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What is "volatility"?

Volatility is the relative rate that the price of a stock or market index moves both up and down. If a price moves up and down over short periods of time, it is described as highly volatile. If the price doesn't move very much, it has low volatility.

What are the two most important methods to analyze stocks?

The two most basic methods employed by many in order to discern in which stock to invest are fundamental analysis and technical analysis. With fundamental analysis, an investor tries to determine the real value of the company, to ultimately determine the "true" price of the stock, and to use many different data points, including data covering economic conditions and reported financial data. Based upon this analysis, an investor may determine the best time to buy or sell the stock, when its share price strikes the appropriate level, based upon this research. With technical analysis, securities are often analyzed strictly based upon market trading activity, using such indicators as the volume of trades, changes in prices of securities over time, and analysis of charts and graphs to help illuminate opportunities. In technical analysis, no attention is paid to the inherent value of an individual stock, nor necessarily to its financial performance last quarter or last year. Technical-based traders attend only to market trends, in order to identify optimal buying and selling opportunities, often on a second-by-second basis.

How does technical analysis work?

Technical analysis—the method of understanding the patterns and trends of stock prices—is used by investors in order to observe certain trends in the movement of a stock's price, as seen on a graph or chart that would indicate a buying or selling opportunity. The model doesn't necessarily consider how "good" a company is, the quality of its products, or whether the unemployment rate just increased. The primary focus is to analyze the mathematical variables that may influence the trend in the price of a stock, and to use this information to profit in the future from those trends.

 
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