Share trading, allows you to invest in individual stocks, using both fundamental and technical analysis to determine the future direction of a share price. While indices, are baskets of stocks, individual shares will beat to their own drum in many circumstances, moving after financial results are releases, as opposed to the macro backdrop. Technical analysis, which is the study of historical prices, can play a large role on determining the future direction of individual shares.
There are many reasons why a stock price will move. There is a statistical term called beta which describes how much an index will drive the price of a stock. The beta of a stock is from zero to 1. A beta of 1 means that a share price moves completely in tandem with a broader index, such as the S&P 500 index. When the beta is lower, it means that the price of a stock will enjoy changes that are generated from factors other than the broader index. Many times, these changes reflect financial performance, which is reported quarterly to investors. An earnings release describes the results accumulated throughout the quarter, and is generally accompanied by revenues results as well as future financial forecasts by the company.
One of the best way to analyze a share price is to evaluate the sector performance. For example, stocks such as Apple, Facebook and Intel are technology shares, and can trade in tandem as investors use the sector as a proxy for the individual shares. Other sectors include banking shares, which include financial giants such as Citibank, Deutsche Bank and VTB Bank. Transportation shares include Toyota, Boeing and Airbus. Food and restaurant shares include Coca Cola, McDonalds and Pepsi and content shares include Disney, Netflix and Sony.
A second way you can evaluate the future direction of shares online is to use technical analysis. Technical analysis is the study of price action where you would evaluate past movements to predict future price movements. One of the most common technical analysis indicators is the moving average which can be used in many ways to help you determine when to enter and exit a share price. A moving average is the average of a specific number of periods. This can be daily, weekly, monthly or intra-day. For example, a 5-day moving average is the average of the last 5-days. On the 6th day, the first day is dropped from the average calculation.
You can use a moving average as support and resistance as well as a trend trigger that will determine the next trend. In the chart above of the GBP/USD the exchange rate with move and the 5-day moving average will follow. The 5-day moving average can act as support as it did when prices moved higher in June of 2017, as well as resistance, once prices moved below the 5-day moving average.
A second way to use the 5-day and 20-day moving average as a trend following crossover strategy. When the 5-day moving average crosses above the 20-day moving average, a short term up trend is in place. When the 5-day moving average crosses below the 20-day moving average, as short term down-trend is in place.
By combining fundamental, which is the study of financial results, and technical analysis, which is the study of past price action, you can help yourself create a strategy that will track the future direction of individual shares.