Top 7 Never-Fading Ways For Stock Analysis
Top 7 never-fading ways for stock analysis: For choosing the potentially profitable stocks in the financial market traders always depend on the methods widely used for analysing the stocks. So, here is the answer to the most frequently asked question: how to analyse the stock?
Two common ways which serve the purpose of analysis are fundamental analysis and technical analysis. Many elements fall under the category of fundamental analysis including, earnings per share, return on equity, firm’s price-to-earnings ratio and book value. An investor can go through the methods provided below and choose the one which fits him best for meeting the financial objectives.
How To Do Stock Analysis?
1. Technical Analysis
Technical analysis deals with the study of demand and supply of a particular stock within the financial market. Traders who use these analytical tools assume that the historical performance of a stock reflects how the stock will progress in the future. Little importance is given to the reputation or value of a firm. It pays great attention to the study of charts, trends and patterns.
2. P/E Ratio
A standard way to analyse a stock is examining its price-to-earnings ratio. The trader can estimate the P/E ratio by merely dividing the market value of stock per share by its generated earnings per share. To calculate the worth of stock, traders compare the P/E ratio of a particular stock with those of its industry standards and competitors. Generally, a lower ratio is considered favourable by the trader.
3. Earnings Per Share
A firm’s earning per share indicates how effectively its revenue is dropping down to traders. An increasing value of earnings per share is regarded as a good sign by traders. As per the NASDAQ, the larger a firm’s EPS, the more is the worth of your share. It is because traders try to buy a firm’s stock when the value of earnings is high.
4. PEG Ratio
It is the acronym for price-to-earnings-growth. PEG ratio is the same as EPS; just the difference is, it considers the growth of the firm along with its earnings. To calculate the value of a PEG ratio, one needs to divide the P/E by the twelve-month growth rate. Trader calculates the future growth rate of a firm by simply looking into its historical growth rate. A stock is considered valuable by traders if the value of PEG is lower than one.
5. Book Value
Next method in the list of analysing a stock is estimating a firm’s price-to-book ratio. Traders generally use this technique to determine the high growth firms which are underrated. The formula for this ratio is equal to the market worth of a firm’s stock divided by the company’s book value of equity. For estimating the book value of equity, we take the difference between the book value of assets and book value of liabilities. The low value of P/B is regarded as a sign of a potentially undervalued firm by an investor.
6. Return on Equity
Investors use the term return on equity to estimate how well a firm generates positive returns for its stockholders. Determination of ROE helps a trader to find firms which are the generators of profit. For calculating the value of ROE, one needs to divide net income by net stockholders’ equity. A continual surge in the value of ROE is a good indicator to the trader.
7. Analyst Recommendations
Many traders use professional recommendations to quickly close, open or vary the size of stock. These professional analysts predict the outcome by performing extensive technical and fundamental research, and then after issue, sell or buy recommendations. Before deciding to sell or purchase shares, traders generally use these recommendations in combination with some stock analysis method.
If you are a routine trader, you might know that there are various brokers in the market which provide you with the analytical indicator so that you can choose your stocks wisely. Some of the famous brokers in this list are 2invest and ETFinance. They offer tools which give real-time information, charts, and graphs along with the economic calendar for pushing you trading towards profi
As with virtually any trading scenario, we must first determine the direction that we need to trade the pair for the greatest likelihood of success.By looking at the 4 hour chart of the GBPUSD below, there are several reasons we know that we want to go long (buy) the pair. Price action is above the 200 Simple Moving Average and is pulling away from it; the pair has been making higher highs and higher lows (green lines) which indicates an uptrend; and, at the time of this chart, the GBP was the strongest currency and the USD was one of the weaker currencies.All these point to a buying opportunity. But when do we enter the trade?Let’s take a look at the trendline… We can see that price action has come in contact with trendline support at several points...note the blue boxes. (Since price has tested and respected the trendline at more than three points we know that our trendline is valid.)Our entry strategy to buy this pair using trendline support will be to wait for price to trade down to the trendline…into the “Buy Zone”. If price trades into the Buy Zone and stalls and a candle does not close below trendline support, just as in our “blue box examples” , we can take a long position on the pair with our stop just below the trendline or just below the lowest wick that penetrates the trendline.The trader could exit the trade if price reaches resistance, the previous high, or by employing a simple 1:2 Risk Reward Ratio.Now let’s take a look at a 4 hour chart of the USDCHF for selling against Trendline Resistance in a downtrend… This trading scenario will be virtually the opposite of what we did in the previous buy example.We want to sell this pair as it has been making lower lows (red lines) and lower highs; price action is below the 200 SMA and pulling away from it; and, at the time of this chart, the USD was weak and the CHF was strong.Again, price action has tested our resistance line at several points (the blue boxes) so we know the trendline to be valid. In this example we would wait for price to trade up to trendline resistance in the Sell Zone. As long as a candle does not close above the trendline, we would sell the pair with a stop just above the trendline or just above the highest wick to penetrate the trendline.The trade could be closed should price reach the previous low or we could use a 1:2 Risk Reward Ratio to exit the trade.
