• Effective trading strategies build wealth.dollar bill image by jimcox40 from Fotolia.com
  
  Stocks provide financially for long-term goals, such as first-time home purchases, higher education expenses and retirement income. To meet these goals, savers coordinate stock market investment strategies to minimize risks while allowing for adequate potential gains. Stock trading options include fundamental analysis, technical analysis and diversification. Investors match the requisite strategy with their expertise.
  
  

Fundamental Analysis

• Fundamental analysis compares business value against market value to select investments. Business value relates to the intrinsic worth of future earnings, alongside current values for the assets, liabilities and shareholder's equity of the corporation. Fundamental analysis requires you to read corporate annual reports, stay informed on current events and study demographic shifts, so that you may calculate the price you are willing to pay for a prospective investment. Alternatively, market capitalization is a valuation method that simply multiplies current share prices times shares outstanding for the corporation. Fundamental analysis is complete when you exploit divergences between business and market value, for a profit.
  
  Fundamental analysis may be further categorized into growth and value investing. Value investors work best best amidst recession to buy underpriced shares and hold them until their market value approaches business value. Alternatively, growth investors buy into corporations that feature rapid expansion and improved profitability. Growth investors are successful when the economy is booming and cutting-edge industries, such as biotechnology and telecommunications, are introducing new products to boost sales.
  
  

Technical Analysis

• Technical analysis relies strictly upon share price and volume statistics to identify stock market trends. Volume refers to the number of shares that trade hands during a particular transaction and time period. Technicians observe abnormally large volume as confirmation for bullish and bearish trends. Bullish trends describe advancing share prices, while bearish trends signal deteriorating stock market conditions.
  
  Additionally, technical analysts use stock price charts as illustrations for support levels, resistance points and reversals. Support levels describe low points for shares, where prices are unlikely to break down further towards zero. For example, a particular stock may decline to $50 several times over the past year, before advancing toward $100. Technicians would identify $50 as the support level and buy shares at that point. Alternatively, shares may appreciate multiple times toward a resistance price level, before declining.
  
  Reversals describe transitions between bullish and bearish trends. Beyond resistance and support levels, the head and shoulders chart is a classic reversal pattern. Head and shoulders displays one long-term high at the head that is surrounded by two intermediate highs. The rapidly appreciating stock turns bearish and falls significantly, as investors feel that prices cannot overtake their all-time peak.
  
  

Diversification

• Diversification is ideal for passive investors who lack the time and resources for extensive research. Diversification calls for you to put together a portfolio of securities that are able to turn a profit across multiple economic scenarios. For example, a diversified portfolio may include growth stocks and government bonds. The growth stocks generate high returns when the economy performs well, while government bonds stabilize the portfolio and provide interest income in recession.