Market analysis categories

Market analysis categories

Trying to compete in any sort of financial market means that you must do some analysis. Unfortunately, you cannot simply go bounding into this world. Some preparation is in order before you understand which stocks to choose. There are only really three of these, but each of them are quite deep. Different strategies require using these analyses in different proportions. However, a trader who can do all of them well will be far ahead of the rest. So, here are the marketing types every trades knows of.

Technical analysis

This involves looking at a hell of a lot of charts. You will likely also have indicators to accompany them, to further widen your understanding of a stock. Basically, what you do here is follow the historical price of a stock or index. The most essential thing is to learn price patterns. Short term price patterns, like a head and shoulders pattern, tell you about the near future. If you look further into the past of a chart, however, you can find more. Generally, stocks tend to repeat themselves time and time again. A trader using technical analysis should be able to spot these patterns and see what will happen in the future.

Fundamental analysis

This is a bit more big picture. Here, traders consider the state of economies and the state of companies. They look at the financial figures of a company, its business plan, among others. After summing all of this up, they can decide on how they feel about said company. This tends to be more appropriate for long-term investing. The idea is to find the intrinsic value of the stock. Not peoples’ superficial impressions.

Sentiment analysis

Unfortunately, though, not everyone can figure out the true value of a stock. This is where sentiment analysis comes in. This kind of analysis recognises that people are not perfect at evaluating companies. Their emotions often drive them to make the wrong impressions. This is especially true in times where there are over-the-top news articles. So, you keep in mind what other traders believe a company is worth. This will ultimately drive prices in the short-term. Recognise how the crowd feels and deciding how to act accordingly. That’s the main idea.

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