8 Analysis Tools for Stock Traders
Following decades-high inflation, and a display of a grueling bear market coupled with an aggressive Federal Reserve response, right now, many investors do not know what to expect in 2023. Will it be any different than 2022, which proved to be one of the more challenging investing periods in the last half century, or will things continue to tread the course laid out in the year that cryptos dramatically plummeted in value? According to Morgan Stanley’s Global Investment Committee, no one should hold their breath for a quick recovery of US equities. The global leader in executing transactions in cash equity believes that decent opportunities exist at yields of 4%–6% and that everyone should prioritize fixed income in their portfolios while also setting their sights on emerging markets.
Though, despite the less-than-exciting prognosis from industry insiders, many young people are taking investing more seriously than ever. That is something that started with the onset of the first pandemic spell and ensuing embryonic lockdown measures. Per a mid-2020 survey, 75% of Millennials and Gen Z members claimed that they would invest in the near future, and going by Royal Mint research, 80% of people aged 16-25 are now choosing to invest, with 23% of young investors following Financial Influencers on social media, and turning to technology for financial help.
Apps and experts can provide sizeable insights into the investment process, as analysis is mandatory for identifying investment opportunities, building solid portfolio management tactics, and anticipating future performance. For veteran traders, the secret to success is not having the best tools in their back pocket but boasting a catalog of the right combination of financial instruments that aid in managing their financial workflow. Some of the handiest ones are presented below.
1. Stock Market Simulator
Stock market simulators are more educational tools rather than analysis ones. That is why they get listed first in this article. Still, they can be an invaluable asset for those starting in this field as they can sharpen one’s knowledge of how the stock market works and how to utilize online brokerages with zero risk. They familiarize individuals with advanced trading methods that can get implemented on thousands of equities featured on the NYSE and the Nasdaq exchange.
Multiple options from this category permit users to trade stocks in real-time using a virtual account that features the same market conditions as those in the real world. Moreover, not only do these simulators let users learn the ropes of trading, they let them see if their instincts are on point by allowing them to make fictional trades on actual securities and observing their accuracy on real-market trends.
2. Portfolio App Manager
In an investment context, portfolio management software refers to a collection of digital apparatuses that seek to meet varied trading objectives. These include improving the operational efficiency of the investment process and enhancing the trading success rate via investors making better-informed decisions. Investing doesn’t have to be complicated, particularly nowadays, when people can leverage technology to reap more impressive gains. All one must do to put their money to work is perform a portfolio app download from a reputable developer whose product has decent sector standing. These pieces of software are terrific for entry-level investors, as they require only an elementary understanding of the trading process and don’t break the bank.
Portfolio app managers may also get listed as robo-advisors. And their primary job is to aggregate data from a user’s multiple investment accounts, supplying a holistic view of one’s entire investment portfolio. Features to look for in these products include the option to link to a wide range of financial institutions, functions that supply the ability for everyone to see performance metrics for all their investments at once, and implementation of high-level security protocols, like SSL encryption and two-factor authentication. As mentioned, the best ones let traders monitor their investments in one place and facilitate taking swift charge of market openings. Quality picks include StockMarketEye, Mint by Intuit, and Simplifi from Quicken.
3. The Aroon Indicator
Created by market-leading technical analyst Tushar Chande in 1995, the Aroon indicator is a trading aid that indicates if a price is within an acceptable trading range. Or if it is trending. It gets utilized to spot changes in the price of an asset and the strength level of that tendency. Essentially, this measurement depicts the interval between lows and highs over a period, with the idea that strong upwards movement will regularly see new highs. And the opposite also holds, with this indicator signaling when this is occurring and when it is not.
Two lines compose the Arron indicator. One shows/measures the periods since a high, and another, the ones since a low. Typically, this aid gets applied to around twenty-five periods of data. And when the Up Arron is above the down one, that implies bullish price behavior. The opposite is a signal of a bearish one, with crossovers pointing to potential trend changes, indicating entry or exit points. Though on the topic of the latter, this tool can often provide false signals. That occurs because this indicator is not predictive in nature. It only looks backward.
4. On-Balance Volume
Here is an indicator, a cumulative one, that measures selling and buying pressure. The on-balance volume, or OBV for short, adds volume on up days and subtracts the one from down ones. The day’s volume gets considered as up-volume when the security closes higher than the previous close. And its volume gets labeled as down when it closes lower than the previous close. Essentially, the on-balance volume line is a running total of positive and negative volume.
