Stock analysis is a tedious task, but understanding how to analyze the market that will prevent losing money in the bag. These two methods do just that.

Fundamental analysis Stock

Used fundamental analysis to explore its' stock values. As the company does, how competitive they are and what will happen in the future, some questions must be answered. The aim is to 's revealedThe profitability and efficiency of administration.

How do you know if the stock is profitable?

How do you know if the board is effective?

Here are the answers to both questions in the annual reports.

The balance sheet, income statement and cash flow statement is the most important of all corporate annual reports. Mathematical formulas, or known as key financial ratios to help you recognize when the stock is worth investing. In addition to this financialReports can be used to value stocks.

If you know the value of stocks, you can make money by buying undervalued shares and make it sell when the shares are overvalued. This approach also known as value of investment made popular by Warren Buffet and his guru.

Technical Analysis of Stock

Technical analysis, focusing on the opposite feeling. The idea is to study the behavior and performance of other investor greed and fear. Experienced TechnicalAnalyst can tell you what the market is currently doing and what the share price will be tomorrow.

They make money out of human emotions.

But how do they do?

The secret lies in the price of the shares.

expert stock traders use different technical indicators to understand the market behavior; Relative Price Index (RSI), Moving Average Convergence Divergence (MACD) and ADX Average Directional Index () called too few. They also use trade diagram to display theThe price of Japanese model as Candlestick.

Or you prefer swing trading, trend-trading or trading momentum, combined with fundamental analysis for your trading style only make you rich quickly.

In this article we will discuss how to use free stock software to identify and carry out technical analysis and direction of the stock price. Why do not we talk about "free software"? The reason is that many people believe that only do good analysis and stock price predictions with very complex and expensive software. This is not true.

Some free software is actually free of cost. Well our aim is not to discuss hereAdvantages and disadvantages of this free software. This is for everyone who uses the software to evaluate. But we can say that depends a lot going for what you analysis. Tools can be found at MSN, Yahoo and Google are quite robust and offer great capacity for technical analysis.

We try to identify some of the basic analysis, you can do with this free software:

The first time you can track the movements of stock price chart for a number ofIntervals. At the lowest level you have the table "Intra-day, which is basically a movement now to chart a single trading day (usually present). Then you can usually go up to 10 years and in some cases for the life of stocks. Why is it important? E 'are very important because they give us a perspective on the temporal direction. For example, the price of shares of a company looking down flat, or even over a three month chart. But over a period of three years, the stock marketThe price may be higher on a roll (trends). So the time factor allows a user by that time the users perspective (read as trading time frame for analysis).
Secondly, the software allows a price move against another element (or elements) of the property. For example, some back, we looked at the diagram of the three big banks – JPMorgan Chase, Citigroup and Bank of America – the same diagram at the same time to analyze stocks, that of these companies in the banking sectorThe price moves the best, in these market conditions. Of course, all these banks were different financial figures. But it was still a good analysis of the strength of each bank to understand the comparison. (The comparison can be seen via a link in the signature box on this article). You can plot compares well as a time frame of stock prices compared with an index for the same. This can be as powerful as it tells us a stock runaccording to the general market.
Thirdly, the more free software allow us to determine the price support and resistance to sharing. This is the ups and downs of the stock price for any period of time. For example, you can write period, the share price over a three month high and the identification of items such as bases and low resistance. This enables operators to understand what the rule of a stock price levels should go any further violation. Thus,We saw Microsoft (ticker symbol: MSFT) as an example, in another article and found that most of the stock price should be 20-30 exchanges have been in the range of $ in the last 10 years. This is a very long time and generally not used by merchants. But the technical analysis that $ 20 I would say, the point of MSFT support and $ 30 is the point of resistance. If the stock breaks any of these numbers, then it is likely to continue in this directionfurther.

There are many other points, the analysis software you can with the stock market free. This is another article in the indicators of trading are included in the future. For now, we hope to have good busted the myth that free software is not stock trading.

Stocks and future supporters of technical analysis believe that the study "the pattern, as price changes have occurred in the past, you can predict how the price change in the future.

Proponents of technical analysis can be divided into two categories:

Those who believe that technical analysis works because it is still valid.
Who does the technical analysis, because it creates self-fulfilling prophecies do. "

WhatI think technical analysis is valid in themselves to believe that through the investigation of the pricing models of a title, it is possible, everything about the special security requirements. They believe that mainly reflects the current price of everything. Regardless of current events that are happening or may arise have been considered in the current price.

Consider some of the factors that influence market direction. There are natural events such as droughts, floods and freezes. Usare political events like wars, treaties and sanctions. There are psychological influences, correctly or incorrectly, that move the market. There are many factors affecting supply and demand, which can quickly overwhelming for most of us can influence.

For example, if the dollar falls in value, many people may decide to buy precious metals. If war is imminent in the Middle East, then the crude oil can be purchased by many individuals or companies. Sometimes justthe widespread expectation of an event, to move the market. Technical analysts do not care about those expectations, because they believe that all relevant information is already reflected in current price. Believe that it is not necessary to know why a market may move down or to trade successfully.

Many investors who are not in the intrinsic merits of technical analysis believe still be very useful. They believe that it is useful, as wellmany other people believein that faith collective technical analysis "true believers" leads to a self-fulfilling prophecy. Their reasoning is as follows:

"If people just believe that indicates a specific pattern of price increase is a title to show when a security price that is patterns of true believers in technical analysis hurry to buy security. As a result of rising stock price is."

