Having understood all the basics of the stock market and the risk involved, now we will go into stock picking and how to pick the right stock. Before picking the right stock you need to do some analysis.
There are two major types of analysis:
1. Fundamental Analysis
2. Technical Analysis
Fundamental analysis is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price.
On the other hand, technical analysis is the study of prices and volume, for forecasting of future stock price or financial price movements.
Simply put, fundamental analysis looks at the actual company and tries to figure out what the company price is going to be like in the future. On the other hand technical analysis look at the stocks chart, peoples buying behavior etc. to try and figure out what the stock price is going to be like in the future.
In this article we will go into the basics of “fundamental analysis”. Technical analysis is a little more complicated. It is much more of an "art" than a science. It depends more on experience and involves some statistics and mathematics, so explaining technical analysis is out of the scope of this article.