In this blog, I will share with you different type of analysis we can use to trading in stock market. There have 3 major types of analysis mostly traders use to trade which is mentioned below:
Types Of Analysis:
- Technical Analysis
- Fundamental Analysis
- Sentiment Analysis
This are the most used analysis before placing in position in market. Some traders follow one of this or merge 1-3 for there intraday/short term/ long term investments.
What is the Technical Analysis?
Basically in technical analysis traders make the decision to buy/sell using charts, volume, prices etc. Between this most important for technical analysis is Charts. By using the chart we can figure out where is crucial support/resistance of particular stock. Charts represent the behaviour of price which is mostly called Price Action Trading. Below is the example of technical analysis using charts support and resistance:
For technical analysis, we can also use an indicator like RSI, CPR, Moving Averages etc. Basically, those indicators are derived by some formula using historical behaviour of the stock. Some of those indicators notify us where the stock price is trading in Oversold/overbought zone and divergence in prices. Below is the example of technical analysis using indicators and chart patterns.
Another most important key factor used in technical analysis is candlesticks. Most of the traders prefer to use candlestick chart for trading. The trader can find out the price behaviour using different candlestick patterns. Below is the example of technical analysis using candlestick pattern:
Some traders also observe the increasing and decreasing in volume for taking buy or sell decision in breakouts and reversal. This is the few ways to do technical analysis.
What is the Fundamental Analysis?
This is the different way of analysing the market on basis of news and other different events. Fundamental analysis mostly useful for short term and long term investments. Using fundamental analysis we can figure out whether the security price is over valued or under valued. For this analyst typically study earning of stock, PE ratio, debt and cash flow for taking investment decisions. Fundamental analysis perform key role for building a good portfolio for long term investments.
What is the sentiment Analysis?
Sentiment Analysis is slightly different from technical analysis. Traders take decision based on the sentiment of the market. In this traders focusing on what FII/DIIs/HNI/Retail traders doing in the market. Also, they taking decision using the Volatility Index(VIX) which majors the volatility in the market to determine high volatility period or low volatility period.