Analyzing a stock or the stock index is no child's game.
It involves a continuous effort, learning from past mistakes and successes of the self and the others.
With time, such people can hone their skills and become successful investors or analysts and build a good wealth.
The analysis can be performed for individual stock, it's underlying industry or the market index itself.
The most popular techniques for such analysis are Technical Analysis, Fundamental Analysis, Behavioral/Speculative Analysis, Insider Information and Astrological suggestions.
No matter how many arguments are formed in favor of or against some of these techniques, by people following "Efficient Market Hypothesis" and other such theories and institutions, the outcome of these analyses forms a basis of decisions taken or recommendations given for stocks, indices or its underlying derivatives.
The first such techniques, Technical Analysis is based on all old records of stocks and indices and uses complex mathematical models and statistics to predict the near future prices of individual stocks or indices.
Its mostly used for making day trading or short term calls i.
e.
For stock market traders and definitely not the investors.
The technical analyst plots the historical prices of share, its daily and weekly moving averages and other trend lines to arrive at the next target price for the share, this target price is usually some points below the predicted peak of crest for the "buy" calls and some points above the bottom of the predicted trough for the "sale" call.
People following these analyses are expected to keep a constant watch on share price movement and take quick actions on any deviation from the expected behavior.
If that is not possible, they are advised to set stop loss values to shield the traders.
Basically the chart itself gives all these values, for example a buy call will have parameters like Buy price, stoploss, target price and time frame.
To become a stock market analyst, it is essential to know the categories/groups to be catered and types of analysis suitable for such investors or traders.
"Only Buy Above", or "Only Buy Below", "Target/Sell Price" and "Stop loss value".
Old analysts preferred drawing the graph on paper using pencil, then, with the arrival of advanced Information technology, they used to put a butter paper or ordinary paper on computer monitors/T.
V.
Screen and draw the graph, afterwards, draw various trends and DMEs, then came the use of spreadsheets like MS Excel, further progressing to tools and software packages and now, there are websites/internet based packages generating automated calls or even doing automated trading based on these calls.
The next technique, Fundamental Analysis is based on extensive training and research in corporate finance.
Here, a highly trained analysis does a deep study on company's balance sheets, income/PL statements and other such reports, future investment horizons and the capability of company's managers.
After completing such research, he arrives at an ideal value of company's stock prices.
If the current stock price is much below this expected stock price, the analyst gives a buy recommendation on that stock.
The result of this recommendation is decided many days/months after the action is being taken on it.
That's because the fundamental analysts believe these stocks deserve that high value but, the market is not able to realize this fact and it will take some time for the market to take an appropriate action.
Hence, the fundamental analysis, by design, is used for long term investors or analysts giving long term picks.
The most famous investor Warren Buffet, who made riches in stock market believes in fundamental analysis.
The problem with this analysis is that it can only fetch a faint target price and that also has to be revised on the basis of company growth, inflation or other projections.
Hence, this class of investors keeps these shares for really longer terms and sell it only when monitory needs arise.
There are people who have kept their shares for decades despite more than 200% returns.
Those two were the major classes of analysts and many expert analysts have moulded their careers based on them.
The Behavioral/Speculative Analysis is used for day traders who believe the market is totally speculative and acts upon any business news.
As per this class of analysts, the Indian market is just a follower of global market, hence keeps updating themselves about global/national news and global indices to take decisions on Indian markets.
Most of them have been fairly accurate in predicting Nifty levels, and have made money on Nifty option calls.
Insider information is an unethical practice where some people gets access to confidential reports or other classified information and makes decisions based on this asymmetric information.
This is quite dangerous, unethical and can ruin careers and lives of the people involved.
Some people are avid believers of Astrology, Numerology, tarot cards and other luck symbols, if they believe their predictions are proving to be fairly accurate, then they can make a good career out of that skill in stock market.
It involves a continuous effort, learning from past mistakes and successes of the self and the others.
With time, such people can hone their skills and become successful investors or analysts and build a good wealth.
The analysis can be performed for individual stock, it's underlying industry or the market index itself.
The most popular techniques for such analysis are Technical Analysis, Fundamental Analysis, Behavioral/Speculative Analysis, Insider Information and Astrological suggestions.
No matter how many arguments are formed in favor of or against some of these techniques, by people following "Efficient Market Hypothesis" and other such theories and institutions, the outcome of these analyses forms a basis of decisions taken or recommendations given for stocks, indices or its underlying derivatives.
The first such techniques, Technical Analysis is based on all old records of stocks and indices and uses complex mathematical models and statistics to predict the near future prices of individual stocks or indices.
Its mostly used for making day trading or short term calls i.
e.
For stock market traders and definitely not the investors.
The technical analyst plots the historical prices of share, its daily and weekly moving averages and other trend lines to arrive at the next target price for the share, this target price is usually some points below the predicted peak of crest for the "buy" calls and some points above the bottom of the predicted trough for the "sale" call.
People following these analyses are expected to keep a constant watch on share price movement and take quick actions on any deviation from the expected behavior.
If that is not possible, they are advised to set stop loss values to shield the traders.
Basically the chart itself gives all these values, for example a buy call will have parameters like Buy price, stoploss, target price and time frame.
To become a stock market analyst, it is essential to know the categories/groups to be catered and types of analysis suitable for such investors or traders.
"Only Buy Above", or "Only Buy Below", "Target/Sell Price" and "Stop loss value".
Old analysts preferred drawing the graph on paper using pencil, then, with the arrival of advanced Information technology, they used to put a butter paper or ordinary paper on computer monitors/T.
V.
Screen and draw the graph, afterwards, draw various trends and DMEs, then came the use of spreadsheets like MS Excel, further progressing to tools and software packages and now, there are websites/internet based packages generating automated calls or even doing automated trading based on these calls.
The next technique, Fundamental Analysis is based on extensive training and research in corporate finance.
Here, a highly trained analysis does a deep study on company's balance sheets, income/PL statements and other such reports, future investment horizons and the capability of company's managers.
After completing such research, he arrives at an ideal value of company's stock prices.
If the current stock price is much below this expected stock price, the analyst gives a buy recommendation on that stock.
The result of this recommendation is decided many days/months after the action is being taken on it.
That's because the fundamental analysts believe these stocks deserve that high value but, the market is not able to realize this fact and it will take some time for the market to take an appropriate action.
Hence, the fundamental analysis, by design, is used for long term investors or analysts giving long term picks.
The most famous investor Warren Buffet, who made riches in stock market believes in fundamental analysis.
The problem with this analysis is that it can only fetch a faint target price and that also has to be revised on the basis of company growth, inflation or other projections.
Hence, this class of investors keeps these shares for really longer terms and sell it only when monitory needs arise.
There are people who have kept their shares for decades despite more than 200% returns.
Those two were the major classes of analysts and many expert analysts have moulded their careers based on them.
The Behavioral/Speculative Analysis is used for day traders who believe the market is totally speculative and acts upon any business news.
As per this class of analysts, the Indian market is just a follower of global market, hence keeps updating themselves about global/national news and global indices to take decisions on Indian markets.
Most of them have been fairly accurate in predicting Nifty levels, and have made money on Nifty option calls.
Insider information is an unethical practice where some people gets access to confidential reports or other classified information and makes decisions based on this asymmetric information.
This is quite dangerous, unethical and can ruin careers and lives of the people involved.
Some people are avid believers of Astrology, Numerology, tarot cards and other luck symbols, if they believe their predictions are proving to be fairly accurate, then they can make a good career out of that skill in stock market.
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