What is a Stock Analysis?

A stock analysis is the action of digging down deeper into a company to see if it is worth trading. There are many different angles to consider when analyzing stocks, but when complete, you'll have a good idea whether the stock is a good trade or one to just pass up.

The initial qualifiers for a stock should be the reason you found it to begin with. This does not include hearing it in the stock market forums or groups. But a stock scan can help you find stocks that are ready to buy (with exception of some due diligence work on your part).

A properly set up stock scan provides an ample supply of potential stocks reaching their lows and ready to go up if they meet all of your chart trade requirements. The key to good stock analysis is determining why the stock price is going down in the first place.

There is a natural oscillation that occurs with the price of a stock. Some are more well defined than others, but this happens because of all the predictable outside and inside influences working on the price. Supply, demand, company income and expenses, stock sector influences, and overall market influences all play a role in how a stock price oscillates up and down.

But other things affect a stock price that are not natural and can cause a stock price to plunge further (making it an unsafe trade).

The Beginning Steps of Stock Analysis

The first thing you should always do for stock analysis when you find a stock to trade is some good ole fashioned research. I like to do a Google search of the company name or stock symbol first to see what pops up in the search results. Search results should show a company's related website, news from different news outlets, and other useful information. This is especially important if you don't know anything about the company.

Next, I plug the ticker into Barcharts.com and see the analyst's recommendations, news, and all of the company's numbers.

It's nice to be able to read a company's balance sheet, especially if you never heard of the company. Look for key numbers such as total assets, total liabilities, how it compares to other similar companies in the sector.

News is vitally important because it pushes on the stock price with an emotional power that can't be predicted by an automated system. Any negative news about a company can add an extra downward influence that pushes the price lower than expected (and can push the stock price down below where you buy it, even if all of your signals are perfect for a buy).

Qualifying a Stock to Trade

There are five things you should always do before you trade a stock. This is called "qualifying a stock". Stock analysis helps determine if the stock is ready to trade or not.

Qualifier 1: Determine the current market direction. Analyze the three major indexes (Dow, NASDAQ, and S&P) to see what they are doing. If the overall market (the average of the 3) is trending up, it is safe to trade. If the overall market is trending down, it is not safe to trade.

If the market is down, I wouldn't even bother scanning for stocks to trade. It's too risky and it's setting you up for an emotional nightmare. Just take a break and wait for the market to shift back up.

Visit my page on stock trends for more information about finding an up or down trend in the market.

Qualifier 2: Next, find some stocks and conduct stock analysis on the chart. After you find a handful of stocks to trade, plug them into your chart one at a time. If they meet all of your criteria to buy, it is safe to trade. If any one of your criteria doesn't signal a buy, it is not safe to buy.

If you don't have any indicators or signals that tell you when it is safe to buy, visit ExtremeStockSystem.com for my exclusive stock trading system.

Qualifier 3: While on the chart, determine the stock price trend for each of the stocks. If they are trending up, it is safe to trade. If they are trending down, it is not safe to trade. If there are signals of a trend slowing, be cautious and watch it for one more day. If the trend reversal sticks, it is safe to buy.

Qualifier 4: Research the stock sector for the individual stock. To do this, you need to know what the industry is and what the sector for that industry is. Barchart.com is a great way to research the different sectors. Determine the trend for the sector and what other stocks are doing in that sector. If a majority of stocks are trading up in a sector, it is safe to trade. If a majority of stocks in the sector are trading down, it is not safe to trade.

Qualifier 5: Finally, do your due diligence research on the company itself. Check out all of the news on the company. If there are any really bad news articles or announcements about the company, it is not safe to trade. If the news is good, the numbers in their balance sheet look good, and there is not a lot of hype (positive or negative) for the stock in the social rings, then it is safe to trade.

Things to Keep in Mind When Conducting Stock Analysis

Stock analysis can be tricky. Here are some things to keep in mind while getting ready to trade a stock.

You should be part of the social media groups and forums on the Internet. They talk all the time about hot stocks, but they also talk too much sometimes. What is the chatter out there? Are they talking (hyping up) the stock you are analyzing? If you keep hearing a stock symbol out there, be very cautious when buying it.

All of this talk fosters a lot of "emotional trading" and causes a lot of problems for investors. Believe it or not, when you have thousands of people following "the talk" and start dumping their life savings into "the best stock ever", it influences what that stock is going to do. The bad thing is, the stock price doesn't always follow what the charting signals are saying.

For instance, when TSLA was about to split, the price of the stock should have been naturally going back down (according to signals), but it was jumping up higher every day. Everyone was talking about it. Then after the split, everyone wanted to buy more because the price was low again, even though the indicators said the stock price was way overbought and way overvalued. They bought, driving the price up a little more, then it dropped as some people took profit. This resulted in more people selling because they saw it dropping, and so on, until thousands of people lost most of their investment.

My advice to everyone is play the hype very cautiously, if at all. It's best just to stay away from these stocks because they are too volatile (moving up and down in price too fast) to catch the best sell price.

It's best to enter into trades that don't have as much volume (between 100,000 and 500,000 daily average is best).

Trade safe!

Don't get caught up in all of the emotional trading.

Through stock analysis, determine if it is safe to buy or just wait until things are safe. This will keep you from losing a lot of money over time. Don't rush into trades. There is plenty of time to make money in the stock market. You don't have to do it today. Maybe tomorrow. Maybe next week. But there's always the best time to get in, and stock analysis will get you there if done properly every time.