How to Perform a Stock Market Analysis in 7 Steps


Stock market analysis sounds like a complicated process, and it is, but that doesn’t mean you can’t master it. After all, I don’t come from a background in the finance industry. I stumbled upon my own day trading strategies while working as a chemical engineer.

If I can do it, you can do it.

However, you might need a blueprint to help you better understand how stock market analysis works and what you should look for. The following are the seven critical steps to learning how to analyze the stock market.

1. Understand the Difference Between Technical and Fundamental Analysis


There are two types of stock market analysis: technical and fundamental. They’re both critical for finding success in the stock market, but you’ll likely find that you prefer one over the other.

Fundamental analysis refers to the use of financial documents, news catalysts, and other information about a company — not necessarily its stock — to make trading decisions. I’ll get into this more below, but you might use income statements, balance sheets, and other sources of information to figure out how a company will perform in the future.

Many investors use fundamental stock market analysis for long-term trades and options trading. They’re relying on information about the company behind the stock to execute effective trades.

Technical stock market analysis is much different. It’s the use of charts to find patterns in a stock’s historical performance so the investor can make predictions about its future activity. You’ll find that many stock patterns repeat themselves, sometimes year after year, and if you can spot those patterns, you can also trade on them.

Investors often prefer technical analysis for day trading strategies, trading penny stocks, and swing trading. They’re looking at price movements over a specific and often condensed period of time.

2. Review Financial Statements

Financial statements might look like Greek at first, but they’re easy to figure out. Income statements, for instance, simply list and compare a company’s expenses against its revenue. A company that’s profitable will have greater revenue than expenses.

A balance sheet, as the name suggests, balances out a company’s assets and liabilities as well as stockholders’ equity. When prepared correctly, both sides or halves of the balance sheet match.

Finally, you have the statement of cash flows. It lists all of the money that’s coming in (revenue) as well as what it’s spent on, from operating costs and new equipment to payroll and financing.

The more experienced you get with financial statements, the more prepared you’ll become for stock market analysis. You’ll learn how specific information can predict a company’s future stock market price fluctuations so you can capitalize on losses or gains.

3. Pay Attention to Breaking News

A catalyst often precedes a major change in a stock’s price movement. Let’s say, for instance, that Company ABC has just sold off a bunch of assets to cover its debts. This might precipitate a stock market price decrease, in which case you could short the stock and make a profit.

However, you don’t want to use catalysts alone for stock market analysis. A changeup in leadership or a recall might cause a stock price to move one way or another, but it might not. You need to have access to either financial documents or stock charts so you get the full scope of what’s going on with that company’s stock.

The only exception might be with certain day trading strategies. If you’re only going to hold onto a stock for a short period of time, reacting to a catalyst might work in your favor. You might get in on the long or short position before everyone else, which means bigger profits for you.

Just understand that it’s a risk.

4. Compare Companies in the Same Space

There’s a reason many investors specialize in specific sectors, such as tech or energy. They understand those markets better than any other and know about all the major players in that space.

During stock market analysis, you don’t want to view a stock as though it exists in a vacuum. Sometimes, stocks in a particular sector move together; in other cases, they move against one another because of specific problems or successes within one company or another.

If you know how other companies are performing, you can better predict one stock’s future price movements. Look at both technical and fundamental analysis to get the big picture, then hone in on key details that might influence a stock one way or another.

5. Learn How to Read Stock Charts

Stock charts help you see how a stock has performed historically. You can view it as a bar graph, line graph, candlestick, or other charts that you like.

They might sound boring or even difficult, but they become second nature after you’ve looked at lots of them. When you’re first starting, pay attention to what each price movement means. Try looking at charts that span different time frames and comparing one stock chart to another.

6. Find Promising Chart Patterns

I’ve discovered my own stock patterns that I use to help other people make money off my stock market analysis. You might find your own patterns, as well.

A pattern is a repetition in a stock’s price movement. For instance, a flag pattern shows a consistent period of subtle movements in the stock price followed by a sudden upswing or downswing. If you track these patterns, you can predict what a stock’s price will do next.

Of course, chart patterns don’t always recur. There are no guarantees when it comes to investing or day trading strategies, so you have to gauge your risk tolerance and decide whether you’re confident in what you see in the charts. Additionally, you can combine technical and fundamental analysis to get a bigger understanding of a stock’s movements.

7. Get to Know Stock Market Jargon

Understanding the key terms inherent to stock market analysis will make you a better trader. You can digest advice easier and carry on conversations with other investors without getting lost. The following are some of the most common stock market analysis terms.

  • Buy: This is when you buy one or more shares of a given stock.
  • Sell: When you own shares in a given stock, you can sell them to other investors.
  • Short: If you think a stock will go down in price, you can short it, which means borrowing shares from your broker and returning them after you buy them back at a lower price later and pocketing the difference.
  • Candlestick: This is a particular type of stock chart pattern that resembles candlesticks.
  • Options trading: This is when you buy the option to buy or sell a certain number of shares by a specific expiration date.
  • Day trading: A day trader buys and sells shares in a stock within the same day.
  • Swing trading: A swing trader buys and sells stock within a short window, such as 10 days.
  • Futures contract: A futures contract is similar to an options contract, except that you must buy or sell the stock by the expiration date.
  • Broker: A broker executes trades on behalf of an investor.
  • Bid: The bid is the price at which a shareholder is willing to sell stock.

  • Ask: The ask price is the price at which someone is willing to buy stock.

  • Spread: This is the difference between the bid and ask prices.

  • Volatility: A volatile stock has widely fluctuating price movements.

  • Volume: The number of shares of a given stock traded over 24 hours.

  • Limit Order: The order you place with your broker to buy or sell stock at a given price.

  • Opening and closing: The open and close of the stock market in a geographical area.

  • Market maker: A person or entity who influences and creates volume in the stock market.

These are just a few definitions you’ll need to know to find your way through stock market analysis.


As you can see, stock market analysis involves many moving parts, all of which work together to influence stock prices. When you gain experience, you can start to make predictions based on what you learn about a particular stock.

If you’re ready to jump into investing now, though, check out The 10-Minute Millionaire Pro. It’s a publication that helps you make decisions about your trading activities with sound advice and proven formulas. I’d love to have you on our team!

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