There are two main types of stock market analysis utilized by investors. They include other concepts, some of which will be explained in this article. When performing analysis on the stock market, there are many factors to consider, but first you must decide which method you would like to utilize.  Stock market analysis includes fundamental and technical analysis. Investors will typically stick to one method or the other and will typically not use both in tandem.

Stock Market Analysis includes the concept of fundamental analysis. Fundamental analysis is the long-term assessment of a company’s financials in order to calculate how much the business is worth. This tells investors how much the company’s stock is worth to determine the potential shares the investor is willing to buy for that company. Investors who utilize this method also practice other concepts. These concepts include knowing the price to earnings ratio of a company, meaning that investors need to know what the company’s share price is compared to its earnings per share. Investors also need to know the dividend yield which is the company’s annual dividend payments and also need to know what the dividend per share divided by the price per share is for that company. There are other concepts included in this type of stock market analysis, but the main idea of fundamental analysis is bases on long-term investing.

Another form of Stock Market Analysis includes technical analysis. This type of analysis includes the forecasting of future financial price movements based on past price movements. This method can assist investors to anticipate what is likely to happen to prices over time. Technical analysts are not interested in the intrinsic value of a company but prefer to identify patterns that suggest future activity.  These investors use technical analysis tools, including the use of stock charts. The use of charts in this type of stock market analysis enables the investor to identify the underlying trends or stock chart patterns for that stock. They look for stock charts with rising trends and the familiarity with trend line formations can help to measure the overall attitude of investors towards stock and companies.

When performing technical stock market analysis the investor will take part and learn about stock charting.  When learning how to read stock charts the beginner investor should learn now to read four types of charts. Those include bar charts, line charts, point and figure charts, and candlestick charts. Many successful traders believe that candlestick chart patterns are the easiest and most beneficial to read. Unlike bar chart that illustrates what price movements did during a specific timeframe, candlestick charts reveal 'how' that price moved. Candlestick charts demonstrate what investor sentiment was doing during the timeframe and how it did it. This additional information creates a huge advantage for the candlestick investor when participating in stock market analysis.

When deciding which type of stock market analysis is right for you, please note that there are two arguments against stock fundamental analysis. The first is that a lot of the fundamental type of information is very subjective since it is based on each individual investor’s interpretation. The second reason is that stock technical analysis investors believe that fundamental analysis provides no real advantage. They believe this is due to the fact that all of the investing information is based on information that investors in publicly traded markets already know.

If you have decided to participate in stock market analysis, be sure you understand the advantages and disadvantages of both types. This will help you to make a decision as to which method you would like to practice when playing the stock market.

People often forget that a number of well run managed funds went out of business in the 1990s because they owned companies with good fundamentals. Investors wanted a high tech speculative stock. Prices do not move based upon fundamentals. Prices move based upon the perception of fundamentals. This is the most important element for successful investing. If you understand what investor sentiment is doing, you will be able to analyze price trends successfully. When IBM trades up one dollar on one day and down one dollar the next day, absolutely nothing changed in the fundamentals of that company. The only change was that investor's perception of those fundamentals was different.

For many years I wanted to figure out how to identify where the next major industry move was going to come from. As a stockbroker, it was assumed that the research departments of major brokerage firms had resources and talented analysts to find the next great opportunities. Unfortunately, many decades of watching research departments has illuminated the fact they have no more insights into the next major growth areas as anybody else. Fortunately, candlestick analysis dramatically improves the process for discovering which industries are now receiving inordinate interest.

The primary axiom of candlestick analysis is that the candlestick signals are the accumulative knowledge of everybody buying or selling during a specific time frame. Taking that concept into the analysis of a sector creates huge advantages for the candlestick investor. A large investor may be able to move an individual stock. A large money manager or hedge fund manager may be able to move an individual stock substantially. But it has to be assumed that one money manager will not be able to reverse a trend of a sector. That requires a change in multiple money managers. The visual aspects of candlestick analysis can take advantage of the accumulative result of multiple well-financed research departments. When the big money starts buying a sector, it will become very evident. A majority of stocks in that sector will start showing accumulation. Use the candlestick signals, and the information built into them, to identify where the big money is moving to. Market direction - Why is it useless to listen to the parade of market analysts on the financial news stations? Because each analyst is merely one opinion. The best analysts in world do not know what the market is going to do three weeks from now, three months from now, or three years from now. Let the market tell you what the market is doing. Where do most investors and analysts become the most negative? At the bottom of a trend. Where do investors and analysts become most optimistic? At the top of a trend. Is that the result of fundamentals? Definitely not! That is emotions. Last Wednesday, the majority of analysts interviewed had many reasons why this market is going lower. Crude oil prices, the sub prime debacle, the slowing down of the American economy were all reasons conveyed for why the markets were headed lower. However, Friday's trading provided a different scenario.

The formation of a bullish Harami revealed that the selling had stopped. The bullish Harami is one of the 12 major signals. It occurred at the same level the markets bottomed out in mid-August. Stochastics are in the oversold condition. It is this the bottom? The indications at least reveal the downtrend is not as substantial as the bearish sentiment would indicate. There is some buying at these levels. Now the tee line becomes the next influencing factor. Until the tee line can be breached, the downtrend should still be in progress. But knowing what the candlestick signals are revealing, the candlestick investor knows what should occur after today's trading action.

The ability to analyze a trend direction becomes much easier when knowing the simple rules of the 12 major signals. The point of investing is to place funds into situations where the probabilities can be analyzed with a fairly high degree of accuracy. Candlestick analysis is a very simple-to-learn and easy-to-implement analytical method. What appears to be the correct time to start buying requires some common sense entry strategies. Not all buy signals are going to work, or at least work immediately. Utilizing the information in the Candlestick Forum's Entry and Exit Strategies Training CD takes an immense amount of guesswork out of when to buy and when to sell. Click here for the Entry and Exit Strategy Training CD special.

Does every buy signal work? Does every sell signal work? Not always but the degree of accuracy is extremely high. When buy signals occur in the oversold conditions, you gain a major advantage for getting into a position early. That advantage is enhanced by simple entry rules that improve probabilities of being in the correct trade at the correct time. The lack of expected results after a candlestick buy signal helps keep investors from getting into a trade that is not going to work. This may seem like a very elementary observation, but these observations become much easier to apply utilizing candlestick signals.

DOW

The failure of the Tee-line and a failure of bullish confirmation of the Bullish Harami makes for an easy assessment. The downtrend is obviously still in progress. This may seem like an understatement but the visual aspects of the candlestick signals tells us when to get in or not to get in.

The tee line works extremely well in conjunction was candlestick signals as a highly reliable trend indicator. When applying confirmation rules the candlestick signals  and using the tee line, the evaluation of a trend is very easy to assess. As illustrated in many of the  Candlestick Forum Major Signal training CDs, a sustained trend requires the confirmation of a reversal signal AND a close above or below the tee line. This again is applying the probabilities found in observations. Utilize the knowledge that has  produced high probability profits in the past.                             

Chat session tonight for members at 8 p.m. ET - We will evaluate which indicators need to be addressed for identifying a bottoming reversal set up.