Market prices are the result of a large number ofindividual operators. Faith is the mass of traders ultimately determines prices. This can be authentic mass merchants human psychology. Technical analysts believe that this is what actually analyzed in a price chart.

Technical analysis is based on the premise that history repeats itself is founded. Traders noted that if the prices quoted on a graphic pattern occur. Some of these models have a strong tendency to recur. Learning to read and interpret this model, the price isThe primary technical analyst.

Occurs when a pattern on a price chart that is recognized by a technical analyst develops the expectation is that after the price action is similar to that of the past. Psychology of people do not change much from year to year.

To summarize:

Market prices shown in the table reflect the opinions of the individual operator to all relevant information available. The price performance of action, forms of reaction, and tendAgain, again and again. The technical analyst is simply trying to read patterns and understand what will happen next based on what has happened in recent times and the times.

The way stocks react to significant price shocks is important for finding good entry and exit points. A common question traders and investors ask themselves is whether to purchase after a stock takes a big fall on a bad earnings report, for example.

If we’re to believe the efficient market hypothesis then the shocked stocks price is reflective of all new information so wouldn’t warrant a purchase (based solely on the price shock.) However, if there are exceptions to the EMH, or if it takes time for the price to reach it’s EMH point, then there is value in studying reactions to price shocks.

In this article we’ll study how stocks recover from various levels of price drops in one day. This will help us understand if there is any advantage to purchasing directly after one of these events.

Analysis Setup

The data was based off a group of randomly selected days from the years 2004, 2005 and 2006. The next few days afterwards were then analyzed to build the statistics below.

Stock price was restricted to those above $1. This was done because penny stocks are very volatile and could skew the data. Studying penny stocks is very interesting as well, but a separate concern.

Stock volume was restricted to those above 25,000 on a daily basis. Again, this was done to prevent skews in the data. Low-volume stocks behave differently than larger volume ones.

Buckets were created for easier representation and analysis, based on the amount of the initial price shock. The buckets were chosen as 1-5% drop, 5-10%, 10-20%, and an extra one for all stocks as a comparison.

Note: The selection of the years 2004, 2005 and 2006 as the period for the test has implications we should expect up-front. The market during this period was generally considered bullish we should expect somewhat different results were we to analyze a bearish period.

Tracking price high after the drop

The first part of the analysis was to examine the price highs achieved several days after a significant downward price shock. We’ll check the performance of the stocks in each bucket for several days after the drop.

Here are the average price highs achieved by each bucket 1, 2, 3, 4 and 5 days after the initial drop compared to the close on the drop day:

• All stocks: 2%, 1.5%, 1.0%, 1.4%, 1.5%
• 1-5% drop: 2.1%, 1.9%, 1.5%, 1.6%, 1.8%
• 5-10% drop: 3.8%, 3.2%, 2.3%, 2.4%, 2.5%
• 10-20% drop: 4.2%, 3.5%, 7.1%, 6.8%, 9.4%

Analysis

First of all, there are no negative values because we’re looking at the highs. It would be very rare for a stocks highest trade price to never reach it’s close on the previous day, especially during a generally bullish market.

The stark contrast between the 10-20% bucket vs. the others is very surprising. All other categories have a negatively-sloped line but 10-20% has a significant positive slope. If we carried this out further than 5 days we can assume it would achieve a similar slope to the other categories.

Why the swift partial recovery for 10-20%? One point to note is that of all the stocks found in this category their average drop on that initial day was about 12%. We then see them reach an average daily price high of about 9.5% higher than the close on the day of the drop, so that’s about an 80% recovery. One explanation is that often after a large downwards price shock the value investors will come in and start buying at the lower price.

Now, it’s definitely debatable whether analyzing the daily price highs is representative of the true recovery of a stock, so we’ll look at the daily closes next. The highs may be more applicable to active traders, rather than investors.

Tracking price close after the drop

Here are the average price closes by each bucket 1, 2, 3, 4 and 5 days after the initial drop compared to the close on the drop day:

• All stocks: 0.2%, -0.2%, -0.5%, 0.0%, 0.1%
• 1-5% drop: 0.15%, -0.1%, -0.5%, -0.15%, 0.0%
• 5-10% drop: 0.1%, -0.5%, -0.9%, -0.7%, -0.7%
• 10-20% drop: -0.4%, -0.7%, 2.6%, 2.5%, 5.9%

Analysis

The only surprise here is that the 5-10% group dropped more than the 1-5% group. This is a bit counter-intuitive since naturally the 5-10% group has more room for recovery. However, it’s definitely feasible that the reasons for the price drops in the different categories would be different. This would obviously affect how willing investors are to pick up the stock after the drop.

Conclusion

The apparently significant ability for a stocks price to recover after a large downward price shock could be a useful addition to the selection process. Keep it in mind when a strong stock takes a bit hit as the market may be emotionally over-reacting to bad news.

Since the price highs, rather than closes, rebounded much more for the 5-10% and 10-20% drop buckets, compared to all stocks, active investors or traders would probably be more likely to take advantage than the average person.

Neil Thier – http://www.marketfilters.com

Neil is a founding member of MarketFilters.com, an innovative technical analysis tool. We offer easy and powerful scanning and filtering of stocks, back-testing, watch lists, and other tools.