Ranking and Managing Stock in the Stock Market Using Fundamental and Technical Analyses

Abstract

The stock selection problem is one of the major issues in the investment industry, which is mainly solved by analyzing financial ratios. However, considering the complexity and imprecise patterns of the stock market, obvious and easy-to-understand investment rules, based on fundamental analysis, are difficult to obtain. Fundamental and technical analyses are two common methods for predicting the future behavior of the stock.Fundamental analysis focuses on the economic forces of supply and demand which cause stock prices change. On the other hand technical analysis examines historical data relating to changes in the price and trading volume by using graphs and indicators as a primary tool to predict future price movements. Therefore, in this paper, a model has been proposed for selection of the right portfolio in stock exchange. Financial industries ranking and companies ranking have been applied for selection of the right stock in this model. These rankings have been done through the PROMETHEE decision making method. Technical Analysis has been done for determining the right time to buy and sell the superior stocks. A survey has been done for determining the effective criteria over industry and company evaluation. The developed model has been applied in Tehran Stock Exchange (TSE) as a real case and a real problem has been solved. It is concluded that by using both Fundamental and Technical Analysis, an investor can get higher return on stocks instead of using just one individual analysis. In other words, while fundamental analysis distinguishes which stocks to buy, technical Analysis shows when to buy the superior stocks.Finally, some important and most commonly used indicators have been extracted. These indicators can be used by investors to consistently and correctly predict the future stocks prices.