SHARETIPSINFO >> Articles Directory >>Trading: Art or Science?
Stock market trading is all about the art of choosing the right stocks on the basis of science of analyzing the stocks. So it is basically conglomeration of both the world – art and science. If you are trading in stock market, the first thing that you need to get correct is the selection of stocks. The key of success at the stock market is identifying the stocks that are sure to appreciate in the future. Though there is no surefire technique or solution to get this speculation right, there are surely some methods that can predict the fate of stocks to some extent. As a stock market investor you have to master this art of stock selection to turn most of your trade to successful ones.
There are two aspects of stocks market investment – one is the fundamental analysis and the other is technical analysis. While the fundamental analysis used for determining the potential of the company, technical analysis is used for predicting the future price movement of certain stock. These are the two methods that are followed by the experts for selection of the stocks and predicting the future price movements of the stocks. If you can diligently handle both these aspects you have got your art and science of trading right. So to become a successful trader you have to concentrate on these two aspects to make sure that you get good return from the stock market.
But when you are selecting the stocks do not focus on the market as a whole. That will most likely confuse you to great extent and it is surely a daunting task. So it is never a wise thing to start analyzing all the stocks that are coming your way. Rather you should select a few sectors that you feel interesting and follow some stocks regularly. This will not only limit your focus on some specific stocks but also help you study the stocks with more attention. So objective here is to narrow the focus so that you can go deep into the issues.
Fundamental analysis of the stocks is all about determining the financial position of the company. This is the basic for selecting the companies that you should invest in. There are certain factors that are considered in fundamental analysis and these factors give a comprehensive idea of the financial health of the company. For having a clear idea of these deciding factors you have to go through the annual and quarterly reports of the company to find out about the earnings, debt, revenue, P/E ratio and other aspects that will give you a comprehensive idea of the financial position of the company. Based on these factors you need to choose the company. Typically it is advised that you choose companies with low debt, history of good earnings over the past few years along with low P/E ratio. This is of course the basics of fundamental analysis and there are other factors as well that will give you a good idea of future of the stock.
But it is not the promise of the future that should drive your stock investment decisions. Rather it should be the numbers that should do the talking and here comes in the science behind stock market investment. Once you have selected the stocks based on the result of the fundamental analysis of the stocks, you have to do the technical analysis so as to determine the optimum price level at which you should invest in the stock. Take note of the closing price of the stock, trading volume and average P/E ratio as these are the factors that are considered for technical analysis. There are so many different methods and principles for technical analysis of the stocks and there are different tools and software that can do the technical analysis for you. These tools based on the parameters can predict the future price movement of the stock. Once this prediction is made you can easily determine the price level that is optimum for best return. If you find that the stock is still within that price level you can invest in that stock otherwise you should wait for future opportunities. This is how the art and science of stock market trading rule the world of trading and you have to strike the balance between these two to get the profit.
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