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Hey, tigers:

Today is our last day of "Learn US financial statements".

Review First: US Stock Financial Statements for Beginners

In this article, I mainly introduce: The five market factors of stock analysis.

In the previous article, you learned a lot of valuable information, and you mastered a method for trading stocks by combining analysis of company financial reports with stock valuations;

So, besides financial reports and valuations, what other factors affect the price of a stock?

In this article, I'm going to show you the "Big Five",

the five rudimentary factors, that affect stock trading in the real world.

1. Fundamentals 

Fundamentals can be divided into two types:

The first type is micro-fundamentals. For example, what we have learned about corporate financial reports, corporate governance, the competitive environment, and industry profiles are all kinds of micro-fundamentals.

The second type is economic fundamentals, which simply means assessing the "general trend" of the market. If you think of stock prices and economic fundamentals as the relationship between a boat and the water, then it's easy to see that when the tide rises, the boat will naturally rise too.

So, how you think the market is going as a whole will have a big impact on the trades you make. In a "bull" market, the general market trend is up and, as a result, most stocks will rise. Likewise, in a "bear" market, when there is a downtrend, even quality stocks can get "slaughtered."

So, what indicators can you use to determine the general market trend?

For US stocks, important economic indicators are things like the Federal Reserve interest rate, non-farm payrolls, PMI(Purchasing Managers' Index), CPI(Consumer Price Index), and PPI(Producer Price Index).

2. Capital

The capital side of the market refers to the amount of money sloshing in the stock market. If there's a lot of money flowing into the stock market, the more favorable it is for the stock market; on the other hand, less capital is a negative for the stock market.

For investors, this kind of money coming into the stock market is a big plus, and it usually makes them want to trade stocks even more.

Looking at the capital, you can determine whether there is a good market liquidity, and a good liquidity often means a good trading environment. But too much liquidity in the market can cause an overheated economy and increase risk for investors, which could present a sharp downward price correction!

3. Policy

Simply put, stock market volatility can be caused by changes in government policies. We can generally divide policy into three categories:

1.Monetary policy
2.Fiscal policy
3.Industrial policy

In the US, the Federal Reserve is in charge of monetary policy. Their main job is to make decisions about policy based on how the economy is doing at different times.

If there's too much money coming into the markets, they'll close the spigot to reduce the flow; and if there's too little money in the market, they'll open it up to increase liquidity.

Fiscal policy lies in the hands of the government. When the economy is bad, the government will push to develop infrastructure and will increase government spending to stimulate economic development.

When SMEs are having operational difficulties, government fiscal policy can help them get through it by giving them targeted tax relief and taking other actions.

Industrial policy is the national policy of supporting, or restricting, the expansion of certain industries. For example, in order to slow global warming, developed countries are beginning to transition to new energy sources, reducing their use of traditional non-renewable energy, and increasing their use of alternative clean energy.

So, the policy side says you should be alert not only to the amount of money in the markets, but also to whether the industry of the stock you're trading has the support of beneficial government policies.

4. Technical Analysis

Technical analysis is a method of making buy and sell decisions by looking at stock charts. Learning to read technical charts is a must for every student who invests, or plans to invest, in stocks.

There are, generally, three types of technical indicators:

The first is the technical indicators of trend. These include indicators such as moving averages and Bollinger Bands. Trend-based technical indicators are the most basic, and they can help you determine the trend of a stock or a market. The disadvantage is that they are "lagging indicators" in that they generally "lag" behind current market activity.

The second type of indicator is the oscillators. The basic function of all oscillators, such as KDJ, RSI, and WMS, is simply to measure whether a stock, is overbought or oversold.

The third type is the composite technical indicator. The most common indicator of this type is the MACD, which can be used in many ways.

You can use MACD red and green candlesticks to determine the direction of trading activity. You can assess the current upward or downward momentum according to the length and color of the candlesticks. You can use the Golden Fork and the Dead Fork to make market predictions.

To identify trend reversals, you can use the divergence, or convergence, of top and bottom MACD lines to catch the price trend tops and bottoms.

5. News

The news is of great concern to traders and is one of the most important factors affecting stock market volatility.

Information that influences the way investors make decisions about how to trade is collectively referred to as "news." Market news can be true as much as it can be false.

Investors must look at the news without being distracted or swayed by rumors and opinions that can affect their decision-making.

So, this last factor tells us that the news has a big impact on our investment decisions but that not all news is true.

You will need to gain and use the ability to tell if a news story is true or false and to predict how it will affect stock prices in the future. You have to "shut out the noise."

Now, after learning about the five factors, you must be wondering: "How do I apply this knowledge in practice?"

It's actually quite simple: When analyzing stocks, experienced investors (that is, those with the best trading results) will first look at macro factors to determine whether overall market conditions make for a suitable investment environment.

They then select industries that enjoy governmental policy support and, finally, they select the leading companies within those industries as investment targets.

You see, this is the kind of "top-down" analysis we've been talking about!

This is all the content of the Column "Learn US financial statements ", I will take you to summarize, see you tomorrow!

Review again:US Stock Financial Statements for Beginners

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