SECURITY ANALYSIS
Security analysis is the evaluation and assessment of stocks or
securities to determine the investment potential. It involves analyzing
various factos such as fianancial instruments, industry trends market
condition & company’s specific information to make informed
investment decision
There are two primary approaches to security analysis
FUNDAMENTAL & TECHNICAL
FUNDAMENTAL ANALYSIS =
1 Fundamental analysis measures the security’s intrinsic value by
examining related economic and financial factors.
What is intrinstic value ? = Intrinstic value is the value of an
investment based on the issuing company’s financial situation and
current market and economic condition
2 Fundamental analysis study anything that can affects the security
value from macroeconomic factors such as the state of the economy
and industry condition
Microeconomic factors like the effectiveness of the company’s
management
3 The end goal is to determine a number than an investor can
compare with a security’s current price to see whether the security is
undervalued or over valued by other investors
4 Fundamental analysis uses a company’s revenue, earning, future
growth, revenue, profit margins and other data to determine a
company’s underlying value and potential for futue growth
5 for example [Link]
Industry of technology smartphone computers suppose you
annalyze stock/ bond value by looking economic factors such as
interest rate, overall state of the economy. Then you would evaluate
the bond market by using financials like revenue growth, profit
margins and return on equity etc and you could also read through
8k, 10-Q, 10-K and issuer’s annual reports to find out what they are
doing, their goals, other issues.
TECHNICAL ANALYSIS
1 Technical analysis is the study of historical market data, including
price and volume.
2 Technical analysts use insights from market psychology, behavioral
economics, and quantitative analysis to use past performance to
predict future market behavior.
3 The two most common forms of technical analysis are chart
patterns and technical (statistical) indicators.
4 Technical analysis is a blanket term for a variety of strategies that
depend on interpretation of price action in a stock. Most technical
analysis is focused on determining whether or not a current trend
will continue and, if not, when it will reverse. Some technical analysts
swear by trendlines, others use candlestick formations, and yet
others prefer bands and boxes created through a mathematical
visualization.
5 Most technical analysts use some combination of tools to recognize
potential entry and exit points for trades.
6 Technical analysts generally believe that prices move in trends and
history tends to repeat itself when it comes to the market's overall
psychology.
7 The two major types of technical analysis are chart patterns and
technical (statistical) indicators Chart patterns are a subjective form
of technical analysis where technicians attempt to identify areas of
support and resistance on a chart by looking at specific patterns.
example, an ascending triangle chart pattern is a bullish chart pattern
that shows a key area of resistance.
8 technical indicators are a statistical form of technical analysis where
technicians apply various mathematical formulas to prices and
volumes. The most common technical indicators are moving
averages. More complex technical indicators include the moving
average convergence divergence (MACD).
Many trading systems are based on technical indicators since they
can be quantitatively calculated.