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Fundamental and Technical Analysis

Fundamental and Technical Analysis

  • Meaning of Fundamental Analysis:- A security's intrinsic value is calculated using fundamental analysis (FA), which looks at relevant economic and financial elements. An investment's intrinsic value is determined by the financial health of the issuing company, as well as the general market and economic climate. Fundamental analysis analyzes the intrinsic value of an investment through openly accessible financial information. Financial statements, such as quarterly and yearly reports and filings, contain the data necessary for fundamental analysis.
  • ROE Ratio:- The return on shareholders' equity ratio (ROE) displays the amount of money given back to the shareholders as a proportion of the capital they initially invested or kept in the business.
  • EPS Ratio:- Earning Per Share(EPS), a popular statistic for determining corporate value, shows how much money a firm produces for each share of its stock. Because investors would pay more for a firm's shares if they believe the company has larger earnings relative to its share price, a higher EPS denotes more value and it should be compared with other firms in the same sector. 
  • PE Ratio:- Investors' willingness to pay a given amount for one rupee of a company's EPS is measured by the Price Earning (PE) ratio. The share price increases and vice versa if future earnings are anticipated to increase. The PE ratio increases if the share price increases more quickly than the rate of profit growth. The PE ratio goes low if the share price declines considerably more rapidly than earnings. A stock with a high PE ratio is pricey and may see a decline in value in the future.
  • Meaning of Technical Analysis:- Technical analysis uses historical price charts and market data to analyze and forecast price changes in the financial markets. It is predicated on the notion that a trader may create a reasonably accurate prediction of future price trajectories provided they can recognize historical market patterns.
  •  Candlestick analysis:- The high, low, open, and closing values of securities for a particular period are shown on a candlestick price chart, a form of price chart used in technical analysis. Technical analysts use candlesticks to decide when to enter and exit trades because they show how investor reaction affects the price of securities. Long white/green candlesticks show intense purchasing pressure, which often denotes a bullish price trend. Long black-and-red candlesticks show strong selling pressure. This implies that the price is declining.

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