There are two basic analysis methods used in the stock market: the technical analysis and the fundamental analysis. While the technical analysis is involved with graphical representation of price movement and the formation of patterns to detect trades, the fundamental analysis is more of a trading strategy that looks at market and economic forces that determine the fluctuations in the stock market. Though the technical analysis is increasingly becoming popular, fundamental method of stock analysis is still an important method of analyzing stocks for profitability.

As a Motley Fool style stock investor, having knowledge of these two basic analysis methods will help you succeed in your quest to become another stock investment guru. Our main concern in this article is to educate you on the fundamental stock analysis and how it can be used to make consistent profits in the stock market. The basic idea behind the fundamental analysis is to find out how the company in question is performing financially in comparison with other companies in the same industry.

With the fundamental analysis, you will be able to find out the financial history of the company and determine whether its stock has a growth potential or not. The earnings of a company depend on speculations and what investors feel about the stock. A company with a strong earnings record will normally boost the investors’ confidence and give them the belief that the stock has strong future outlook. But if a company’s earnings indicate otherwise, it will discourage investors which may bring down the stock even further.

It is mandatory for all listed firms in the stock market to present reports on their periodic earnings. This information is what is used by stock analysts to find out the health and strength of stock they are considering buying. If these figures are below their expectation, it may then signal a slump in the price of the company’s stock. The financial statement contains items such as cash flow statement, external auditors report, the company’s balance sheet, income statement, description of its business activities, and projection of earnings for the coming financial year.

These financial statements are detailed enough for investors to make investment decisions on them. Previously, the statements are only available on printed reports, but the advent of the internet has made it widely available to anyone. When analyzing stocks based on fundamental analysis, it is important to take note of all details of the company’s history and financial reports. No doubt, a proper fundamental stock analysis before taking a decision on an investment will help you pick out stocks with low risk ratio and high yield potentials.

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Stock picks are one of the most profitable and choicest stock deals in the stock market today. Skillful and knowledgeable stock analysts can give suggestions on the ideal stock picks and the most profitable stock trading scenario. Generally, picking of stocks is referred to as the professional and strategic method of selecting stocks with the intention of selecting the most profitable trades.

There are certain criteria used by stock analysts in determining the most favorable stocks under a particular market condition. Stock picking is among the four major investment strategies that are applied in stock market investment. The other three major strategies include sector timing analysis, market timing analysis, and buying and holding strategy. If the right stock picking strategy or method is utilized, there is a great chance of earning huge amounts of returns in hours, days, or months depending on the liquidity in the market.

There are several methodologies used in stock picking but financial evaluation is arguably the most profitable methodology. In the financial evaluation method, a firm’s financial status in the present, past, and future is thoroughly analyzed to find out whether such stock will perform well when picked. The ROE, PB, and PE are some of the processes taken to evaluate the financial strength of a stock. The return on equity (ROE) shows you the financial strength of a firm. The price to book ratio (PB) is employed when comparing the book value of a stock to its market value. On the other hand, the price to earnings ratio is used to compare the per share earnings of a company’s stock to its current stock. Stock picks are usually listed based on the EPS growth, stock chart patterns, GSA rank, and the stock’s basing period. Other important factors that are employed when making decisions in stock picking include market regulation, size of the market, and the quality of management. You need to know how to invest in a bull market and how to protect yourself. I advice to read this bear market book .

The stock market is an unpredictable one, and a very good way to stay safe is to rely on stock picks that have been suggested by seasoned stock analysts. This will enable a new investor learn the trades in the stock market without risking too much. There are several stock market investors that rely on stock picking strategies alone when investing in the stock market. Even those with other kinds of strategies occasionally pick stock by going through stock picking criteria. This is an ideal way to go when investing in the stock market as it gives you the opportunity to minimize risk while generating higher returns in the process.

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