Often the market (stock exchange) company value changes so strongly and so quickly, that there comes the conclusion: the real company value can not change as quickly, as stocks cost changes on stock exchange. It means that in different moments of time a company can be both underestimated and overestimated on a stock exchange concerning its real value.

   Demand and supply on a stock exchange influence the stocks’ costs very much. High demand can greatly raise the stocks’ costs up, and then buy of stocks at these prices will be unprofitable.

   Low demand creates possibilities for buy of stocks cheaper, than they would cost. Historically there are two directions in stock market analysis. Supporters of study of dynamics’ rates, volumes of trades, demand and supply created school of technical analysis. Technical analysis supposes that all innumerable fundamental reasons are summed up and reflected in the stocks’ costs. The key issue, which the technical analysis is based on, is that all known information about a company is already reflected in movements of stock exchange rates. Therefore a main information source for the technical analyst is a stock cost, rather cost dynamics.

   Fundamental Analysis
School of fundamental analysis was created by those, who are based on the issuer estimation: its profits, position on the market etc. Different financial indices, characterizing efficiency of company activity, are estimated. The analysis base is the study of company financial reporting (balance, report for gains and losses) and other company reports. Moreover, practice of company management and professionalism of top-management are studied. Great importance is paid to industry analysis, stages of development and business activity of industry, company position on the market in relation to competitors.

  Fundamental analysis is the analysis of financial and economic state of a company in order to determine, how the stocks’ cost corresponds the real company value. The final goal of fundamental analysis – to find out, how the market cost of stocks corresponds the real state of a company. On that ground decisions are taken – to buy, sell or keep. Following the fundamental analysis, one should remember that if a market "underestimated" a stock now, it is quite possible, that it will not do this in future. As a result, analysts’ expectations are not lived up. There are no guarantees, that a market will confirm the fundamental estimations of analysts. The stock cost is always determined by a market. In the process of analysis many financial indices of a company are examined and financial ratios are estimated. However, the main ratio that should agitate an investor is a company income. If look at the most profitable stocks, it is possible to see connection between a quickly growing income and a quickly growing stock cost at once. Therefore, an investor should always first of all pay attention to dynamics of company income – annual and quarterly. In the fundamental analysis financial ratios are widely used for the estimation of the real company value. There are a lot of financial ratios, and methods of their calculation differentiate also. Financial ratios should be analyzed for several years, to find out long-term tendencies, and it is also useful to compare their values at several companies of one industry.

We will give here examples of only some the most popular ratios that are used by many investors in the whole world.
"Price-to-earnings" (P/E). This ratio is calculated as quotient from dividing the current stock by earnings of this stock (income for the recent 12 months is taken). It shows, what price investors are able to pay for every dollar of income per stock and what are their expectations concerning prospects of this company. If the ratio value is high (in relation to past values or other companies of that industry), the stock cost is considered overestimated. If the ratio value is relatively low, it means that stocks are underestimated. This simple rule should be treated very careful. Often the stocks of blue-chip companies are sold with the high P/E ratio, however it does not exclude substantial growth of stocks in the near future. Also there should be additional grounds for growth of stocks’ cost of a company with the low P/E ratio. Actually, the lowest P/E ratio usually has a company with the worst history of income, and that is exactly the reason, why it is sold at the lowest P/E correlation.

   Another ratio, that one should pay attention at, is Earnings per Share (EPS). The ratio is calculated by the division of general net income of a company after taxation by the number of common stocks in circulation. It shows how many dollars of income fall per one stock. The percent change of this ratio in time shows growth (or decline) of attraction of company stocks. The rule is like that: income per stock should grow; exactly this fact pushes the stocks’ costs up. The percent change of EPS ratio is an important element at the choice of stocks. The more increase of percent, the better. EPS ratio also allows comparing easily the investment attraction of companies of one industry.

"Price-to-sales" (P/S). The ratio is calculated as relation of stock cost to the volume of sales per one stock. The volume of sales is an important quantity, because without a growth of sales a company can’t provide growth of income within long time. The ratio value strongly fluctuates from industry to industry, but on the average stocks, for which it does not exceed the unit, are considered potentially profitable object of investment. It would be useful to compare the stocks cost with a company’s book value.

