The A, B, C, and S of Stocks

In modern-day investing, stocks are one of the most common names. Despite their ubiquity, many people are wary of investing in stocks due to the perceived complexity and higher risks associated with them. Moreover, the high volatility of the stock market adds another layer of concern to it.

It is common to feel daunted by the constant flow of numbers and fluctuating lines changing directions every second. But investing in stocks isn’t as complicated as it looks. All you need is the right blend of research, analysis, and a little intuition. We’ve crafted a step-by-step guide to introduce you to the risky waters of the stock exchange. Let’s dive in.

A: Fundamental Analysis

Fundamental analysis is like digging into a company’s true worth. We look at its basic business, the industry it’s in, and the big economic picture. There are three parts to this: economic analysis, industry check, and looking closely at the company itself. Also, the analysis can be both quantitative and qualitative. The quantitative side involves measurable factors like earnings or assets, while the qualitative side looks at less tangible aspects like management quality or brand strength.

Now, to get into fundamental analysis, you need to understand financial statements, know some basic economic theories, and have some knowledge about valuation methods. After the basics, you need to dive into some company reports, like the quarterly (10-Q) and yearly (10-K) ones, and sometimes the 8-K. Most companies, even the not-so-famous ones, put these reports on their websites, highlighting the company’s money moves and achievements throughout the year.

B: Sentimental Analysis

Emotions play a big role in markets. Market sentiment is basically how most investors feel about a company, a whole industry, or the financial market. In the stock market, sentiment analysis checks news, social media, and other texts to figure out these feelings and predict stock prices.

People usually describe market sentiment as either ‘bearish’ (feeling negative) or ‘bullish’ (feeling positive). For example, if a large number of positive sentiments are detected regarding a particular company, it may indicate an upward movement in its stock price, which is a bullish move. Similarly, when the mood is bearish, prices are going down.

Sentiment analysis is like a radar for risks in finance. By keeping an eye on feelings from news and social media, banks can spot potential problems in the market early. This helps them make smart moves to lower risks and adjust their investments.

However, it is important to note that sentiment analysis is not always correct. Short-term news or rumors can quickly change how people feel about a stock, especially in fast and busy markets, especially in fast-paced, high-liquidity markets. There are many instances where people relied on false news and rumors that led to massive losses. Also, what’s said in articles and reports can be subjective and depends on certain situations. That’s why people often use sentiment analysis with other tools to get a better picture. One such tool is natural language processing (NPL) which has shown quite some promise in this area.

C: Technical Analysis

Technical analysis is like reading a stock’s history to predict its future. By looking at price and volume data shown in charts, traders try to figure out where a stock might go next. The two parameters traders consider during technical analysis are the time frames (like days or weeks) and the specific indicators they choose to use.

First, let’s talk about indicators. Technical indicators are based on mathematical averages that show you certain aspects of a stock. Some common ones are candlestick patterns, relative strength index (RSI), money flow index (MFI), moving averages, and Bollinger Bands. Learning their patterns can take some time and effort. However, there are tons of resources available online where you can easily find detailed information about these indicators.

Now coming to time frames, the time frames shown on charts range from one minute to monthly or even yearly. The choice of time frame you choose to look at will affect how the indicator moves. Quick traders, who buy and sell in a single day (intra-day), prefer short-time charts like 5 or 15 minutes. On the other hand, long-term traders, who keep their investments for a while, like to use hourly, 4-hour, daily, or weekly charts.

S: Secret Element

If you’ve stuck to the article so far, we have a secret element for you. When you’re new to the stock market, watch out for stocks that have recently moved from a downward trend (bearish) to an upward one. Even without in-depth analysis, there’s a good chance you’ll see some profit, no matter how small.

To be a successful trader in the stock market, you’ll need a comprehensive understanding of these three analysis methods. Now, as a beginner, it can feel daunting to take in all this information at once. But it is important to remember that the higher your risks, the higher your returns will be. So take that motivation and start investing your first dollar, or BDT, into the stock market. You’ll soon find yourself enamored in the realm of stock exchange.

What Next?

Now that you know your way around the complex roads of the stock market, you can get started on your investment journey right away. Just open a BO account at your trusted brokerage house and make your first purchase.

Lastly, to make your journey in the stock market easier, you can always find professional help regarding your investments right here at WiserGates. So, if you find yourself in a pickle, reach out to us at [enter @ wisergates dot com]. We’re always here to make your investment journey easier.

Sources:

Schumacher, P., & Chen, H. (2009). Sentiment Analysis in Financial Markets - A Framework to Utilize the Human Ability of Word Association for Analyzing Stock Market News Reports. Proceedings of the 6th International Conference on Web Information Systems and Technologies, 5-10. https://www.eti.uni-siegen.de/ws/publikationen/repository/sentiment_analysis_in_financial_markets_-_a_framework_to_utilize_the_human_ability_of_word_association_for_analyzing_stock_market_news_reports.pdf Fundamental Analysis - Overview, Analysis Methods, Popular Ratios, Guide. (n.d.). Corporate Finance Institute. https://corporatefinanceinstitute.com/resources/valuation/fundamental-analysis/ Hayes, A. (2022, August 30). Fundamental Analysis Definition. Investopedia. https://www.investopedia.com/terms/f/fundamentalanalysis.asp Market Sentiment Definition. (n.d.). Investopedia. https://www.investopedia.com/terms/m/marketsentiment.asp Shen, J., Zhang, R., Zhang, Y., Li, J., Shen, H., & Chen, K. (2017). Sentiment Analysis by Capsule Network with Interactive Attention. CS224N Project Report, Stanford University. https://web.stanford.edu/class/cs224n/final-reports/final-report-170049613.pdf