There are two factors that make the stock market values rate: the company's capital Fair Value (its prospects) and the supply-and-demand balance. On the one hand, the better the situation with the issuer organization is, the higher the yield is and the less risky the rise in quotation appears to be. On the other hand, there is this simple market law: the higher the demand for the stock is, the more expensive they become.
These factors can take various trends. Thus, a company may flourish while its shares cheapen due to a too high supply with low demand.
The first factor takes into account Company and industry's prospective financial standing, and so it is the bedrock of the fundamental stock market analysis. The second one, which only assesses the securities' price range, is useful in technical analysis. These methods of stock market forecasting make it possible to predict the securities' price range both in short and long perspective.
The Basics of the Technical Stock Market Analysis
The technical stock market analysis first was invented in the 18th-19th centuries (the so-called "Japanese Candlesticks"). In the past, when investors had no access to information on a company's financial standing, they had to rely on its outer indicators (preeminently, the rate dynamics). This method makes it possible to predict a significant long-term increase as well as a decrease in price, but it has no means to cover all the relevant factors.
The analyst has at his disposal only charts of financial instruments and assets quotations. Programs for technical analysis are based on those factors. The most popular programs in Eastern Europe are Quik and MetaStock. Some brokers and platforms develop their own software.
The stock market technical analysis is based on these three principles:
1. The current price is a combination of all the relevant factors (the company, industry and market's standing, etc.), which means that the trader does not need to actually study them.
2. There are certain price behavior trends. The trader's task is to determine the trend in its very beginning (when the rate has only started its increase or weakening).
3. Everything repeats itself. The price is as much influenced by psychological factors as in the remote past, and it is either "bullish", or "bearish", or neutral trends that dominate the market.
Key Elements of the Fundamental Stock Market Analysis
The advancement of fundamental analysis happened due to two preconditions. The first is the possible lack of accuracy in technical analysis. When evaluating quotations, the trader may not always perform the trend tracking correctly, and when we speak about start-up issuers it becomes completely out of the question as their shares have shown no dynamics yet.
The second precondition is new rules springing up on stock exchanges. The issuer issuing securities have been obligated to publish their financial accounting recently. It is to be analyzed by investors when making a decision in favor of some or other shares.
The investor has to identify the actual price of assets and predict its prospective behavior. The analyst evaluates the company's standing in the context of the industry and the market at large and indicates securities either un-rated or re-rated.
What Should Be Used?
Opinions vary and the evidence is not clear, but one may still find his way around. If you decide to go into trading, that is, constantly purchase and sell stocks, take on technical analysis. Despite the margin of error, it gives the result.
If you are looking for stocks for long-term investments, the fundamental analysis is the optimum alternative. Having assessed the issuer's standing, you will be able to evaluate the prospective increase of their assets. And the best way to make a successful choice, in our opinion, is to get a competent advice.
None of the stock market analysis methods is 100% accurate. There are too many factors influencing the price, starting with the psychology of large investors and ending with the global political situation.