Types Of Analysis In Stock Market: Whether you’re an investor or trader, you cannot make a move without conducting some sort of study beforehand. The stock market is extremely unpredictable and volatility is the name of the game.
Investors and traders benefit from the market’s volatility; through analysis, they try to predict the direction of the market and their stocks.
The analysis itself is based on various factors that both investors and traders observe to make an informed decision. Here, we’ll explain the different types of analysis in stock market.
Firstly, let’s list the importance of analysis in the stock market.
Importance Of Analysis In The Stock Market
Analysis of the stock market is essential to both investors and traders. From an investor perspective, analysis involves the detailed study of financial statements before buying and selling stocks, as a part of their investment portfolio.
For traders, it is a matter of profit or loss based on the chart patterns they study using various indicators and candlesticks. For every market enthusiast, analysis matters.
Below, you’ll find a detailed description of all the types of analysis in stock market.
You Can Also Check Out Our Course On Technical Analysis For Beginners
Types Of Analysis In Stock Market
There are mainly two types of analysis in the stock market – Fundamental & Technical. Fundamental analysis is mostly used by investors whereas technical analysis is mostly used by traders. Below you’ll find detailed descriptions of both types of analysis, starting with the fundamental.
1. What Is Fundamental Analysis?
Fundamental analysis is the study of a company or business, by studying its financial statements, balance sheets, and other key financial data. Most of this information is made available by the listed companies on their official websites.
It also includes studying macroeconomic conditions such as government policies and industry studies. All of this research is done to determine the stock value.
Here are a few of the factors to consider when learning about fundamental analysis –
For shareholders who want extra income from their shares, dividends are the answer. Dividends are the payments made to shareholders by a company as a way of distributing their profits to investors.
Usually, dividends are seen as a sign of a healthy and profitable company. These payments are made either as money or as additional shares.
b. Earnings Per Share
EPS is a ratio that measures how much a company has earned per outstanding share of a company. EPS shows shareholders how much money the company makes per share. The higher the EPS, the better the company’s performance.
c. Price To Earnings Ratio
The P/E ratio is a figure that compares the price of a stock to that of its earnings. A high P/E ratio indicates how much investors are willing to pay for a stock or it can also show overvaluation.
d. Price To Book Ratio
The P/B ratio compares the market price of a stock with that of its book value. Here, we’re trying to make a relation between the book value of company stock with that of its current market price.
e. Promoter Holding
Promoters are the initial stakeholders of the company, including founders, who have been a part of the company since incorporation.
Investors use promoter holding as a metric to ascertain confidence in the company as compared to their ownership.
A higher promoter holding means that the promoters believe in the company and a low promoter holding is seen as a red flag.
These are just some of the pointers to remember when learning about fundamental analysis. To know more about fundamental analysis, visit the Join Fingrad Blog!
2. What Is Technical Analysis
This type of analysis in the stock market is preferred by traders. Put simply, technical analysis is the method of evaluating the movement of stocks through indicators and chart patterns.
Analysts who use these charts believe that they can use chart movements to predict future price movements and patterns of the stock.
a. Identify Trends
One of the main uses of technical analysis is to study trends and patterns in the stock market. This in turn is used to make investing and trading decisions.
b. Historical Analysis
One of the main uses of technical analysis is studying the historical movements of stocks and indices. This is specifically necessary for traders, who try to use the volatility to their advantage and book profits.
c. Vast Application
Studying chart patterns teach traders about how indicators show the shift in volumes. So technical analysis isn’t limited to the stock markets alone. They can be used in commodities trading, currencies, and other markets as well.
An analysis is important and is far more detailed than we can present in a single blog post. Whether you’re into trading or investing, you cannot ignore their significance in the markets.
Check out the courses on technical and fundamental analysis on Join Fingrad! You can also learn other types of analysis in stock market, and improve your knowledge and skills. Happy Investing!
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