Stock markets are complex and dynamic systems influenced by numerous factors. To make informed decisions about buying or selling financial assets, it is essential to analyze the stock market. This article explores the main types of analysis:
Fundamental analysis is focused on examining the fundamental factors that influence the price of a financial asset. These factors include:
Fundamental analysis allows for the assessment of the long-term development prospects of a company or industry, as well as the identification of potential risks and opportunities.
Useful tools for conducting fundamental analysis include economic calendars, statistical resources, and stock scanners.
Economic calendars are instruments that provide information about the timing when important economic indicators were released, their values (current, expected, and past), and sometimes relevant comments, descriptions, and assessments of their impact importance.
Statistical resources provide current and historical data on key economic indicators such as inflation rates, unemployment levels, GDP, interest rates, and other relevant information.
Stock scanners, or screeners, enable the identification of securities based on specific fundamental criteria.
Technical analysis of stocks is based on the examination of historical price and volume data. Technical analysts employ various charts, indicators, and tools to identify patterns in price movements.
The fundamental principle of technical analysis is that market prices reflect all relevant information influencing this market. Therefore, a technical analyst looks at the trading history pattern of a security or commodity rather than external factors such as economic, fundamental, or news events. It is believed that price action tends to repeat itself due to the collective patterned behavior of investors. Consequently, technical analysis focuses on identifiable price trends and patterns.
Principles of technical analysis:
The 5-minute price chart of the stock index futures above illustrates approaches applied in classical technical analysis:
By incorporating information about trading volumes into their analysis, traders unlock a new dimension. Now, they can analyze the interaction of:
Analyzing this interaction enables you to assess the balance of forces between buyers and sellers in the current market situation. This operates on the law of supply and demand, expressed by the intersections of demand and supply curves on the axes of time and volume, as shown in the screenshot below.
Demand and Supply Signals are the very source that forms patterns on the price chart. Market volume reflects the overall sentiment of traders, considering the psychological factor that underlies all trading.
Example. Let’s explore how volume analysis can be beneficial in the context of the futures chart for the Nasdaq stock market index.
This is a one-minute timeframe with an added delta indicator – it shows the difference between market buys and market sells. Volume analysis provides a timely understanding of the evolving market dynamics:
From a technical analysis perspective, this is a double top pattern. However, the delta indicator provides a much more timely and reliable signal than classical technical analysis tools, such as moving averages.
How to analyze the stock market?
Combine fundamental and technical analysis, giving priority to volume analysis, as it precisely enables the timely assessment of shifts in market sentiment by capturing the forces of supply and demand.
How to read stock market charts?
Add volume indicators to the chart and analyze the interaction between price and volume. Try evaluating price fluctuations as progress and volumes as applied efforts. Are the parties involved able to sustain the achieved outcome? What efforts are being exerted in the process? Who is more likely to lose money? These are just some of the questions to ask for the puzzle to come together.
What patterns exist in the behavior of price and volumes?
This question is too difficult to be answered in one or two sentences. But in simple terms:
Trading involves high competition. To gain an advantage over other market participants, use the ATAS platform that specializes in volume analysis. The following platform’s tools will help you:
It is worth mentioning the capability to develop custom tools — indicators and automated trading strategies that can be connected via API. Thus, ATAS eliminates any limitations for analyzing cluster charts.
We have discussed three types of analysis for stock markets, cryptocurrency markets, and futures:
Each type of analysis has its advantages and disadvantages. No matter which approach you lean towards, it cannot guarantee a 100% profit.
Download ATAS. It is free. During the trial period, you will get full access to the platform’s tools to experiment with market analysis. Moreover, you can continue using the program for free even after the 14-day trial period is over.
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Information in this article cannot be perceived as a call for investing or buying/selling of any asset on the exchange. All situations, discussed in the article, are provided with the purpose of getting acquainted with the functionality and advantages of the ATAS platform.
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