What is a Stock
Plain and simple, a stock is a share in the ownership of a company. Stock represents a claim on the company’s assets and earnings. As you acquire more stock, your ownership stake in the company becomes greater. Whether you say shares, equity, or stock, it all means the same thing.
Being an Owner
Holding a company’s stock means that you are one of the many owners (shareholders) of a company and, as such, you have a claim (albeit usually very small) to everything the company owns. Yes, this means that technically you own a tiny sliver of every piece of furniture, every trademark, and every contract of the company. As an owner, you are entitled to your share of the company’s earnings as well as any voting rights attached to the stock.
Technical Analysis vs Fundamental Analysis
Fundamental analysis is a method of evaluating securities by attempting to measure the intrinsic value of a stock. Fundamental analysts study everything from the overall economy and industry conditions to the financial condition and management of companies.
Technical analysis is the evaluation of securities by means of studying statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security’s intrinsic value but instead use stock charts to identify patterns and trends that may suggest what a stock will do in the future. http://www.investopedia.com/
The field of technical analysis is based on three assumptions:
- The market discounts everything.
- Price moves in trends.
- History tends to repeat itself.
1.The Market Discounts Everything
- A major criticism of technical analysis is that it only considers price movement, ignoring the fundamental factors of the company.
- Technical analysis assumes that, at any given time, a stock’s price reflects everything that has or could affect the company – including fundamental factors.
- Technical analysts believe that the company’s fundamentals, along with broader economic factors and market psychology, are all priced into the stock, removing the need to actually consider these factors separately.
2. Price Moves in Trends
- In technical analysis, price movements are believed to follow trends.
- Once a trend has been established, the future price movement is more likely to be in the same direction as the trend than to be against it.
- Newton’s first law states that every object will remain in a similar motion unless compelled to change its state by the action of an external force.
3. History Tends To Repeat Itself
- Another important idea in technical analysis is that history tends to repeat itself, mainly in terms of price movement.
- The repetitive nature of price movements is attributed to market psychology; in other words, market participants tend to provide a consistent reaction to similar market stimuli over time.
- Technical analysis uses chart patterns to analyze market movements and understand trends. Although many of these charts have been used for more than 100 years, they are still believed to be relevant because they illustrate patterns in price movements that often repeat themselves.