Analysis to Become a Pro Investor

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While you may be embarking on the journey of stock investment with great enthusiasm, you should be cautious as enthusiasm alone is not enough to sail you smoothly through the stock market. Yes, it is great to be excited but you should tread with care as markets and stocks can be volatile places, filled with huge profits, as well as equally large risks. The idea of investing in stocks is to pick the right ones with the least degree of risk involved. Consequently, on your part as an investor, you must do some analysis and homework about the company or companies whose stock you are planning to invest in. This may sound like rocket science to you, but it is not a challenge if you know how. 

There are three kinds of analysis about companies that you can engage in. If you are armed with knowledge and the jargon and concepts involved, you can possibly be a pro investor in no time. 

Fundamental Analysis

The most basic kind of analysis of companies you can undertake is fundamental analysis. In fact, most investors use this technique first when they wish to do research into a company and its operations. In fundamental analysis, investors attempt to gain information about a company’s earnings, its assets and liabilities, and its overall market position. In this way of analysis, you learn about how financially robust a company is, and consequently, how it will perform in the future, on a long-term and short-term basis. According to this information, you may plan to invest in the company in question or not.

Technical Analysis

Fundamental analysis alone is not enough to assess a company. Once you have basic company information through fundamentals analysis, it is important to get a more detailed view of the company through technical analysis. Through this kind of analysis, you can study the past data of the company and get an idea as to its future growth. This helps you to estimate the current movement of the company’s stock based on the market data of that stock. You may also have to look at statistics and ratios and do some analysis on these. You will likely come across terms like “moving average”, RSI, entry and exit points, and more. 

Additional Read: What Is a Candlestick Pattern?

Macroeconomic Analysis

Macroeconomic analysis studies about economic indicators and global events and their effect on the performance of a company/stock. For instance, while you are engaged in macroeconomic analysis, you may ask: “What effect do RBI’s interest rate decisions have on the economy and the stocks of a particular company?”, or “Has the Russia-Ukraine crisis had any impact on the company’s performance?” You may also consider how sensitive any company’s standing is to external factors and influences. External events and conditions have a direct impact on markets. Consequently, stocks are affected too, either positively or adversely. 

Additional Read: What is Inverted Hammer?

Many news channels and websites can update you about recent news and world events. Furthermore, you can get information about domestic events as well. Since all the latest market-related trends and news is available online, it is quick and easy to access. 

Stay Updated 

Doing stock analysis can make you a pro at investing in the stock market. This may not happen overnight, but it may occur over time as you consistently stay updated and analyse more companies and their stocks. Stock investment comes with inherent risk, but analysis and strategies can mitigate the risk and potentially maximise the returns. Analysis is not that hard and you should never find it scary. The only way to minimise risk in the stock market is to do the work of analysis in advance. If for nothing else, this gives you the confidence to make informed decisions and drive you to better stock trading activity. 

Additional Read: Hammer Candlestick Pattern

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only.

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