We recently shared Share Market for Beginners to give you an understanding of the basics. When deciding to invest, it can be tough to decide which shares to buy. Here are a two common ways to analyse shares.
The first is called Fundamental analysis:
This takes into account that you need to research the company you are considering buying shares in. You need to understand how they make their money and what their position is within the market.
If the company has a strong position within the market they will potentially maintain their profit margins.
Consider if the industry is likely to grow in the future and whether these goods or services will be in demand or decline in the future.
The other is known as Technical Analysis:
As with the property market, shares and share markets tend to move in cycles. Technical analysis uses the price charts to see patterns or cycles in shares and markets. The basic idea of Technical analysis is to take advantage of these cycles to buy when the cycle is beginning and then ride the share up while it is trending. Once the cycle changes and the price begins to fall an investor will sell that share and move onto the next one that is beginning its cycle.
Technical analysis can be used on a chart of the market as a whole to protect against the big market crashes that occur from time to time like the Global financial crisis in 2008. Basically, they key difference between these two forms of analysis is that technical analysis looks at charts and fundamental analysis looks at financials. Technical analysis can be used on a days, weeks or minutes basis whereas fundamental analysis takes a longer-term approach. You don’t necessarily have to choose one approach definitively; you can take a combined approach.
Which approach are you more likely to take?
