The return that a stock can provide is often anticipated with the help of technical analysis. Stock market trading advice is based on technical analysis of many criteria.

Stock market analysis

The return that a stock can provide is often anticipated with the help of technical analysis. Stock market trading advice is based on technical analysis of many criteria.

Stock market analysis is the science of examining stock data and predicting future movements in the stock market. Often investors who use this style of analysis are unconcerned about the nature or value of the companies they trade in shares. And their holdings are usually short-lived - once they reach their expected earnings they drop the shares.

The basis of stock market analysis is the belief that stock prices move in predictable patterns. All factors affecting price movement - company performance, the general state of the economy, and natural disasters - are supposed to be reflected in the stock market with high efficiency. This efficiency, along with historical trends, produces movements that can be analyzed and applied to future stock market movements.

Stock market analysis is not intended for long-term investments because basic information regarding the company's growth potential is not taken into account. Trades must be entered and exited at specific times, so technical analysts need to spend a long time observing market movements. Most of our stock advice and recommendations are based on stock analysis methods.

Investors can take advantage of these stock analysis methods to track both the highs and lows in prices by deciding whether to buy or sell in their portfolios. Stop-loss orders limit losses if the market does not move as expected.

There are many tools available for technical analysis of the stock market. Hundreds of arrow styles have been developed over time. However, most of them rely on basic stock analysis methods for "support" and "resistance". Support is the level from which bearish prices are expected to rise, and resistance is the level at which bullish prices are expected to reach before falling again. In other words, prices tend to rebound once they reach support or resistance levels.

Stock analysis charts and patterns

The stock market analysis relies heavily on charts to track market movements. Bar charts are the most used. It is made up of vertical bars representing a specific time - weekly, daily, hourly, or even minute. The top of each column shows the highest price for the period, the bottom is the lowest price, the small bar on the right is the opening price and the small bar on the left is the close price. A great deal of information can be seen in a peek at bar charts. Long bars indicate a large spread in price and the position of the sidebars indicates whether the price has increased or decreased, as well as the difference between the opening and closing prices.

A variation on the bar chart is the candlestick chart. These charts use solid objects to indicate the contrast between the opening and closing prices, and the lines (shadows) that extend above and below the body indicate the highest and lowest prices, respectively. The bodies of the candles are colored black or red if the closing price is lower than the previous period, or white or green if the price closes higher. Candlesticks form various shapes that can indicate market movement. Green Body Short Shadow Bullish - the stock opened near its bottom and closed near its height. On the contrary, the red body with short shadows is bearish - the stock opened near the top and closed near the bottom. These are only two of the more than 20 patterns that can be formed by candlesticks.

When you peek at the charts, the untrained eye may simply see random movements from one day to the next. However, trained analysts see patterns that are used to predict future movements of stock prices. There are hundreds of different indicators and patterns that can be applied. There is no single reliable indicator, but these stock analysis methods when considered in conjunction with others, investors can be quite successful in anticipating price movements.

One of the most popular styles is the cup and handle. Prices start relatively high, then go down and back (the cup). They finally settle for a period (handle) before the breakout - a sudden spike in price. Investors who buy on the handle can make good profits.

Another popular pattern is the head and shoulders pattern. This consists of a crest (first shoulder) followed by a lower and then a higher crest (head) followed again by a lower and then elevation (second shoulder). This is a bearish pattern with prices dropping significantly after the second shoulder.

Other stock market analysis methods

Moving Average - The most popular indicator is the moving average. This shows the average price over some time. For a 30 day moving average, you add the 30-day closing prices and divide them by 30. The most common averages are 20, 30, 50, 100, and 200 days. Longer periods are less affected by daily price fluctuations. The moving average is plotted as a line on the chart