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A variety of stock analytical methods

A variety of stock analytical methods

The stock market is one of the main pillars of the capital market. The most important task of this market is to attract scattered capital and optimally allocate these resources to units that both take steps towards development and provide the expected benefits to investors.

Investors, with different incentives, play a key role in financing. Economic units also pursue different goals by attracting scattered capital, the goal of both groups is to gain more resources and maximize the wealth of shareholders.


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One of the factors that play an effective role in the development and sustainable growth of capital is the familiarity of investors and capital market traders with the methods of securities analysis and increase their analytical power.

Technical analysis and fundamental analysis are two important schools of thought in the markets that we will discuss below. Market traders and investors also use “market psychology” to examine and make decisions.

Market psychology may not be called an independent analytical method, however, we will continue to examine this method.

1- Fundamental analysis

Fundamental analysis is based on the assumption that securities (and the market as a whole) have intrinsic value that can be estimated by investors.

In fundamental analysis, the intrinsic value of stocks is estimated through the evaluation of fundamental variables.

If the market value is less than the intrinsic value, the time is right to buy, and if the market value is more than the intrinsic value, the time is right to sell.

In fundamental analysis, investors first analyze the economy and the market as a whole in order to determine the right time to invest.

They then analyze industries or sectors of the economy that have good future prospects. In the end, the analyst concludes that the investment time is right and the right industry operates with high returns in the economic cycle, and then analyzes the companies in that industry.

Since market analysis indicates the right time to invest in stocks and industry analysis is done in order to find industries with the brightest future, so the investor will be able to select companies with better futures within those industries.

To do this, the investor must rely on two important components, namely dividends and expected rate of return, or alternatively, income and P / E ratio and their analysis.

Fundamental analysis at the company level includes the main financial variables to estimate the intrinsic value of the company.

These variables include sales, profit margins, depreciation, tax rates, financial resources, asset turnover and other factors.

Subsequent analyzes can include the company’s competitive position in that industry, labor relations, technological change, management, external competition, and so on. The end result of a firm-level fundamental analysis is the data needed to estimate stock prices.

Proponents of fundamental strategies believe that “price tends to intrinsic value in the long run,” so whenever they see a gap or gap between the value and price of the day in the process of fundamental stock valuation, they use it to draw conclusions about value or worthlessness. They use stock sales.

In summary, some of the advantages and disadvantages of fundamental analysis are:

Advantages of fundamental analysis:

  • Its biggest advantage is security against the psychological waves of the market
  • Fundamental analysis is suitable for long-term investments and focus on long-term trends
  • As a result of fundamental analysis, suitable stocks are identified for the long term
  • Fundamental analysis errors have a lower coefficient than technical analysis errors

Disadvantages of fundamental analysis:

  • Needs more expertise in finance
  • The application of this technique should be different from the characteristics of industries and companies, and it requires time-consuming and costly research.
  • It takes a long time to analyze companies and the limitations of informing companies are among the obstacles.
  • In case of environmental changes, the analysis will fail
  • Learning it is complex and time consuming

2- Technical analysis

Technical analysis is one of the traditional methods of selecting ordinary stocks and is completely different from the fundamental method.

Unlike the fundamental method, which is based on data such as dividends, sales, growth rates, or government regulations, the method of technical analysis is based on published market data. Market data includes stock price or market index level, volume (number of stocks traded) and technical indicators.

Technical analysis considers the change and movement of securities prices and uses this data to predict future changes and movements in its price.

Technicians use price charts that provide valuable information such as price movements and changes over a period of time, reaction before and after important events, past and present fluctuations, volume and amount of historical trades, and relative strength of a stock relative to They give us the whole market. Technical analysis also helps a lot in determining when to enter a trade.

Technical analysis is a method of forecasting prices using past prices. This method is based on the analysis of supply and demand of goods, stocks, futures indices or any tradable instrument.

This method is often called the market analysis method or internal analysis method, because this method examines the supply and demand of stocks in the whole market by recording stock data.

The purpose of technical analysis is to use time, in other words, to predict short-term price changes in stock and stock market indices separately.

This forecast is based on studying the market or stock changes through the analysis of price data and stock exchange volume or the study of technical indicators. Note that technical analysts pay attention not only to price levels but also to price changes and try to predict price changes.

