Asian Share Market, Asian Stock Market

If you are fascinated by the rise and fall of share prices and share indices such as Sensex or Nifty, you are not alone. Today more and more persons want to enter the securities market. However they still do not know where to begin. It makes sense to do your research before embarking on your trading expedition. It also helps you if you are able to spend some time in understanding the price movements with the help of theories and concepts used by experienced traders and analysts.

There are basically two different methodologies for understanding the market and predicting its future trend. The first one is called fundamental analysis. Fundamental analysis involves an analysis of financial position of the company, its potential performance in future, book value of its assets and other financial reserve ratios. Thus it analyses the share price with respect to the fundamentals of the company and predicts the future price movements based on the potential earning capacity. Fundamental analysis requires information about balance sheets, cash flow statements, growth pattern and future plans of the company. All these parameters are factored in while predicting the price movement of the scrip. It also involves comparison of key ratios such as profitability ratios, book value ratios, price earning ratio, which compares market price multiplied by a factor to the present and potential earning of the competitors operating in the same sector. This way you can see whether the scrip is expensive or still has potential to move up. Comparison also helps you in understanding why certain stocks are trading at a discount to their competitors.

On the other hand, technical analysis is concerned with plotting the price and volume pattern and predicting the direction of price movement of the scrip. Thus if the scrip is witnessing a main trend of price rise, analyst will be buying the scrip as there is a further potential for price rise. However, if the underlying trend is of fall in price and remember that the trend may change from rise to fall, it is time to sell off the holdings so that you may re-enter the market when price has substantially fallen. This way the analysts make their trading strategies to enter and exit the market based on underlying direction or trend the scrip is taking. The important thing in technical analysis is an understanding of charts and technical indicators to forecast the price movements. Different theories of technical analysis such as Dow Jones theory, Eliot Wave theory, candlestick techniques are used for depicting and predicting price movements.

Technical and fundamental analysis are not mutually exclusive or having diverse objectives. Both approaches have the underlying objective of helping you make a profit from your trading strategy and maximize your returns on a consistent basis. Thus an understanding of fundamental as well as technicals is imperative for having a broad understanding of the market and making your moves. More often than not, traders and analysts use both forms of analysis before taking a position in the market. This is because both are important and complement each other in helping you take investment decision.

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