Stocks are one of the most popular investment instruments in the world. Many people invest in stocks to gain greater profits compared to other investment instruments such as deposits or mutual funds.
However, not everyone knows how to read stocks correctly. In this article, we will discuss several ways to read stocks that can help you invest in the stock market.
Learn about Company Fundamentals
Before deciding to buy stocks of a company, it is advisable to first learn about the fundamentals of that company.
Company fundamentals cover aspects such as financial performance, management quality, and business prospects.
You can evaluate company fundamentals by looking at financial reports, industry analysis, and company-related news.
If the company fundamentals are good, then the company's stock is likely to experience a rise in value in the future.
One of the most important aspects of company fundamentals is financial performance. Financial reports such as income statements, balance sheets, and cash flow statements provide insights into the company's revenue, expenses, and profitability.
By analyzing these reports, you can determine the company's financial health and its ability to generate profits.
Another aspect of company fundamentals is management quality. Good management is essential for the success of any company.
You can evaluate management quality by looking at the track record of the company's top executives, their experience in the industry, and their decision-making abilities.
Use Technical Indicators
Technical indicators are analysis tools used to help read stock price movements. Some commonly used technical indicators include moving averages, relative strength index (RSI), and stochastic oscillator.
Technical indicators can provide buy or sell signals based on past stock price movements. However, technical indicators also have limitations, so it is best not to rely solely on them.
Pay Attention to Stock-Related News
Stock-related news can affect the stock price of a company. Positive news such as increased profits or new business contracts can cause the stock price to rise, while negative news such as scandals or losses can cause the stock price to fall.
Therefore, it is advisable to pay attention to stock-related news of a company before deciding to buy or sell its stocks.
Check Industry Performance
The performance of the industry sector can also affect the stock prices of a company. If the industry sector is growing, then stocks of companies in that sector are likely to increase in value.
Conversely, if the industry sector is experiencing a decline, then stocks of companies in that sector are likely to experience a decline in value. Therefore, check the performance of the industry sector before deciding to invest in a company's stock.
Pay Attention to Stock Charts
Stock charts are visual representations of a company's stock price over a certain period of time. Stock charts can provide an overview of stock price trends, trading volume, and price movements in the past.
By paying attention to stock charts, you can make better investment decisions. For example, if a stock chart shows an upward price trend, then it might be the right time to buy that stock.
To read a stock chart, you can apply the following tips:
Determine the Time Frame
Before reading a stock chart, you need to determine the time range so that the chart can show the movement of the stock at the time you choose. The time range that can be selected is daily, weekly, monthly, and yearly.
Read the Stock Price Trend
After determining the time range, you can read the stock price trend. Here, you can see whether the stock price is currently rising or falling. There are several terms in stock trends, namely bullish (upward trend), bearish (downward trend), and sideways (limited trend).
Read the Support-Resistance Price
The next step is to read the support and resistance of the stock price. This is important for investors to analyze the stock price.
Support is a lower boundary indicator where the price in the past tends to reverse from falling to rising. In contrast to support, resistance is an upper boundary indicator where the price tends to reverse from rising to falling.
Analyze Price Movement Momentum
Finally, you need to analyze price movement to draw a conclusion. Price movement momentum is usually clearly visible when using a Candlestick Chart.