, chart patterns, and technical indicators like averages, RSI, MACD
The Pie-charts act as an essential tool to determine the graphical representation of stock’s trend with a stipulated time frame .The technical analysts checks the certain areas as support or resistance level. The support levels are divided and marked as previous bottom point which is below the current trading prices, and the resistance markers are placed at past highs that is above the latest market price of the stock. The bearish trend shows the break below the support level whereas a bullish outlook denotes the above resistance level.
DERIVATIVE ANALYSIS
Derivative analysis is the financial instruments that are obtained by the primary assets. For example- currencies, commodities, stocks, index, stocks or interest values. It usually involves risks and potential rewards of trading in financial instruments. These analysis is carried on by analyzing the past price movements, and unpredictability, and different other conditions to forecast the derivatives performances.
Derivative analysis helps in decision making for investment, understanding, and hedging. It requires a sound knowledge of instrumental and analytical techniques with attentive examination of tolerance and targets.
To have a better understanding, let’s look at the comparison between financial, technical, and derivative analysis:
Here's a comparison of fundamental analysis, technical analysis, and derivative analysis based on the provided information:
Fundamental Analysis:
Focus: Determines the financial health and value of a company using financial statements (income statement, balance sheet, cash flow statement).
Key Elements : Financial records, economic reports, organizational assets, market shares.
Insights Provided: Organizational profitability, liquidity, overall financial position.
Additional Considerations: Managerial team, competitive analysis, industry strategy and trends.
Purpose: Guides investors in decision-making regarding stock purchase, holding, or sale.
Technical Analysis:
Focus: Analyzes past and current price actions to predict future price movements.
Primary Concern: Price trends, demand-supply dynamics in stocks, currencies, etc.
Tools Used: Chart patterns, technical indicators (moving averages, RSI, MACD), support and resistance levels.
Insights Provided : abrupt change, support system, investors emotional balance.
Purpose: Helps traders make decisions based on price patterns and indicators.
Derivative Analysis:
Focus: Analyzes financial instruments derived from primary assets (currencies, commodities, stocks, indices, interest rates).
Considerations: Past price movements, volatility, market conditions.
Purpose: Helps in investment decision-making, understanding risk, and hedging strategies.
Tools Used: Analytical techniques, risk management strategies, knowledge of derivatives markets.
Key Aspects: Involves risk assessment and potential rewards associated with trading in derivatives.
Each type of analysis serves a distinct purpose in financial markets:
Fundamental analysis focuses on the core value of a company, assessing its financial health and market position.
Technical analysis relies on historical price data and pie chart figures to forecast future price fluctuations.
Derivative analysis deals with financial instruments derived from underlying assets, assessing risks and potential rewards.
Investors and traders often use a combination of these analyses to gain a comprehensive understanding of market dynamics and make informed decisions.
OTHER METHOD OF STOCK ANALYSIS
Beside the fundamental analysis and technical analysis, the analyst can look for other form of stock analysis. He can perform the sentimental analysis on social media with the public perception of the company.
The Quantitative analysis that is quite similar to technical analysis count on intricate financial calculations to find out the future price estimation. This method incorporates with mathematical and statistical modeling to recap the data, The purpose of this model is understand the general trends depending on what has happened previously.
The analyst enforce either top down or bottom up analysis .The top down analysis needs the performance analysis of the entire company. It is brought down to the specified path. In case of bottom up analysis, it requires to review the individual company.in general both the analysis are used to get the clear image of price.
HOW CAN I RESEARCH STOCKS BEFORE INVESTING IN THEM
The main goal of an investor must be collect the wide range of information of the company. News articles, Press releases, the updates on the social media, and the organizational financial information. The investor can consider the other professionals assistance as they provide their public opinion of the company’s position. These insights help to have your own opinion on future price movement.
As a beginner, the investor should, gather as much as available public information of a company .it comprises of latest news articles, and the recent financial .
statements. Then, segregate the appropriate information to compare and set a benchmark of the competitor’s data, and then consider the organizational good and bad performance in comparison to the latest prices and stock market action.
CONCLUSION
Although the investors use both the financial analysis and the technical analysis, others stick to any one of them depending on their requisite. This is best investment strategy and essential for stock analysis of VET stocks, divisions, and the market.