Investing in the share market is one of the best ways to achieve one’s financial goals. Without savings or investment, neither we can face any financial emergency, nor can we fulfill our educational needs, medical needs of self and family. Though there are several products available in the stock world, let us learn about equity investing in this article. The right stock picking strategies must be employed before investing in a stock. Stock analysis give a clear picture about the company’s financial position, its growth potential and many other essential things which will help you in picking the right stock.
How to analyse a stock before investing:
We should invest in a company’s shares only after doing a thorough research of the company. There are 2 ways to analyses a stock; by technical and fundamental analysis. Firstly, let us delve into technical analysis of stock trends. Future price of the stock is predicted using past price movement. Price charts based on particular time frame are used to understand how the stock would move in the future. The time charts can be different such as 15 minute chart, hourly chart, daily chart, etc. There are few assumptions in case of stock market technical analysis
Markets discount everything:
This simply means that all information regarding the stock, the sentiment of investors, inflation and all other factors are already embedded in the stock’s price.
Prices move in Trends:
The price of the stock always moves in the direction of the trend.
History repeats itself:
In technical analysis, price movement is predicted based on chart patterns and it is believed that market participants always react in the same way to similar events that are likely to occur in future too.
How to analyse a stock for intraday:
There are several parameters and strategies that one should know while involved in intraday trading. Let us learn about them in detail.
Liquidity is the main factor that you should keep in mind while buying a stock for intraday trading. You should buy liquid stocks wherein even though you buy high volumes, the price will not get affected. Liquid stocks are those that can be easily sold and converted to cash.
Don’t be too greedy:
When you are a day trader, you should clearly know when to enter and when to exit a stock. Once you make profits, you have to exit the stock. Timing is a very crucial thing in case of intraday.
Don’t trade just based on rumors:
Only trade on those stocks that follow a strong trend. The major objective of any trader is to minimize losses and protect the profits. So have a disciplined approach. Don’t buy stocks purely based on news or rumors. Do a proper research before every decision.
How to analyse a stock fundamentally?
The intrinsic value of a stock can be found out by means of fundamental analysis. An investor can understand if the stock is undervalued or overvalued. For this purpose, you should read the company’s annual reports, balance sheet, profit & loss account, any news related to the company in particular or the sector, etc. Fundamental analysis looks at various factors of the stock such as PE ratio, EPS, Dividend Yield, etc. A company with huge debt should be avoided. You should know about the company’s background and management and the factors that would cause a great impact on the company. It is every investor’s responsibility to evaluate a company on the basis of technical and fundamental analysis before deciding on the stock. Hope you got an idea on how to analyse a stock before investing your hard earned money in it by reading this article.