In summary, the logic of technical analysis is:

1. Prices are determined by the force of supply and demand.
2. Various factors such as fundamental factors and psychological factors of the market affect the supply and demand.
3. The stock price changes to a new trend as the stock price changes and adjusts to new equilibrium levels.
4. Trends and changes can be analyzed and identified by studying price changes and trading volume over time.
Traders who use technical strategies believe that “all important market information is reflected in prices and trading volume” and that if they do not show some of their information in the price, it is practically of no value to market participants.

Technical analysts use concepts and tools such as indicators and oscillators, trend lines, supports and resistances, and so on.


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In summary, some of the advantages and disadvantages of technical analysis are:

Advantages of technical analysis:

  • A technical analyst can use his strategy in all markets and on all charts, and this is one of the biggest strengths of this type of analysis (while fundamental analysts can only use the results of examining their information in the relevant market). And this is due to the large volume of this information.)
  • The right time to buy plays an important role in the performance of the trader and the use of technical analysis method helps a lot in determining the time of purchase.
  • Indicates the most appropriate time to enter or leave in the short term
  • The cost and time of analysis is low
  • The training course of this method is short

Disadvantages of technical analysis:

  • Analytical errors in this method have a higher coefficient than fundamental analysis and due to different inclinations and prejudices of individuals, it is possible to interpret and analyze differently.
  • Difficulty in gathering information and creating software infrastructure to use stock price charts
  • Not used in small company stocks
  • There are many different analytical tools for this method

3- Market psychology

Given the wide range of market efficiency issues, investors sometimes take a brief look at the psychological debate in financial markets and the role that emotions play.

Especially in the short run, investors’ feelings and emotions affect stock prices and markets. Therefore, it is necessary to be aware of these issues in relation to decision-making and understanding of financial market processes.

BEHAVIORAL FINANCE means studying the behavior of investors using the idea that investors may act irrationally and that emotional behaviors are common in markets.

In this type of method, the trader does not do any analysis to find the right share. In fact, it focuses on stocks that are of interest to the market, which can be identified in several ways:

  • Stocks that had the largest trading volume per day.
  • The shares are listed in the most popular section of the Tehran Stock Exchange website.
  • The stock that has the most comments on social networks.
  • Stocks that have hot and sensitive news.

But managing emotions in the area of ​​trading is very important because traders often have to think fast and buy and sell stocks in a short time. As a result, they need to have a pre-determined trading schedule and plan that can better manage the entry and exit times of trades.

In this regard, traders should follow the guidelines based on their level of risk for the time of entry and exit of a trade (either for their profit or to impose their losses) and thus remove emotions from the trade.

Related article:  Risk-free investing in the stock market

In addition, a trader can decide how to buy or sell the stock he or she wants following certain developments, and set limits on the amount of profit or loss per trading day.

It is very important for a trader to be up-to-date and to acquire skills in studying financial charts and statements, analyzing news, industry and trading techniques. Because “knowledge” helps the trader to better overcome his fear.

In summary, some of the advantages and disadvantages of market psychology techniques are:

Benefits of Market Psychology:

  • Control emotions, overcome greed and learn flexibility while trading
  • Ability to change mental habits to align with market flow
  • Awareness of this will allow you to enter the investment markets with prior planning and strategy
  • It allows you to make your own investment decisions based on logic and avoid making emotional decisions

Disadvantages of market psychology:

  • These trading strategies are very risky
  • Knowledge of market psychology is complementary to a variety of financial market analyzes and is not sufficient on its own. Understanding financial market processes and techniques paves the way for buying and selling opportunities, and controlling personal emotions and anticipating investors’ emotions can also play an important role in a person’s profit and loss.

Related posts:

The difference between a good trader and a bad trader in the stock market

Trading Psychology Trainings

Which method should we use for stock analysis?

The choice between fundamental and technical analysis depends on the investment period, goals and circumstances of the individual. But in general, most investors and professional traders recommend using both fundamental and technical analysis to select stocks and make decisions.

The combination of these two types of analysis is called technofandamental analysis.

However, in some cases it is not possible to use these two analyzes and there is not even such a need. For example, people who make short-term fluctuations on a daily basis naturally can not spend much time on fundamental analysis and do not need to.

These people make their buying and selling decisions simply by analyzing charts and market psychology.


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