Maybe it goes without saying, but learning how to analyse the stock market is crucial to succeeding as a stock trader. There are several ways to do this and most investors split stock analyses into two different categories: technical analysis and fundamental analysis.
Two ways to analyse the market
When analysing a stock using the technical analysis, you look at the stock and the company itself looking for opportunities to invest or trade on. By comparing revenue, stock prices, and by using calculations such as the P/E ratio, you can try to predict how a company stock will develop.
A fundamental analysis, on the other hand, focuses on external events and influences such as financial statements, product launches, and trends. Generally speaking, fundamental analysis is easier to learn as a beginner, yet it’s always recommended that you combine the two methods for the most accurate predictions.
To further dive into this subject, we’ve collected five factors that can affect the stock market or a single stock. Some of them fall under the fundamental category while others call under the technical category. For more detailed guides on how to analyse the stock market and recommendations of platforms and apps to use, you can find some further information here.
The companies themselves
Naturally, the companies themselves have a huge influence on its stock prices. Factors such as dividends, financial reports, and mergers all have a direct correlation to the stock prices. Also, factors such as a new product or the firing of and CEO or board members will likely have an effect on the company’s stock price.
As mentioned, this falls under the “fundamental analysis” category and tend to have the biggest impact on the stock market when it happens unexpectedly or when the developments are the opposite of what was previously predicted.
World events also tend to affect stock prices. For example, was and disasters can have a major impact on the local stock exchanges and the company’s ability to make a profit.
Similarly, world events that affect a single or a collection of companies will likely have an impact on those companies. This too is considered to be fundamental analysis and can often be quite easy to benefit from. Let say there is a huge terrorist attack in a major European city, then you can expect the exchange in that city to plummet the following days or even weeks.
Hype and reports
Hypes is another major player on the stock market. In some cases, the hype is created by the company themselves but there is also external hype such as blogs, events, exhibitions, etc.
Moreover, hype can be controlled by investment firms and respected stock investors such as Warren Buffett. If Buffett would either buy or sell a large chunk of equity in a certain company, the price of that stock would most definitely be affected, news media would talk about it, and there would be hype around it.
The problem with hype as a tool to affect the stock market is that it can be used to manipulate the market, thus creating a fake hype. Pump and dump schemes are a common and illegal example of this, where a large group of investors buy a ton of stocks in the same company to hype that company so that other investors join in. And when these other investors start buying, the stock will increase in price and the initial investors will all sell at once to make a profit.
Inflation and interest rates
The economic health of a country has a tremendous impact on companies in the country and this can be surprisingly easy to predict and analyze.
One of the oldest stock investment tricks in the book is to keep an eye on the interest rate set by the U.S Federal Reserve. The Feds are constantly adjusting the interest rates to control inflation and every time a bigger adjustment is made, the stock market follows because investors do what they can to either protect their funds or increase their portfolios.
Similar to interest rates and inflation, exchange rates have an impact on companies that operate internationally. As an exchange rate fluctuates, the cost of doing business in those two currencies is effected and that has a direct correlation to all the involved countries.
Therefore, you should always keep an eye on major events in on the forex exchange market. Better yet, analysing the forex market can also be used to trade forex and increase your ability to make a profit as an investor.