The computer programs or tools are used to execute trading orders such as buying or selling the stocks. You can place a stop order or limit order in your buy or sell decisions. More importantly, however, stock market tools are used for research and analysis of the stock market trends.



Stock Market Analysis

Stock market analysis can be of two types, fundamental analysis and technical analysis.

Fundamental analysis is the method of evaluating the price of a stock by examining the economic, financial and other qualitative and quantitative factors concerning the company.

Fundamental analysis studies all the situations that can affect the value of a stock which may include the macroeconomic factors such as the overall economy of the country and the industry besides the financial condition and management of the individual company.

Fundamental analysis considers the revenues, earnings, future growth, return on equity, profit margins and other relevant data to evaluate the performance of the company and its potential for future growth.

It focuses primarily on the financial statements of the company under evaluation. This kind of evaluation is called quantitative analysis as it studies revenue, expenses, assets, liabilities and all the other financial aspects of a company.

Fundamental analysis, therefore, helps the searcher gain an insight into the company's future performance. It answers the questions whether or not the revenues of the company are growing. Is it actually making profits? Can it beat its competitors? Will it be able to pay back its debts? Are its books genuine or are they being cooked by the account department of the company?

Fundamental analysis is considered almost opposite to technical analysis.

Technical analysis

Technical analysis helps the investor to estimate the expected return on an investment in a stock. It examines the stocks and predicts their future trends. Technical analysis is conducted with an underlying belief that the stock prices move in a predictable pattern. Technical analysis is not generally concerned about the nature or the values of the companies whose stocks are under consideration. It cannot, however, be denied that company performance, the general state of the country's economy, natural disasters and so on also influence the fixation of the price of a stock.

Technical analysis cannot be used effectively to examine the long-term investments since the fundamental factors that influence the company's growth potential are not taken into account.

Technical analysis is used to primarily watch the stock market movements. Therefore the trades are entered and exited at the precise moments. It must be interesting to note that most of the stock market tips and recommendations are derived from the technical analysis of the stocks.

Technical analysis basically helps the investors to understand the upswings and downswings in the stock prices so that they can decide whether to go long or short on their portfolios.

Although hundreds of stock patterns have been developed, most of them primarily rely on the methods of determining the support and resistance to the stock prices.

Use of charts and patterns in technical analysis

Technical analysis depends primarily on the charts for tracking the patterns of the stock market movements. The most popular tools used in technical analysis are the bar charts.

Bar charts are generally made up of vertical bars, which represent a particular time period in the stock market movement. The time period may be a week, a day, an hour or even a minute. The top of each bar represents the highest price of a stock in a given period, while its bottom indicates the lowest price.

The small bar to the right side indicates the opening price and the small bar to the left shows the closing price.

There is another kind of chart called candlestick chart. According to stock analysis experts ?the candle stick chart uses solid bodies to indicate the variation between opening and closing prices and the lines (shadows) that extend above and below the body indicate the highest and lowest prices respectively. Candlestick bodies are colored black or red if the closing price was lower than the previous period or white or green if the price closed higher. Candlesticks form various shapes that can indicate market movement. A green body with short shadows is bullish ? the stock opened near its low and closed nears its high. Conversely, a red body with short shadows is bearish ? the stock opened near the high and closed near the low.?