The Basics of Stock Market Analysis

stock market

At times, the stock market can seem like an unpredictable, crazy world of fluctuating numbers. When looking to enter the stock market, you want to have at least a basic understanding of the process and what is happening to your money. This is where stock market analysis comes in. Whether you have been trading for two days or two years, understanding the basics of stock market analysis is vital for successful online trading.

Consider the Economic Environment

One of the first things to do when learning how to analyse the stock market is to look at the big picture. Consider the economic environment. Behind every increase and decrease in the market and in each stock are economic influences. These can include inflation rates, which include the Consumer Price Index (CPI) and the Producer Price Index (PPI), the Gross Domestic Product (GDP) rate of growth for the current climate and other economic news, such as employment statistics and Federal Reserve Bank predictions. Another important consideration when looking at the overall economic environment is to stay current with national and international politics. What are the superpowers up to, how are their economies stacking up, and how does this affect the Australian economy? Even world events like national disasters, mass strikes or liquidation of certain multi-national corporations can have a dramatic influence on the economic state and the stock market.

Over time, you will begin to gain a significant amount of knowledge and experience that you can incorporate into your trading.

Do Some Research

A little research can go a long way when it comes to accurate stock market analysis. Research the stock market from a historical point of view, watching trends and identifying what may have contributed to market fluctuations. Focus on researching stocks similar to those you would consider purchasing and research the company. Consider their history and future outlook and then compare this information to their stock performances.

Research the various industries, such as the mining, healthcare, finance, utilities and technology. Watch how each performs over time. This is one great way of finding out more about a specific company you may be thinking of investing in. You can tell a lot about the potential of a company’s shares simply by following other companies within the same sector.

Consider the Current Market

Look at the current stock market performance. Don’t just look at your stock market, but also consider those around the world. A keen trader looking to learn the stock market will review the stock market each day. There are various information sites available that offer accurate analysis of the major stock markets, summarising their performances over the day, month, quarter or year.

Depending on the types of shares you are considering investing in, the current market may refer to the previous quarter to date or it may refer to a longer or shorter time period. Each share is different and each sector acts and reacts differently.

Choose a Company

When analysing the stock market in terms of specific shares, it pays to do your research and analysis from the viewpoint of one or a few particular companies. Choose a company you may look to invest in or one that seems to be standing out above its competitors. Look into public financial information, reading annual and quarterly reports, taking particular note of quarterly growth and company balance sheets. If you want to compare similar companies you can easily do this by converting the financial information into per-share data. This way you get to accurately compare share market performances of one company to another.

Take a Technical Viewpoint

Technical stock market analysis is all about evaluating trends in share prices, the volume of shares and when they fluctuate. The stock’s moving average can tell you a lot about its performance over time, giving indications as to when it is likely to rise or fall again. It shows useful trends that can help you to confidently enter the market at any given time. Technical analysis takes much of the guess work out of when to buy and when to sell a certain share. Mastering this basic fundamental of stock market analysis will have you making confident investment decisions. 

About the Author: Margaret Knight has been a stock broker for 15 years and enjoys working with a range of clients from various backgrounds and with different levels of investment experience.

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Comments (1)

  • I believe all individuals should recognize and understand that stocks are businesses. Once they can grasp that concept they need to learn how to properly value them.


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