There are two major types of analysis to follow before buying a stock. They are:
1) Fundamental Analysis
Fundamental analysis focuses on the study of economic, social and political issues that affect the stock market. Fundamentalists look for price-to-earning ratios known as P/E. This figure can be
derived by dividing the stock’s price by its per-share earnings. They are more concerned with a stock’s annual performance than in overall market behavior. Daily fluctuations do not matter, as they concentrate on the steady, continuous growth patterns.
One of the reasons that many people do not like using fundamental analysis is because of the time, effort, and energy that’s required when researching and studying the market. However, even fundamental knowledge is significantly beneficial to day traders. For instance, having good fundamental knowledge of the market enhances your ability to interpret news announcements and key headlines to determine a price swing.
2) Technical Analysis
On a deeper level, technical analysis concentrates on evaluating time, price and market sentiment.
Technical analysts rely heavily upon the usage of charts. They use them to determine how many shares have been sold in a day, a week, or a month’s time.
Technical Analysis is also an excellent way to obtain up-to-second status accounts on equities and other market indicators. Day traders pay special attention to current market indices, which may give an indication in which direction the breezing market may blow next.
The quick delivery of news is essential as traders try to correctly interpret whether or not to quickly buy or sell, or to simply reverse positions. Of course, “timely” is the key here. Traders try to beat all the other traders before the information spreads to the market majority of investors. The idea is to take advantage of these opportunities in a profitable way.
Combined
The best sure method of increasing your profitability in this uncertain and unpredictable market, is to find a comfortable method of market analysis that combines both the fundamental and the technical aspects of trading.
The combination of both technical and fundamental studies could be hard but its worth. It not only increases your knowledge but can boost your confidence. Fundamental factors often supplement technical pricing, which in turn greatly increases your chances of being right.
This is one aspect of stock trading that sets the professionals apart from the amateurs. They have their momentum down. They pay attention, think quickly, interpret even faster, and their decisions are automatic, kicking them into motion.
