Market Analysis


Market analysis refers to a formal investigation of market forces and trends in order to facilitate decision making related to financial instruments. These financial instruments may be equities, bonds, mortgage-backed securities, futures or options. Market analysis involves studying the market fundamentals and historic trends to build financialmodels in order to project future earnings and trends.

Market Analysis: How is it Done?

Market analysis comprises of two main methods of analysis, namely fundamental analysis and technical analysis.


Market analysis refers to a formal investigation of market forces and trends in order to facilitate decision making related to financial instruments. These financial instruments may be equities, bonds, mortgage-backed securities, futures or options. Market analysis involves studying the market fundamentals and historic trends to build financialmodels in order to project future earnings and trends.

Market Analysis: How is it Done?

Market analysis comprises of two main methods of analysis, namely fundamental analysis and technical analysis.

Fundamental analysis: This is based on the belief that 90% of market movements are determined by logic, while 10% is based on psychology. The premise of fundamental analysis is that the market will eventually reflect a security’s real worth. Thus, it focuses on the proper valuation of the security, which in turn is based on the underlying asset. It considers the growth potential, interest rates, regular earnings from the instrument (like dividend payouts) and risk factors. These figures are used to determine the intrinsic value of the security. Very little attention is paid to past price movements.

Technical analysis: Technical analysis is based on the creation, examination and interpretation of charts that track the pastprice movements and volumes traded of a security. Technical analysis is used as a basis for making projections about futuremovements. It is based on the belief that 90% of market movements are determined by psychology, while only 10% is based on logic.

While fundamental analysis may be too complex for a lay investor to undertake, s/he could learn to read chart patterns and candlesticks. Savvy investors may use these to identify underlying trends or patterns and take investing decisions.

Where to Get Market Analysis

Market analysis is conducted by various organizations, banks and analysts. One can check the following sources:

  • The Internet: This has extensive and up-to-date information on analysis and projections. One can search for trading systems and signals. Moreover, you can read analyst recommendations online.
  • Business News on TV: News channels on television (such as CNBC, BBC and Fox News) are a good source of information and expert opinions.
  • Trade journals, magazines and newspapers.
  • Government sources.

 

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