In our last segment we introduced several types of stock market research. In this segment we will follow up our discussion of technical analysis and then continue on to fundamental analysis.

Technical stock research has become popular over the past several years, as more and more people believe that the historical performance of a stock is a strong indication of future performance. The use of past performance should not come as a big surprise. People using fundamental stock research have always looked at the past performance by comparing fiscal data from previous quarters and years to determine future growth. The difference lies in the technical analyst’s belief that securities move with very predictable trends and patterns. These trends continue until something happens to change the trend, and until this change occurs, price levels are predictable.

Fundamental Stock Research

The massive amount of numbers in a company's financial statements can be bewildering and intimidating to many investors. On the other hand, if you know what to look for, the financial statements are a gold mine of information.

Financial statement analysis is the biggest part of fundamental stock research. Also known as quantitative analysis, this involves looking at historical performance data to estimate the future performance. Followers of quantitative analysis want as much data as they can find on things like revenue, expenses, assets, liabilities, etc. This information, and not just its stock price, is what they believe will give insight into how a company's share price will perform in the future.

Fundamental stock research makes extensive use of ratios (comparing two pieces of information against one another). These ratios can be broken down into three primary areas: performance, activity and financing. Each of these areas has its own set of ratios which indicate the company’s performance in the given area.

Conclusion

The stock research you do prior to the purchase or sale of a stock can save you money in the long run. While no one stock research method can guarantee that you will always make money on your purchase, it can increase the likelihood of successful stock trading. By using a combination of technical stock research and fundamental stock research you can better gauge a stock’s past performance and, hopefully, draw conclusions about its future performance.