Stock Analysis

If you are new to the stock market and want to get a head start on some of the techniques that traders use to perform stock analysis, you have come to the right place.  There are literally thousands of different ways in which you can analyze the markets.  There are thousands of different indicators at your disposal, technical and fundamental.  It gets confusing at times; every talking head on CNBC is offering you conflicting stock advice.  One is telling you to buy and the other one is telling you to sell.  What do you do?  The best piece of investment advice I can give you is to stop relying on the stock market advice that you look to others for.  To be successful in the stock market, you need to have your own views and have the conviction to stick by them, even if you are wrong.  Letting someone else’s stock trading advice govern your investment decisions is a big mistake if their investment advice is not in line with your investment goals or risk parameters.  Jim Cramer may come on CNBC and explain his stock analysis and even make a recommendation to buy or sell that stock.  By taking his stock advice on blind faith, you are robbing yourself in the long run by keeping yourself dependent on his idea flow without any knowledge about why you bought a stock that he recommended.  There is nothing wrong in using his recommendations to generate ideas, but you need to filter them through your buying checklist before taking action.

Top Down Approach to Stock Analysis

This means that you need to be able to perform general stock market analysis which allows you to determine the health of the markets.  How can you understand whether or not to buy or sell an individual stock unless you understand whether the market is poised to go up, down, or sideways?

The second step after understanding the direction of the market is to perform a sector by sector analysis to uncover the sectors with the greatest potential.  For example, if your stock market analysis suggests that the market is going to move lower, you would look for the weakest sectors in the market to go short in.  Conversely, in a bull market, you want to find the strongest sectors.  Once you have narrowed your list of sectors down, perform a detail stock analysis on each of the top components.  Once you have narrowed your list down to a few stock picks, look at each in terms of your asset allocation and whether these stocks fall within the guidelines of your investment strategy
Technical or Fundamental Stock Market Analysis?

The debate as to which approach of investing is better will be never ending.  Traders who believe in technical stock analysis suggest that fundamentals are already priced into a chart.  Fundamental analysts believe that technical analysis a form of voodoo and that news and other fundamental events are priced in as they are released. 

Short term trading requires a heavy focus on technical stock analysis versus fundamental.  No matter what fundamental traders believe, technical trading is real and followed by many traders who control support and resistance levels.  Long term traders need to focus on both.  No matter how good a company is, if their stock price continues to fall on heavy volume, it is not a good buy.  Our article on how to buy stocks does a great job of pointing out some of the headline fundamental ratios you want to keep an eye out for.  For you technical traders, you are in luck.  We have hundreds of articles on technical analysis and day trading, enabling you to learn how to perform stock market analysis with time tested trading strategies and chart patterns.

Become an expert and maybe you can transition from the one taking stock advice to the one giving it.

Tim Ord
Ord Oracle

Tim Ord is a technical analyst and expert in the theories of chart analysis using price, volume, and a host of proprietary indicators as a guide...
Day Trading Simulator provides the ability to simulate day trading 24 hours a day from anywhere in the world. TradingSim provides tick by tick data for...

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