How to Analyze Stock Market Trends & its Advantages

Posted by Kalpesh on September 27th, 2022

Let me ask you a question; are you a newcomer to this industry? If yes, that means you haven't yet invested anything. And you wish to learn before entering the Stock market. Or are you already into the stock market and want to learn about the trends?

Market trends are always considered a very basic factor to consider while investing in the stock market. No matter if you are entering or already existing in the market. In this article, we shall try to cover all such factors you should know related to the market trends and why it is important to study the trends.

First of all, understand what the trend is. A trend can be said as the direction in which the price of the stock is moving. The trend can be upwards, downwards or sideways depending upon the various internal and external factors. The longer the trends in any direction, the more traders notice it and decide whether to sell, buy the stock, or enter into options to safeguard the investment.

We can say stock market analysis is the process of predicting the potential movement in the price of the underlying assets. The trends can be classified into three types; short-term, intermediate and long-term.

Now, if you ask some stock market experts, How to Analyze the Stock Market? He will suggest the below things:

Checking the Financial statements: As the stock market is all about the numbers, you must choose the company for investing that shows good numbers financial statements such as Cash flow statements, Income statements, and company balance sheets are the sources to get these numbers.

Analysis of industry: You must also check how the company is performing in comparison to its competitor or overall within the industry. You can get these details from the company's annual reports, stock market magazines, surveys, research papers, news, etc. It will help you understand the clear image of its trend.  

Research on the stocks: Understand, is it worth investing in the company you desire? The price of the stock might get affected by various factors such as political, global crisis, FDI, changes in the SEBI rules and many more. So, look carefully for any factors that can lower the price of your stock. The Price to Earning (P/E) ratio can be the best indicator to find out its worthiness. 

The above stated are important for those who are starting to invest in the stock market; in short, beginners. The stock market analysis is of two types; Fundamental and Technical. Fundamental Analysis is meant for traders looking for a long-term investment. In contrast, Technical Analysis considers the price changes and focuses on short-term fluctuations. Technical Analysis uses different Time Charts such as the 15 Min Chart, Hourly Chart and Daily Charts. You may use Technical Stock Screener India to see additional data. There are certain assumptions while conducting technical Analysis of the stock market as below:

History repeats itself: While conducting Technical Analysis, traders believe that the price may affect the future in the same way it got affected in the past under identical situations.

If you are good at understanding and analyzing numbers, then you should also try to learn some metrics that can give you insight into the trend of the stock, such as those listed below:

Price to earnings (P/E) Ratio: Companies file their reports on an Earning Per Share basis. The formula is - dividing the Total Share Price by the Earning Per Share.

Price to Earnings-Growth ratio (PEG) ratio - The growth rate of all the companies differs from each other. The PEG ratio considers the P/E ratio and divides the same by the expected annual growth rate for the next few years.

Price to Book ratio (P/B): Imagine the value a company can get after shutting down the business entirely and selling every asset. The amount it receives is the book value. When this book value is compared to the value of the shares, we get the Price to book ratio.

Advantages of analyzing the trend:

  • If you are buying a smartphone or a laptop, you do some research on which one will be the best for you. So, you must conduct       research on which sector suits you best.
  • It will help you make better decisions.
  • You can avoid losing your invested money.
  • It helps you understand the market movement better with historical data.
  • With the proper research, you can choose the instrument you want to invest.
  • You may also use Software for Indian Stock Market to analyze the market trends.

Understanding how to analyze the trend for each market situation may take constant practice and involvement, so if you wish to learn, study the above points, start investing in the financial market, and if you need any help, you may contact our expert team. Only after practice you will be able to analyze the trend appropriately.

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Joined: September 26th, 2022
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