"Price-to-book-value" (P/BV). It is calculated as relation of stock to a company’s book value per one stock. The book value, in its turn, is the difference between the company assets and its obligations. If this ratio is equal or less than the unit, the company stocks are considered underestimated and their buy is of interest. Such stocks can be found during the long decline in ratios and depressive stock market or among companies with cyclic character of development. However, in some cases, the reason of low value of this ratio is that a company undergoes deep and old financial problems and investors do not trust its stocks.

   The fundamental analysis is much wider, than calculation of few popular ratios. Moreover, it is such a difficult and time-consuming engagement, that not many investors can take the liberty of the analysis of financial position of issuers. At the companies’ estimation by means of comparative analysis of market value ratios it is necessary to take into account such factors as financial stability, solvency, profitability, indices of assets’ management, prospects of growth etc. One can draw such a conclusion: fundamental and technical analyses are closely related; investing in stocks, look not only at stock exchange prices but also try to find out WHAT do you actually buy.
As Warren Buffett said – the second world’s wealthiest man and successful long-term investor – "invest only in those companies, business of which you know".

   Technical analysis – general positions. At the study of all variety of price movements inevitably arises a question – what entailed one or another change, what is the motive factor of price? There are two theories, which conclusions give in some measure an answer for this question. The first theory quite justly supposes, that a stock cost of one or another asset is the reflection of its fundamental cost, i.e. all aggregate of "external", in relation to the market, factors: enterprise cost, state of its businesses, and expectations of possible changes of these factors. All these factors are possible to estimate with one or another exactness and get some "fair" price for a stock. However, the real market price almost never equals this "fair" price, and it arouses suspicions that the fundamental analysis takes into account not all forces, influencing the stock cost. If all players of stocks’ market would act rationally and would possess the same information, a stock cost would always be the reflection of fundamental factors. So the theory of efficient market supposes.

Efficient market means rationality of all players’ conduct that, certainly, is the supposition very distant from reality. Many market participants, if not majority, accept decisions under influence of forces, distant from rationality. For example, force of habit. Or pressure of psychological discomfort, more frequent unconscious, but more effective because of that. Or emotional reaction to price movements. All these deviations from efficiency arouse some general models of price movements, in the study of which is engaged the technical analysis. As the factor of price movements the technical analysis supposes a price itself and its past dynamics. And a price itself, within the framework of this theory, is the consensus formed at this very particular point of time between the stock buyers and stock sellers. Consensus is not about how much this stock costs, but about how much this stock will cost.

Thus, initial "raw material" for the technical analysis is a current price and its movements, directly preceding a present moment. Additional and often a very important parameter is also a volume of trades, i.e. all work takes place on the price-volume charts. A very important concept in technical analysis is time frame. It determines minimum "quantum" of time, used for construction of chart. Without time frame indication a question "where does a price move?" does not make a sense. A price can simultaneously: grow the last hour, fall the last week and move without definite direction the last month. Universal nature of technical analysis shows up in that it equally works on different time frames. On five-minute charts it is possible to see the same figures as on daily and on a week’s. Price charts themselves can be represented by different ways. Three most popular methods: line, bars, Japanese candlesticks. There are another, more acute methods of price chart presentation. Indicators have fully particular purpose, misunderstanding of which can result in the erroneous idea of their function. However a creator would name the indicator, they do not predict the market conduct in the future. Indicators are built on the basis of past price data and can be nothing except for description of these past data. They expose only a certain factor that acts on the market (rather, acting to the present moment), clear it from the great number of distracting movements, obstructing the chart of price. There is no point to take on trust the statement of indicator authors about obvious "predicted" value of this factor. In spite of the fact that price charts of different markets and different stocks have common features, there are also many differences, therefore application in trade of one or another indicator requires careful verification of its "predicting" effect.

