Investing in the stock market is one of the best ways to generate significant returns. The only way to do that is by buying stocks that are either undervalued or shorting stocks that are overvalued. The art is being able to find the best stocks to buy.
When it comes to buying stocks, investors follow two schools: technical analysis and fundamental analysis. A solid understanding of both will help you identify which stocks are worth buying and possible entry and exit points.
Investors who use technical analysis believe that chart patterns and past price performance can predict future price movements. Examples of technical indicators include moving average convergence/divergence (MACD), relative strength index, price data (open, low, high, close), and moving averages.
Investors who employ a fundamental strategy for buying focus on the forward-looking picture and consider data that could impact a company’s share price, including the business model, products and services, cash, debt, earnings, and revenues.
Other investors buy stocks for income through dividend-paying stocks. If a stock doesn’t provide a dividend, the only way to profit is to sell the shares if they go up. When the economy and markets are good, dividend shares can provide a recurring revenue stream and capital appreciation. A dividend-yielding stock can also provide income when the markets retreat.
Having a comprehensive understanding of the stocks you want to buy will help you determine whether or not it is undervalued, overvalued, or fairly priced.