Jasmine Birtles
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How to Research Stocks (Become Your Own Market Analyst)
Ruby Layram
1st Jul 2024
So, you’re ready to dip your toes into the stock market and become your own analyst? Brilliant! Researching stocks might seem like a daunting task, but with a bit of guidance, you’ll be making informed decisions in no time. In this guide, we will walk you through how to research stocks like a pro.
Understanding how to research the market will put you in a strong position to make profitable investing decisions. When it comes to investing, the more you know the better!
So, take out your notepad and get ready to learn how to conduct your own stock analysis.
- Two Types of Stock Market Analysis
- How to Conduct Fundamental Analysis in 5 Steps
- How to Conduct Technical Analysis in 5 Steps
- Useful Tools to Use in Your Stock Research
- How to Know Which Type of Research Is Best for You
Two Types of Stock Market Analysis
Before diving in, it’s essential to understand the two main types of stock market analysis: Fundamental and Technical. Each has its own approach and tools, but both are crucial for making well-rounded investment decisions.
Fundamental Analysis
Fundamental analysis is all about looking at the intrinsic value of a stock. It’s like being a detective, digging into the company’s financial health, management team, industry position, and economic conditions.
You’ll focus on earnings, revenue, profit margins, and other key financial indicators.
Fundamental analysis looks at the ‘big picture’. It considers the role that external factors might play in the performance of a stock, rather than focusing solely on the price of the stock itself.
Technical Analysis
On the flip side, technical analysis is all about patterns and trends in stock prices.
Think of it as reading the stock market’s mood. You’ll use charts and indicators to predict future movements based on historical data. It’s less about the company’s inner workings and more about market psychology.
Technical analysis is often used by advanced traders who aim to profit from short-term price fluctuations. However, it can also offer valuable insight into long-term investing strategies.
In the following section, we will take a look at how to conduct each type of analysis.
How to Conduct Fundamental Analysis in 5 Steps
Here’s a very brief overview of how to conduct a fundamental analysis.
- Check the Financial Statements: Start with the company’s balance sheet, income statement, and cash flow statement. These documents reveal the company’s financial health and profitability.
- Understand the Business Model: Know what the company does, its products or services, and its market position. This will help you assess its long-term viability.
- Evaluate Management: Look at the leadership team’s experience and track record. Strong, leaders can steer a company to success.
- Examine Industry Trends: Understand the industry that the company operates in. Are there growth opportunities, or is it a struggling sector?
- Look at Valuation Metrics: Use ratios like P/E (Price to Earnings), P/B (Price to Book), and PEG (Price/Earnings to Growth) to determine if the stock is over or undervalued.
How to Conduct Technical Analysis in 5 Steps
- Study Price Charts: Begin with basic line, bar, and candlestick charts. They show how the stock has performed over time.
- Identify Trends: Look for upward, downward, or sideways trends. Trends can indicate the stock’s future direction.
- Use Indicators: Incorporate technical indicators like Moving Averages, RSI (Relative Strength Index), and MACD (Moving Average Convergence Divergence) to get more insights.
- Support and Resistance Levels: Identify key price levels where the stock has historically had trouble moving above (resistance) or below (support).
- Analyze Volume: Volume shows the number of shares traded. High volume can indicate strong interest and potential price movement.
Also see: How to pick stocks and shares (webinar)
Useful Tools to Use in Your Stock Research
A lot of the time, researching stocks and shares involves a bit of digging around to see what you can find. However, there are some useful tools available that could help speed up the process of finding useful information.
Economic Calendar
An economic calendar is your best friend as an investor. It tracks upcoming events like interest rate announcements, GDP reports, and employment data that can impact stock prices.
There are many free economic calendars available online. Some popular options include the Bloomberg economic calendar, and the TradingView economic calendar. It is a good idea to shop around a bit to find a calendar that suits your investing strategy.
Most importantly, find a calendar that you can actually understand! There is no point in using an advanced option if you can’t make sense of the information that it provides.
Stock Market News
Stay updated with the latest news. Websites like Bloomberg, Reuters, and CNBC provide real-time updates on the stock market and individual companies. This information is vital for making timely investment decisions.
This is also a great time to point you in the direction of our bi-weekly investing newsletter! We aim to cover the most important stories and provide exclusive tips to our readers. You can sign up to the newsletter for free!
Social Media (if you’re careful!)
Platforms like Twitter and Reddit can offer insights and opinions from other investors. But be cautious! Social media can be a minefield of misinformation. Always verify any tips or news you find here.
How to Know Which Type of Research Is Best for You
Deciding between fundamental and technical analysis depends on your investment strategy and goals.
If you’re a long-term investor who values understanding a company’s business and long-term projections, fundamental analysis is your go-to.
On the other hand, if you prefer short-term trading and capitalizing on market movements, technical analysis might be more up your alley.
Remember, many successful investors use a combination of both approaches to get a comprehensive view. Start with the basics and gradually incorporate different methods to get as much information as possible.
Are you interested in learning more about investing? Why not sign up to the MoneyMagpie bi-weekly Investing Newsletter? It’s free and you can unsubscribe at any time if you find it isn’t for you.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. When investing your capital is at risk.
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