Wouldn’t it be great if you could find someone who spent all day watching each and every stock, listed or not, or option contact, and who knew precisely what the history of that security’s trading history has been, and who understands the current state and momentum of the market?

Wouldn’t it be great if that person’s sole purpose in life was to apply that knowledge to find buying opportunities and alert you to selling windows, with the assurance that their decisions had absolutely no emotion attached whatsoever? That it was all mathematics, algorithms on steroids?

Chances are that person doesn’t exist, and if she/he does, he’s already making seven figures for Goldman Sachs.

The Soul of The Machine

But what if you could find a machine to do that work? More likely, a piece of software that chews algorithmic sequences like candy and spits out trades that, chances are, will make you money each and every time?

Well, if you take out “each and every time” from that criteria, you’re in luck. Because those programs are out there. It’s just that you can’t afford them.

Yes, they’re expensive, hard to use and, because the stock market does find itself influenced by emotion and human weakness, not completely 100 percent reliable.

These programs – also known as algo trading, black box trading or robo trading – use all available data about the market and specific stocks to actually make buy and sell decisions. They are used by pension funds, mutual funds and other large institutional entities, often with portfolios on a scale that challenges any human minds to manage them.

The Machines are Taking Over

If you think this is just a small, sci-fi oriented corner of the market, think again. In 2006, for example, it’s been estimated that a third of all trades on US and UK markets were, in fact, executed by these automated trading systems, and before human eyes saw a single piece of data. And the trend says this percentage will increase.

The implications to individual investors include confirming the suspicion that the market is beyond anyone’s control. These programs are entirely data-based, without regard to the market forecasts of the companies whose symbols are attached to the stock certificate. This human factor is what trips up these programs on occasion, influencing buy and sell pressures that may translate to data, but only after the news hits the airwaves.

What About Us Little Guys?

Some vendors claim to have systems that individuals can use, as well. And while they may be based on the same algorithms and theories, they can’t compete with the massive systems employed by institutions.

Compete is the key work, there. Because the first trades in – those perpetrated by machines – are the least likely to be influenced by ensuing market momentum. This clouds the cause-and-effect nature of the markets, and thus, the ability of the individual to be first in line when a stock begins to move.

Which is why human intuition will never be programmed out the trading experience. Because if you can predict what the machines will do, you’ll be able to navigate in their waters.

When someone invents a program that can do that, all of us will be standing in line.

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The stock market is a data-intensive landscape. Everything is represented via numbers, and every number is constantly in motion. Which means, software comes into play. Especially technical analysis software.

The analysis of those numbers comprise the sum total of all stock research, even when the intangibles of a company don’t seem to be numerical in nature, like the quality of their products. In the end, even those soft variables translate to numbers by way of forecasts of data such as revenue, profits and the need for capitalization.

This research comes in two flavors: fundamental and technical.

Fundamental analysis is where those soft issues are found, amidst a sea of hard numerical data. Fundamental analysis is the study of a company’s health, the trending of their financial strength as represented by profits, margins, expenses, trending, and net capitalization, all of it in context to forecasts.

The result is a picture of how the company stands to fare, both in context to the market, and in comparison to its competition, going forward. The results of this analysis bear directly on investor supply and demand, which is the determinant of stock price levels and movement.

But fundamental analysis comprises only half of the research game.

The other half is called technical analysis.

Technical analysis looks at the historical trading ranges of a stock, putting it in context to the market in general. Baring outside influences (which usually come from the fundamental side, i.e., profit forecasts are slashed), a stock trades within a given range, establishing upper and lower boundaries.

All things being even, when investors sell off a stock the price drops accordingly. There comes a level – again, barring news that supports a downward trend – at which investors will regard the lower price as a buying opportunity, thus bringing fresh buy-side demand back into the market. This, in turn, stabilizes and then strengthens the stock, propelling it back up into the trading range.

The reverse also true.

When the price reaches a certain level, investors will take their profits by selling, thus establishing the upper end of a trading range. This puts sell-side pressure on the stock, sending it back down into it’s trading range.

When a stock violates these upper and lower limits, it’s known as a “breakout” stock, the price then being less subject to prediction based on a lack of data. This is new territory, and there’s nothing to say that investors will stop buying at a given level. Or in reverse, stop selling it off. Sooner or later the same factors that determine the former upper and lower trading limits kick in – investors smell a buying or selling opportunity and begin to buy or sell into the prevailing momentum.

None of this has much at all to do with the company whose name is on the stock certificate.

There are software programs that track this price performance data, and in great detail. They analyze demand and supply volumes, including backlogged bids and offers, juxtaposed against established trading ranges based on historical data for that stock. When the limits are approached, the software flags this stock as a buy or sell opportunity, allowing the human operator to determine if a breakout is likely based on any relevant news.

These programs are available either as a service bought via subscription, or you can buy them yourself, though they are quite expensive. They are a valuable tool for short term investors and traders, while longer term investors pay much less attention to trading ranges.

For them fundamental analysis is much more relevant, because today’s trading ranges have little relevance to the stock years down the road.

Unless they are planning on buying in or selling soon. In that case, everybody loves a bargain, and technical analysis software is a tool that can help you find one.

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The financial markets are a number-driven arena. The health and status of a company and its stock is represented by numbers, which are constantly in motion.

Software programs track it all, and it stock analysis software upon which many investors rely.

The Two Flavors of Stock Research

There are two realms of analsysis, and thus, two types of stock analysis software. Both are basically screening devices, designed to identify stocks based on carefully established criteria.

Fundamental analysis looks a company’s financial health, including profits, margins, expenses, trending, and net capitalization, all of it in context to forecasts. The results help drive investor demand, which in turn is the primary influence on stock prices levels.

Technical analysis analyzes historical trading ranges in context to the market. Baring relevant news, a stock price remains within a range, one with upper and lower limits that history proves to be valid.

If investors sell a stock the price drops. Sooner or later investors will see the stock as a buy opportunity, which stabilizes the stock, sending it back into the trading range. The same is true, only in reverse, on the selling side.

The role of stock analysis software.

When a stock violates its trading limits on either side, it’s called a “breakout” stock. Performance is then harder to predict because of a lack of data. Literally, this is new territory, and no ranges yet exist.

At some point the very factors that created the old trading limits come to bear, as investors sense a buying or selling opportunity and begin to buy or sell against the current trend, thus stopping the breakout while establishing a new range.

Very little of this has much at all to do with the company whose name is on the stock certificate. The exception is when the breakout represents the markets response to some news, such as a forecast being exceeded or disappointing results, or even a change in management.

The are programs that track this price performance data in great detail is called stock analysis software.

These programs analyze buying and selling volumes, watching for stock that approach established trading ranges. There are also programs that compare the fundamental data between companies, such as price-earning ratio, both for current and projected profit levels.

Now even the little guy can compete.

Such programs come an online service, or you can purchase them yourself. They are a valuable tool for short term investors and traders, while longer term investors pay much less attention to trading ranges.

All of this used to be the exclusive province of a stockbroker. But with today’s online services and the power of the software that drives it, even the smallest investor can perform all kinds of analysis from their home office, all with the help of stock analysis software.

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