Technical analysis to detect high potential stocks in 2022 :
Firstly, we will take a look at one of the most common methods of analysis 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 stock market price movements in order to detect trends.
It is thus from the stock exchange charts that this analysis is carried out. Fortunately, it is no longer necessary today to carry out oneself of learned calculations to detect certain graphic diagrams since the modern charts include tools making it possible to carry out these calculations instantaneously and even to display the indicators directly on the latter.
In order to carry out a good technical analysis, it is often necessary to multiply the technical indicators or charts 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 thus evaluate the potential of a stock. Indeed, it is also common for traders to work on different time horizons and therefore to change the periodicity of their analysis in order to try to detect short, medium or long term trends. The different periodicity and time units must of course be adapted to the strategy you wish to implement with short units for intraday or short term strategies and longer units for long term strategies. The choice of one or other of these strategies will depend mainly on your investor profile and the time you can devote to your activity.
Remember that short-term trading is the one that will require the most availability and reactivity.
Fundamental analysis to detect high potential stocks in 2022:
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 a speciality of it by trading only on major announcements and events in the financial market.
Fundamental analysis differs from technical analysis in that it tends mainly to detect events, publications and announcements that are likely to have a strong impact on the share price. In the stock market, fundamental indicators are varied and depend of course on the listed company being followed and its sector of activity. The following are some of the most important ones to follow:
- Financial results published annually or quarterly
- Strategic development plans communicated to shareholders with quantified objectives
- Changes of direction
- Strategic partnerships, mergers, disposals or acquisitions
- Events affecting the direct competitors of the company under review
- Events that impact on the sector of activity or geographical area of the company studied
- Or the global political and economic news, sometimes international, which can boost or slow down the markets
We would like to draw your attention to the fact that markets often anticipate the effect of a major event before it actually happens. This is known as the announcement effect. You should also take into account this anticipation, which can have a strong influence on the direction of a share price when the event occurs.
Financial analysis to detect high potential stocks in 2022 :
Finally, the last type of analysis we will look at here, which is also often used to identify stocks with significant potential, is financial analysis.
As the name suggests, this analysis requires the investor to delve into the accounts of the company under review and to monitor and analyse a number of important elements.
It should be remembered that the accounts or financial statements of a listed company are necessarily made public and that you can therefore consult them freely online, usually on the company's website in the section reserved for shareholders and investors. These annual results are usually published in the first quarter of the year following the financial year under review. However, companies also publish interim results every quarter. These interim results are also important because they show whether the company is on track to meet its targets or not. Moreover, these quarterly publications are often an opportunity to validate or reissue the strategic growth plan and these objectives.
To find out when a company's annual or quarterly results will be published, you can consult its financial economic calendar, which will indicate the various dates to watch out for.
The analysis of the financial results may seem complex, as it is not only the turnover of the listed company that must be taken into account here, but many other elements in order to determine its profitability and growth above all.
The turnover, but also the net result, the operating margin, the cash flow, the investments made or the current order book will be taken into account. In addition, these results should systematically be compared with previous results and with the objectives previously set by the company in its development plan.
Finally, and still within the framework of the financial analysis of a company, we will take a closer look at the ratios which are elements appreciated by investors in order to try to evaluate the real value of a company in relation to its stock market price. In theory, this makes it possible to detect overvalued or undervalued shares and therefore to imagine what the market correction could be in the medium or long term.
Differentiate between stocks with upside potential and profitable stocks:
To conclude this article, we would also like to draw your attention to the difference between stocks with strong upside potential and those that are considered profitable.
A high potential stock is a stock whose price has a high chance of gaining points and therefore of increasing over time. These stocks are often sought after by speculative investors who buy stocks solely with the aim of selling them at a capital gain or who trade online with derivatives.
A profitable share is a share that will pay its shareholder well and therefore a share with a high future dividend. These shares are particularly sought after by investors who have a stock market portfolio and who speculate using an investment product such as a securities account.
It is important to differentiate between these two types of stocks because a stock with high potential is not necessarily profitable and conversely, a profitable stock will not necessarily have a high upside potential.