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Stock market terms

July 11th, 2010

Fundamental & technical analysis

One of the advantage of recognizing  the time intention to trade is when the analyst or investor need to take data for analyzing stock market. Willingness to predict stock price in longer time means that investors need to compile fundamental data such as sales, earnings, dividends, interest rates and so forth. Yes, in this case, investors do fundamental analysis. How long it takes for relatively long time trading? McDonald suggested it for at least nine months.

Thus, if you’re interested in predicting price movements of less than six months, you should study technical data, he suggested. Technical analysis is the process of compiling and considering information gathered on the stock exchange floor, such as volume, current stock price, and short interest, in an effort to predict stock process.

Hence, examining fair value of stock actually is lying back to fundamental analysis. It is because fair value of stock determined by put fuzzy (uncertain) future dividends of stock as numerator (in the top) of fraction and interest rate raised to a power in the bottom (denominator). Interest rate is more certain than dividends of stock.

The pivotal point

Jesse Livermore emerged term of pivotal point to describe the situation in the market that gave a sign to start a trade. He convinced that he have always made money in his operation. But, the exact sign of when the pivotal point is arrived at is blurred and subjectively for someone else. A pivotal point essentially is a price or a moment in time form which trader know real soon which way the market will go. Thus, the location of the point depends on the model applied by traders to understand the market.

Theory of contrary opinion

When the vast majority of market participants think stock prices will advance, they usually decline. Likewise, when the vast majority thinks prices will decline, they advance. Prices will move contrary to what investors expect when those expectations have reached an extreme. The importance of the theory is the necessary and sufficient condition to signal the start of a major movement up or down in stock prices is extreme investor sentiment.

*APH2 m303, 2:27pm*

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