TRADING ANALYSIS

Many traders analyse assets based on fundamental aspects like trends, news, events, political support, financial restrictions- which are reflected in the assets prices. Other traders choose to believe numbers, they predict price direction by analysing historical data, past patterns, volume and prices. Technical analysis guides traders to what might happen in the near future by using past information. Many traders use both technical and fundamental analysis in order to make the best decision possible.

There are two different approaches: the top-down approach and the bottom-up approach. It is a fact that short-term traders will go for a top-down approach and long-term investors will go for a bottom-up approach.

Top-Down: The top-down approach looks at the overall economy first and then it focuses on individual assets. So, a trader focuses first on economies, sectors and then companies he is interested on. Traders who like top-down approach usually like short term profits. For example, a trader may be interested in stocks that broke out from their 50-day moving average as a buying opportunity.

Bottom-Up: The bottom-up approach looks at individual stocks. It represents analyzing a stock that appears crucial for potential entry and exit points. For example, an investor may find an undervalued stock in a downtrend and use technical analysis to identify a specific entry point when the stock could be bottoming out. They seek value in their decisions and intend to hold a long-term view on their trades.

Technical Analysis

Technical analysis covers a wide range of data and variables, from prices to volume and market capitalization for any asset. It is mainly related to stocks. Its purpose is to bring a taste of the future prices in the present. There are different kinds of charts which need to be analysed to get the information needed to make a decision. Bar charts, line and candlesticks will provide a wide range of information.

There are also technical indicators, like the most used one, the moving average for different timeframes. There are support and resistance levels, which can be inserted as a line on a chart to show the levels at which the stock price faces a resistance when it is trying to go up, and it is supported to not go lower.

Fundamental Analysis

Fundamental analysis is a wide approach to evaluate the performance of a business. When a trader wants to invest his capital in the long run, let’s say 3 up to 5 years, it is very important to know the company in detail and in different points of views. Anyone who has the determination to learn can be a fundamental trader, there is no need to have a strong background in accountability and other related fields. You need to have some fundamental skills: basic knowledge over financial statements, understanding how businesses inside an industry operate and basic mathematical operations.

There are some key factors which need to be analysed when deciding to go for a long term trading with stacks: earnings per share (EPS), price-to-earnings ratio (P/E), projected earnings growth (PEG), price-to-sales ratio (P/S), price-to-book ratio (P/B), book value, dividend payout ratio, dividend yield, return on equity.

Sentiment Analysis

It can be described as the overall opinions, views and mood of the public which make in total the market psychology. There is no exact way to measure the public feelings toward financial markets in total or a particular asset, so we cannot say that there is a correct or incorrect way to define sentiment analysis. But, there are other paths which can reflect the overall mood of the traders.

Strategies and analysis go well with a trading plan

A trading plan will improve your trading discipline, so you will understand why a trading strategy can't work for you and another one can. You will make more cold decisions and be less led by emotions because you will know better when to take the profits and when to cut the losses. While trading, your plan will obligate you to keep track of your decisions. So, you will learn faster from your mistakes and you will improve your future actions.

A trading plan is a detailed, well-thought decision making tool. It leads your trading activity and lets you be aware of each step you take. In a trading plan you decide what assets you want to trade, when and how much capital you would invest at a time.  

Why a trading plan is the first smart move…

Decide your capital and level of risk you can support
The plan will help you stick with your strategy
You will manage your time better
You will know anytime where you stand