Technical analysis to detect high potential stocks in 2021:
First, let's focus on one of the analytical methods most used by traders around the world, namely technical analysis. As its name suggests, this analysis is essentially based on a mathematical principle aimed at studying past and current movements in stock prices in order to detect trends.
This analysis is therefore based on stock charts. Fortunately, it's no longer necessary to carry out clever calculations yourself to detect certain graphic patterns since modern graphics include tools to perform these calculations instantly and even display the indicators directly on them.
To carry out a quality technical analysis, it is often necessary to multiply the technical or graphic indicators in order to refine the signals obtained and therefore your strategy. Frequently used indicators include volume, price, volatility, moving averages, supports and resistances.
But using these indicators is not the only thing to do to carry out a technical analysis and assess the potential of a stock market share. It is also common for traders to work on different time horizons and therefore to change the periodicity of their analyses in order to try to detect short, medium or long term trends. The different intervals and units of time must of course be adapted here to the strategy you want to set up with short units for intraday or short-term strategies and longer units for long-term strategies. The choice of one or the other of these strategies will depend mainly on your investor profile and the time that you can devote to your activity.
Remember that short-term trading is the one that will require the most availability and responsiveness.
Fundamental analysis to detect high potential stocks in 2021:
In addition to technical analysis, another type of analysis frequently used to detect the potential of certain stocks is fundamental analysis. Some investors even make it a specialty by only trading on major financial market announcements and events.
Fundamental analysis differs from technical analysis in that it mainly tends to detect events, publications and announcements that are likely to have a strong impact on the price of a stock. On the stock market, the fundamental indicators are varied and depend on the listed company monitored and its sector of activity. The following elements can be monitored in particular:
- Financial results published annually or quarterly
- Strategic development plans communicated to shareholders with quantified objectives
- Changes in direction.
- Strategic partnership, merger, sale or acquisition transactions
- Events affecting the direct competitors of the company studied
- Events that impact the sector of activity or the geographic sector of the company studied
- Or, global political and economic news, sometimes international, which can boost or slow down the markets
Bear in mind that the markets often anticipate the effect of a major event before it actually happens. This is called the ad effect. However, you must also take into account this anticipation which can strongly influence the direction the price of a stock when this event occurs.
Financial analysis to detect high potential stocks in 2021:
Finally, the last type of analysis we'll be focussing on and which is also often used in the detection of stocks with significant potential is financial analysis.
As its name suggests, this analysis asks the investor to delve into the accounts of the company being studied and to follow and analyse several important elements.
Remember that the accounts or financial statement of a listed company is always made public and you can therefore consult it freely online, most often on the company's website in the shareholders and investors' section. These annual results are generally communicated during the first quarter of the year following the fiscal year under review. But companies also publish interim income statements every quarter. These intermediate results are also important because they allow you to see if the company is on track to achieve the objectives it has set for itself or not. Moreover, these quarterly publications are often an opportunity to validate or re-edit the strategic growth plan and these objectives.
To know when the annual or quarterly results of a company will appear, you can consult its financial economic calendar which will indicate the various dates to watch.
The analysis of the financial results can seem complex because it's important not to simply take into account the turnover of the listed company but many other elements in order to determine its profitability and its growth above all.
You'll need to take into account the turnover as well as the net income, the operating margin, the cash flow, the investments made and the current order book. In addition, these results must be systematically compared with previous results as well as with the objectives previously set by the company as part of its development plan.
Finally, you should look closely at the ratios, which are elements appreciated by the investors in order to try to evaluate the real value of a company compared to its stock market price. This theoretically makes it possible to detect overvalued or undervalued stocks and therefore to imagine what the correction of the market could be in the medium or long term.
Differentiate stocks with upside potential from profitable stocks:
To end this article, we also want to draw your attention to the difference between stocks with high upside potential and those deemed profitable.
A share with high potential is a share whose price has a good chance of gaining points and therefore of seeing its price increase over time. These stocks are often sought after by speculative investors who buy securities only for the purpose of reselling them for added value or who trade online with derivatives.
A profitable share is, for its part, a share that will pay its shareholder well and therefore a share with a significant future dividend. These securities are particularly sought after by investors who have a portfolio on the stock market and who speculate using an investment product such as a securities account or a PEA (Equity Savings Plan).
It is important to differentiate between these two types of shares because a share with high potential is not necessarily profitable and conversely, a profitable share will not necessarily present a significant upside potential.