One of the key objectives when investing capital is to identify financial instruments that can help increase or at least preserve investments. Large investors, mid-sized players, and small speculators use various methods to anticipate future trends and forecast market dynamics.
To make investments effective, a multi-level stock market analysis must be conducted as part of an investment strategy. Depending on the investment volume and duration, two primary approaches are used: technical analysis and fundamental analysis.
Both methods serve as indicators of market conditions and complement each other.
To make investments effective, a multi-level stock market analysis must be conducted as part of an investment strategy. Depending on the investment volume and duration, two primary approaches are used: technical analysis and fundamental analysis.
Both methods serve as indicators of market conditions and complement each other.
Technical Analysis
Technical Analysis
Technical analysis is used to forecast future price changes based on past price movements. It is based on analyzing time series of prices, usually represented in charts with various timeframes. Additionally, trading volumes and other key statistical data are considered.
A variety of tools and methods are employed in technical analysis, but all rely on a common assumption: by identifying trends in time series, it is possible to predict future price behavior.
One example of technical analysis is candlestick charting. "Japanese candlesticks" are the most common method of visualizing price movements in the stock market today, and analyzing their patterns can be quite effective.
Japanese candlestick patterns are classified into two groups: reversal patterns and continuation patterns.
Key reversal formations include:
A variety of tools and methods are employed in technical analysis, but all rely on a common assumption: by identifying trends in time series, it is possible to predict future price behavior.
One example of technical analysis is candlestick charting. "Japanese candlesticks" are the most common method of visualizing price movements in the stock market today, and analyzing their patterns can be quite effective.
Japanese candlestick patterns are classified into two groups: reversal patterns and continuation patterns.
Key reversal formations include:
- Inverted Hammer
- Shooting Star
- Bullish Engulfing
- Bearish Engulfing
- Hammer
- Hanging Man
- Morning Star
Among the main continuation patterns are:
- Windows
- Tasuki Gaps
However, on the Vietnamese stock market, the application of candlestick analysis is somewhat limited, and only a small number of candlestick patterns are commonly used.
Additionally, traders use indicators and oscillators. Technical indicators are mathematical calculations based on price data that help determine price trends. Oscillators, on the other hand, are mainly used when prices move within a relatively narrow "market corridor" (a sideways trend).
Some of the most widely used indicators and oscillators include:
Additionally, traders use indicators and oscillators. Technical indicators are mathematical calculations based on price data that help determine price trends. Oscillators, on the other hand, are mainly used when prices move within a relatively narrow "market corridor" (a sideways trend).
Some of the most widely used indicators and oscillators include:
- RSI (Relative Strength Index)
- MACD (Moving Average Convergence Divergence)
- Momentum
- Stochastics
- ADX (Average Directional Index)
Traders conduct technical analysis to identify the best conditions for opening market positions, i.e., buying and selling stocks.
By studying overall stock market behavior and the dynamics of specific stocks, traders attempt to predict future price movements. However, in practice, minor price fluctuations often do not indicate clear trends. A broader market analysis, an assessment of the issuing company’s condition, and experience gained from analyzing similar stocks' past behavior are required.
By studying overall stock market behavior and the dynamics of specific stocks, traders attempt to predict future price movements. However, in practice, minor price fluctuations often do not indicate clear trends. A broader market analysis, an assessment of the issuing company’s condition, and experience gained from analyzing similar stocks' past behavior are required.
Fundamental Analysis
Fundamental Analysis
Fundamental analysis is used to assess the financial and economic conditions of industries, individual companies, and their investment attractiveness. Companies are considered attractive if their stocks are stable in the long term and if the companies themselves have growth potential. This type of analysis helps determine, with a high degree of accuracy, the fair or intrinsic value of securities.
Fundamental analysis involves an in-depth study of a company’s financial position, growth prospects, and public documents.
Fundamental analysis involves an in-depth study of a company’s financial position, growth prospects, and public documents.
Two primary methods are commonly used to determine the fair value of a stock:
- Comparative AnalysisThis method compares a company with similar enterprises that have available transaction price data or publicly traded stock values.
- Discounted Cash Flow (DCF) MethodThis approach assumes that a company’s value is determined by forecasting its future cash flows.
What’s the Difference and When to Use Each?
Fundamental analysis helps determine whether a company’s stock is undervalued or overvalued at a given time, guiding decisions on long-term portfolio inclusion. Meanwhile, technical analysis helps identify the best timing for making transactions. Fundamental analysis is more suited for long-term investing, whereas technical analysis is used for short-term speculative trading.
In practice, a combination of both methods is often applied. They complement each other well, and using them together allows for a comprehensive market picture and more precise price movement forecasts.
However, fundamental analysis is less commonly used because it is primarily relevant for long-term investing or selecting the most attractive asset for investment. Recently, it has taken a backseat in stock market analysis. The "virtual economy" has become increasingly detached from the real economy.
Since the 2008 financial crisis, stock markets have grown despite challenging real-sector economic conditions and weak macroeconomic indicators. Today, stock prices of listed companies depend more on global financial trends than on the efficiency of a company’s management and operations.
In practice, a combination of both methods is often applied. They complement each other well, and using them together allows for a comprehensive market picture and more precise price movement forecasts.
However, fundamental analysis is less commonly used because it is primarily relevant for long-term investing or selecting the most attractive asset for investment. Recently, it has taken a backseat in stock market analysis. The "virtual economy" has become increasingly detached from the real economy.
Since the 2008 financial crisis, stock markets have grown despite challenging real-sector economic conditions and weak macroeconomic indicators. Today, stock prices of listed companies depend more on global financial trends than on the efficiency of a company’s management and operations.
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