What are the different approaches which traders follow while choosing stocks ?

Posted by epicresearchindore on September 11th, 2017

There are several stocks which are listed over different exchange of Indian stock market. Traders and investors faces difficulty while picking up stocks.Also this is a very important decision of a trader as returns which are earned at the end depends upon the performance of stock. Market experts recommended trading tips, mcx tips helps traders to trade in a secure way as it suggests precise target and stop loss which should be used while placing orders.Every individual trader has its own trading goals which they wants to accomplish and therefore they adopt different styles of trading.However different trading approaches are governed by similar factors like risk bearing capability, preference of asset class, expected return and more.

Among all the approaches two most popular one are top-down approach and bottom-up approach which are discussed below:

1) Top-down approach

Traders using this approach takes into consideration macro economic factors like gdp, monetary and fiscal policy, government norms, exchange rate. They study these factors and further decide which stocks will appreciate in its value as a result of changes in these factors. The next step to be followed here is choose sector/industry which you believe is going to help you in earning desirable returns on long term basis. Third and final step is to identify individual stocks on the basis of their fundamentals. This approach is usually followed by traders who wants to trade in stocks of companies with high growth rate and are not willing to go for cheap stocks.

2)Bottom-up approach

While using this approach traders examine fundamental factors of the stock which defines the performance of a stock. Factors like company's management, price/earning ratio, debt/equity ratio, market capitalization, dividend rate are studied here in order to understand how a company is likely to perform in future and what returns it will generate. Here no emphasis is given to market trend or economic conditions , focus is only on the factors which will decide the performance of the company at the end.

Both the approaches discussed above has their own significance and depending on trading goals and personal beliefs a traders decides the approach he wants to follow. Top-down approach starts with studying broad economy then further studying industry and company. In case of bottom-up approach significance is given to fundamental and qualitative factors.To improve market returns financial advisory services like mcx trading tips and more can be followed while trading in market. Such experts suggestions helps to trade in an efficient way with minimum risk. Especially if you are an unexperienced trader or do not have good knowledge about market then considering such suggestions can help you in achieving your trading goals as market experts after performing quality research works suggests using which levels trading should be done.