Forecasting the market is a difficult part of stock market analysis, as forecasting the market has become the most complex task of an analyst. Market forecasts help a trader choose the type of security, when to buy or sell a security, and how much to invest in that security.
The type of analysis used by traders or market analysts falls into two broad categories:
1. Fundamental analysis
2. Technical analysis
Both of the above methods rely on certain insights from various sources of information, analytical data or investment charts.
Fundamental analysis involves an in-depth study of the financial operations, economic condition, assets, debts, management, products, and completion of the business. Thus, fundamental analysis is based on studying the financial and segment information of a company to predict the evolution of the price of its shares. Fundamental analysis is generally useful in long term investments and day traders don't rely on it very much. However, some believe that studying fundamentals and technique simultaneously can yield better results for day trading.
Technical analysis is the method of evacuating securities by analyzing stock charts. It includes the analysis of market data, volume and open interest in order to predict the future trend of a stock. Analysts study the past performance of the company and study the charts to analyze if there are any trends in the price of this stock. Information about a stock's price, volume, and other important information can be displayed on a chart. There are various software where the study of such a graph can be done very efficiently and easily to study patterns and trends. These models also help determine when to buy or sell a security.