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How To Do A Stock Analysis
Technical analysis is the method of predicting the stock price based on different factors. Stock analysts take note of the past market, price of the stock and volume of the traded stocks to do the stock analysis and thereby forecast the price of the stock. In practice technical analysis is done on the basis of the different models and trading patterns.
Analysts take note of various indicators such as relative strength index, regressions, moving averages, cycles regressions, inter-market and intra-market price correlations to prepare charts that actually show the pattern of the price movement for a particular stock. On the basis of the chart and indentifying the price pattern stock analysts predict the future movement of the stock. These financial indicators are actually mathematical transformation of the stock price and trading volume. Apart from these indicators some analysts also consider the market psyche while predicting the stock prices.
There are different models and theories in practice for stock analysis.
Candle Stick Charting - The method of candlestick charts was first developed by Homma Munehisa in the 18th century. The candlestick chart is basically a bar style chart that can be used to project and predict the price movement of the stock. The candlestick chart is basically the combination of the line chart and the bar chart and gives an overview of the opening price, closing price, high and low price in a day for over a period of time. This method of charting and technical analysis is very popular among the investors and analysts because of the easy readability of the chart.
Dow Theory - Dow Theory was first developed by Charles H. Dow, who was the first editor of the Wall Street Journal and co-founder of Dow Jones and Company. The theory is based on six basic tenets.
- There are three types of movements in the market.
- Market trends typically have three phases.
- Stock market discounts all news
- The market average must always confirm each other
- Market trends needs to be confirmed by the volume of trading
- Trends can only be said to be ended only when definitive signals prove that.
Elliott wave principle - This theory was developed by Ralph Nelson Elliott in his book The Wave Principle (1938). According to this theory the psychology of the investors generally moves from optimism to pessimism and this swing creates the price pattern that is projected by the three-wave structures of increasing degree or size.
Apart from above technical methods there are lot many methods available to do stock analysis of Indian stock market and movement of stocks listed in NSE and BSE can be estimated based on those indicators.
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