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Methods of Analyzing Stocks & Markets

Stocks & Markets are analyzed by using various methods by the learned
Researchers & Analysts. All these methods can be broadly classified into
three categories Fundamental Analysis, echnical Analysis & echno!
Fundamental "ech!Funda# Analysis.
Fundamental Analysis:
Fundamental Analysis aims at determining the intrinsic "in!built# $orth of
the stock or financial security & com%aring it $ith the market %rice to
identify as to $hether it is over%riced or under %riced. A Fundamentalist
$ould buy a stock or financial security if it is under %riced & sell if it is over
%riced.
Fundamentalists firmly believe that sooner or later, market %rice $ill be
e&ual to the intrinsic $orth of the stock or financial security. 'lobal Market
Analysis, (conomic Analysis, )ndustry Analysis & *or%orate Analysis are
the levels at $hich Fundamental Analysis is carried out. +alance Sheet
Analysis, ,rofit & -oss Account Analysis by using various ratios like (,S,
,(, *R, )RR) etc are only the basic fundamentals used at the *or%orate level
Analysis, $hich are considered by many as the basic indicators.
Foreign )nstitutional )nvestors "F))#, +anks, Mutual Funds etc. have their
teams of researchers & trained fundamental analysts $ho are ca%able of
carrying out detailed fundamental analysis $ith the hel% of so%histicated
information systems. Similarly, these institutions have . to /. years of long
term investment strategies. herefore fundamental analysis is more suitable
for them.
)ndividual investors are not ca%able of carrying out 'lobal Market Analysis,
(conomic Analysis, )ndustry Analysis & *or%orate Analysis in details due
to limited resources. Similarly, individual investors can not $ait for earning
returns after . to /. years. herefore, fundamental analysis has limited use
for individual & common investors.
Technical Analysis:
echnical Analysis aims at analyzing the Markets, Stocks & Financial
Securities by considering only t$o factors ,rices & 0olume "1umber of
stocks 2 securities bought & sold#. echnical Analysis is more of an Art than
/
a Science of Analyzing *harts of the securities for identifying %revailing
rends.
)nstitutions create the trends "tides# because of their voluminous investments
& technicians "echnical Analysts# ride those tides, at the earliest, to make
%rofits. 3Ride the tides to make %rofits and ski% off the tides $hen there is a
slide4, is the modus o%erendi of echnical Analysts.
he beauty of echnical Analysis is in its sim%licity & effectiveness. Any
individual of even average educational background can learn echnical
Analysis. echnical Analysis is effective in analyzing stock markets,
commodities markets, debt markets, derivatives market & foreign markets.
)n the globalized urban scenario, every intelligent investor must at least have
$orking, if not e5%ert, kno$ledge of echnical Analysis.
echnical Analysis is not a fla$ less Art of taking investment decisions. 6ne
of the ma7or dra$backs of this Art is delayed decisions. 8nless the trend gets
established, a technician can not take decision but one must admit that these
decisions are more reliable $ith e5act entry & e5it levels, $hich is not
%ossible $ith fundamental analysis. iming the entry & e5it is the real
strength of technical analysis.
For short and medium term trading and investment, there is no substitute to
echnical Analysis. For long term investments, echnoFundamental
Analysis is best suited for the common and individual investors.
Tech-Funda Analysis9
his a%%roach is by far the best & more suitable to the common individual
investors, having long term %ers%ective. )n this a%%roach, stocks or securities
are identified by using technicals but before taking the investment decisions
a fe$ selected fundamentals are checked. he fundamentals such as size of
equity, owners equity holding, institutional holding, floating stock, dividend
and bonus history, operating & net profit trend, position of free reserves are
considered. :hen technicals are favourable and so are these fundamentals,
the investors can invest $ith conviction for long term.
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