Now from indicators we pass on the models of movements. Trend is a very strong and important notion among them. Trend is the long enough one-directional price movement. Trend is interrupted by corrections. Between trends a market can be in the state of side movement. Price movement up can suffer troubles at passing the resistance levels. Price fall down can be slowed on the support levels. These models are expressed enough for a discovery on charts and work with them does not cause serious difficulties. A price can draw more acute figures and patterns: converging triangles, diverging triangles, channels, flags, head and shoulders etc. Especially lots of various figures are examined in the technical analysis on the basis of Japanese candlesticks, where various combinations of candlesticks give one or another signal. One should be careful using figures without the careful study of particular market or stock, as such simple patterns can greatly change from stock to stock and not to work sometimes. Thus, the technical analysis, as compared to fundamental one, works in much more unstable and probabilistic environment, where, on the basis of past price movements, suppositions about future movements are done. It is clear that both technical and fundamental analyses examine the same phenomenon, only from the different points of view, each of them estimates own factor of influence. It is better to apply them in the aggregate.

   Graphical analysis. One of the basic methods of technical analysis is the graphical analysis. It is a method with which development of technical analysis has begun, as approach to forecasting of financial markets. It began to develop first, as for its application one does not require great computational powers, necessary for other methods of technical analysis, such as mathematical methods, oscillators etc. The graphical analysis is used only at presence of price and volume chart, "by eye" so to say. Let’s start description of the main facilities of graphical analysis: trend lines (supports and resistances), channels and graphic figures (models). Trend’s lines are used for description of prevailing moods on the market. These lines are called the lines of support and resistance. Trend can be defined as a sequence of increasing maximums and minimums (falling maximums and minimums for descending trend) of financial asset cost. The support line is drawn through successive minimums of tendency. Many prefer to draw the support line through extreme minimums, for example, through two-three minimums of ascending tendency. The use of support line is again explained by human psychology. Let’s imagine that after a short growth a stock begins a correction wave down. At this moment many investors and speculators consider that stocks exhausted potential of growth and sales begin. But positive moods begin to prevail near the support line – investors consider that it is time to buy stocks more, and growth resumes. The support line can be drawn, if there are at least 2, better 3 successively increasing minimums. A predict value of support lines consists in the following: if several times a correction wave in an ascending tendency comes across the support line and begins to move up again, it is possible to assert with the high likelihood, that next correction will develop up near the support line and a new local minimum will be found there. The support line executes predictive functions about the tendency turn for ascending tendencies. If correction does not stop near the support level, but goes down, it is possible to say that a tendency has turned. But, this rule should be treated rather carefully, as there are often false breaks of support line, when a price goes beyond the support line, and then returns back. Good confirmation of break is price return after a breakout to the support line, and then its motion in the break direction. Probability of break reality promotes the increasing index of volume. It is possible to see the break of support line on the same drawing.

   Another facility of graphical analysis is a resistance line. It reflects approximately analogical visions of market by its participants. To draw the resistance line one needs 2, better 3 successively rising maximums (successively falling minimums for descending tendencies). The line is drawn through these points. The same recommendations on construction and application, as for the support line, are used for the resistance line. The resistance line executes predictive functions about the tendency turn for descending tendencies. If draw the support line together with the resistance line, we will get another instrument of chart research – channel. If there is possibility to draw support and resistance lines, we will get a channel used analogically like support and resistance lines: if a price turned near (or touched) the trend’s line (support or resistance), it is possible to suppose that a price will attain another trend’s line (support or resistance) and will turn in the opposite direction. It should be noted that a channel can be considered formed, only if the processes of motion inside a channel already took place several times. The break of channel can say about the tendency turn or strengthening of existing tendency. But market is in side (without trend) movement 70% of time. Therefore, it is very important that all instruments described above are applicable for the without trend market also. For channel break it is necessary to wait confirmation of break. Good confirmation is return of price to the border of channel (to support or resistance), and then resume of movement in the direction of breakout. Also, it is possible to use the volume ratio for confirmation – if a break takes place during the increase of trades’ volume, it promotes probability that a break is not false.

And nevertheless – all these analyses are subjective and do not give a clear answer for questions.