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Stock Analysis
In investing your money in the stock market, it is essential that you learn the two analysis used in deciding which stocks to buy. The two kinds of stock analysis are closely related to the two major types of stock strategies that you might have already heard of: the conservative strategy, also known as the buy and hold, and the aggressive strategy.
Conservative Strategy and Fundamental Analysis
As you know, the buy and hold strategy's main goal is to buy undervalued stocks thinking to sell those stocks at a higher price later on. They do intensive research in determining which stocks would eventually recover and which are experiencing only momentary price hikes. The buy and hold investors buy cheaper stocks and hold on to them until they become fairly valued or even overvalued stocks. This kind of strategy uses fundamental analysis in studying stock behavior.
Fundamental analysis involves examining the value of the stock and determining whether it is undervalued, or has a lower price than what it deserves, fairly valued in which the stock has the appropriate price, or overvalued, in which the stock price is higher than it should be. The analysis usually involves looking into the financial records of the company as well as the P/E ratio, taking into account the possible future growth rate of the company. This is essential to the buy and hold investors as they are risking or betting that the company, though at present seems weak and unable to profit much, will eventually recover and earn a higher stock price. This stock comeback takes time but the analysis of the financial records of the company may prove worthwhile to at least ensure that the company has the capability to bounce back.
Aggressive Growth Strategy and Technical Analysis
Aggressive growth investors, on the other hand, do not believe in waiting or buying poorly performing stocks. They look for stocks that are performing well and buy more of them as their price increases. They reason that the more they buy stocks that have increasing price stocks, the better profits they can make by selling the same stocks when the price increases. Considering that the aggressive strategy relies not on future growth but current price increases, it is only logical that aggressive investors inquire not into the financial records of the company but through stock price performance over a given period of time. This is called the technical analysis wherein the investor examines stock chart patterns and price history of the stock.
Resistance and support are the fundamental concepts in technical analysis. Resistance is the highest stock price a stock has ever reached based on historical stock price performance. The support is the lowest price the stock has ever received based on previous charts. Aggressive investors take advantage of these price charts. They usually cut their losses when the stock price goes below its support. This is because the stock price becomes unpredictable and no one knows how much lower it will get. But if the stock price exceeds its resistance then who knows how much more it will increase. This is when the aggressive investors buy more stocks.
Understanding the stock market is not easy, but by getting acquainted with the kinds of analysis used, you are one step closer in understanding the bigger stock market picture.
Conservative Strategy and Fundamental Analysis
As you know, the buy and hold strategy's main goal is to buy undervalued stocks thinking to sell those stocks at a higher price later on. They do intensive research in determining which stocks would eventually recover and which are experiencing only momentary price hikes. The buy and hold investors buy cheaper stocks and hold on to them until they become fairly valued or even overvalued stocks. This kind of strategy uses fundamental analysis in studying stock behavior.
Fundamental analysis involves examining the value of the stock and determining whether it is undervalued, or has a lower price than what it deserves, fairly valued in which the stock has the appropriate price, or overvalued, in which the stock price is higher than it should be. The analysis usually involves looking into the financial records of the company as well as the P/E ratio, taking into account the possible future growth rate of the company. This is essential to the buy and hold investors as they are risking or betting that the company, though at present seems weak and unable to profit much, will eventually recover and earn a higher stock price. This stock comeback takes time but the analysis of the financial records of the company may prove worthwhile to at least ensure that the company has the capability to bounce back.
Aggressive Growth Strategy and Technical Analysis
Aggressive growth investors, on the other hand, do not believe in waiting or buying poorly performing stocks. They look for stocks that are performing well and buy more of them as their price increases. They reason that the more they buy stocks that have increasing price stocks, the better profits they can make by selling the same stocks when the price increases. Considering that the aggressive strategy relies not on future growth but current price increases, it is only logical that aggressive investors inquire not into the financial records of the company but through stock price performance over a given period of time. This is called the technical analysis wherein the investor examines stock chart patterns and price history of the stock.
Resistance and support are the fundamental concepts in technical analysis. Resistance is the highest stock price a stock has ever reached based on historical stock price performance. The support is the lowest price the stock has ever received based on previous charts. Aggressive investors take advantage of these price charts. They usually cut their losses when the stock price goes below its support. This is because the stock price becomes unpredictable and no one knows how much lower it will get. But if the stock price exceeds its resistance then who knows how much more it will increase. This is when the aggressive investors buy more stocks.
Understanding the stock market is not easy, but by getting acquainted with the kinds of analysis used, you are one step closer in understanding the bigger stock market picture.
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