The on-balance volume got introduced in the book - Granville's New Key to Stock Market Profits, released in 1963. It was the work of Joe Granville, a financial writer and investment seminar speaker, who theorized that volume precedes price, and his OBV ranks as one of the initial positive and negative volume flow indicators that measure these. In his opinion, the on-balance volume rises when volume on up days outpaces the one on down days. Using it, chartists confirm price trends by looking for divergences in the OBV and price to predict price movements.
5. News Source Resource
To conduct accurate analysis, traders need steady streams of up-to-date data. Experienced active investors are always on the prowl for securities with unusually sizable volume-to-trade ratios. One of the most standard reasons for outsized volume is news catalysts like recalls, earnings beats or misses, announcements of test results, and so on. These can send a stock crashing or through the roof.
Without question, for anyone to reach the upper echelon of trading, they must have access to reliable information on real-time goings-on, so they can properly evaluate the market. Without knowledge of market-moving headlines, investors cannot assess the future of their assets in the short and long term. Benzinga Pro is a highly-recommended streaming platform that supplies information on opportunities for investors to ride crucial news catalysts.
6. Relative Strength Index
The RSI (Relative Strength Index) is a momentum oscillator that gauges the speed and change of price shifts. The chief goal of this indicator is to appraise undervalued or overvalued conditions in the price of a security that has undergone a recent price movement.
J. Welles Wilder Jr., an American mechanical engineer, who is most famous for his work in the field of technical analysis in finance, originally presented this financial instrument (RSI) in his 1978 book - New Concepts in Technical Trading Systems, displayed on a line graph with a scale that moves from zero to one hundred. Aside from pointing out oversold and overbought securities, the RSI can also indicate which securities are prime for a corrective price pullback or a trend reversal. It can act as an evaluator that shows when to sell and buy. John Welles Wilder Jr. is also the creator of the Average True Range, the Average Directional Index, and the Parabolic SAR. Thus, many consider him the grandfather of technical analysis, as his indicators have laid down the core tenets of analysis software.
7. Stochastic Oscillator
Another momentum indicator makes the cut. The stochastic oscillator is one that depicts the location of the close relative to the high-low range in a distinct number of periods. Hence, the name stochastic. It uses support and resistance levels and tries to predict price turning points by stacking up the price range of a security to its closing price. The sensitivity of the oscillator to movements in the market gets reducible by usually taking a moving average of the result or adjusting that period.
George Lane, a renowned Chicago-based trader, developed it in the 1950s, and he popularized the stochastic oscillator while working as President of Investment Educators Inc. in Watseka, Illinois. He claimed this instrument should standardly get paired with the Elliott Wave Theory, cycles, and Fibonacci retracement for timing. Also, these oscillators vary around some mean price levels because they rely on an asset's price history. They are also popular devices for producing overbought and oversold signals.
The title of this subheading is the acronym for moving average convergence/divergence, which is a traditional indicator that appeared on the scene at the tail-end of the 1970s as the brainchild of analyst and founder of Signalert, Gerald Appel. It depicts the relationship between the moving averages of the price of two securities. Traders like to use it to spot bearish or bullish momentums and mark quality exit or entry points for investments.
Most favor it on account of its simplicity, as it only calculates the difference between an instrument's twenty-sixth-day and twelve-day exponential moving averages, using the closing prices from the timeframe measured. The MACD line gets calculated by subtracting these two periods, with the nine-day EMA (the exponential moving average) of the MACD line getting called the signal line, overlaid on the MACD one acting as a trigger for sell or buy signals. An investor may purchase a security when the MACD line crosses above the signal one and offload when the MACD one falls below the signal one.
The MACD indicator works best when used with daily periods, and technical traders mainly utilize it when analyzing bonds, stocks, FX markets, and commodities.
Utilizing indicators and software is vital in today’s investment landscape. No one only looks at the market to see where their trades stand. Everyone is now implementing whatever aid is available to understand the health of their investments, plus their future price. Paying money for a portfolio app is a must, as is forking over a few bucks for a premium news service. Once a trader has these in his arsenal and knows that he can track his trades accurately while being privy to the latest sector happenings, the next step is to learn how to use indicators in his tracking software or figure these out manually if his app does not have such technical analysis functions.
Doing the things outlined above, meaning implementing the mentioned financial analysis mechanisms, should be enough for anyone to know, as well as possible, how good their investments are doing at any given time.