One of the most powerful technical indicators that you can use in any market is the MACD oscillator, invented by Gerald Appel in 1979. The MACD, which is short for moving average convergence divergence, is one of the most popular lagging indicators among traders as well. Many traders use this indicator to trade divergence between the indicator and price, which can be a powerful trading technique if done correctly. Are you trading MACD divergence correctly? In this article, I’m going to show you how to trade MACD divergence like the pros. Are You Trading MACD Divergence Correctly? For starters, you should determine whether or not you are using the best MACD indicator for the job. For instance, the default MACD indicator in MetaTrader 4 does not use the original MACD formula and is completely useless when it comes to trading traditional histogram divergence. I’ve also seen MACD indicators, in other trading platforms, that only display the histogram, leaving out the MACD and signal lines. In order to trade MACD divergence the way I’m going to teach you, you need to use a true, traditional MACD oscillator. The image above is an example of a traditional MACD oscillator. You can see the histogram (bar graph) in gray, the MACD line in blue, and the signal line in red. Of course, the colors can vary between platforms and indicators, or due to user settings. The MACD line is the fast line. The signal line is the slow line (average of the MACD line). The histogram shows divergence between the MACD line and signal line. What is MACD Divergence? The typical definition of MACD divergence is when price and the MACD indicator are going in separate directions. As a trading method, at least in our case, we’re not talking about the divergence between the MACD line and the signal line. MACD divergence is, for example, when price is making lower lows while the histogram or MACD line is making higher lows or double bottoms. The idea is that the slowing momentum displayed by the indicator could be an early sign of a reversal. In the example I mentioned, we would have bullish divergence. We would have bearish divergence if price were making higher highs while the histogram or MACD line was making lower highs or double tops. Similarly, price could make a double top while the histogram or MACD line made lower highs. In the image above, I marked the bullish divergence in green and the bearish divergence in red. Notice that I marked divergence when price was either down trending or up trending. I completely ignored the range bound period. There are a couple of shortcomings to trading MACD divergence, and trading from a ranging market is one of them. During a ranging market, the MACD and signal line will cross the zero line frequently. You should avoid trading divergence, and possibly trading altogether, during these periods. Note: It’s also important to trade MACD divergence from distinguishable higher highs or lower lows in price. For instance, the bearish divergence (red) in the image above barely qualifies, because there were such small retracements in price during that uptrend. Keys to Trading MACD Divergence Correctly When traders first realize how powerful trading MACD divergence can be, they often make the mistake of trying to trade the MACD on its own. I don’t recommend this because the MACD can give many false positives on its own. Instead, I recommend using MACD divergence strategies with other trading strategies – preferably ones that use leading indicators, like price action or support and resistance. The right combination of lagging and leading indicators can provide you with a real edge in the market. In the image below, I marked the bullish divergence (green), the bearish divergence (red), and an example of bad divergence (gray). I also marked some entry signals. For the purpose of this article, we will be using price action signals in conjunction with the different forms of MACD divergence. Starting from the left, you can see some traditional MACD histogram divergence. The histogram is making higher lows or double bottoms, while price is making lower lows. If we were using price action as our confirming entry signal, we would have skipped the first two examples of bullish divergence, because there were no bullish candlestick signals to confirm our entry. The next two examples show both histogram and MACD line divergence. They also both developed bullish engulfing signals which could be used to confirm entry at each of those divergence points (click the image for a better view). Note: Oddly enough, according to the way I trade candlestick patterns, I would have made a full take profit (2:1) after the first bullish engulfing pattern. I would have been stopped out at break even, if I had taken the second bullish engulfing pattern. At first glance, you would think it should be the other way around. Next, we have an example of bearish divergence. A strong candlestick signal, the bearish engulfing pattern, developed at this point as well, confirming its significance. During this period, the divergence occurred between price and the histogram. Divergence also occurred between price and the MACD line. You’ll notice that the MACD line only made a small kink (or micro divergence). Micro divergence can occur when price is making smaller retracements, or during periods of high volatility. Either way, micro divergence can be a very significant signal in the right situation. After that, I marked a bad example of divergence. The reason this doesn’t qualify as a good example of divergence is because the retracement that made the first low was so small that it’s barely noticeable. Remember what I said about distinguishable higher highs or lower lows in price being important? Price action through this area is too smooth. There was not enough up and down movement in price to establish any distinguishable lows. Compare this period to the downtrend on the left of the image. There you can see very distinguishable lower lows in price. The lows on the histogram were also very distinguishable, which is helpful but not critical. Next, we have another example of bullish histogram divergence. This bullish divergence also coincided with a possible bullish candlestick signal, a bullish engulfing pattern. However, the real bodies of the candlesticks are relatively small compared to the other candles in the area. For that reason, I would have skipped this trade, although it would have worked out. Finally, we have another example of bullish divergence that occurred between price and both the histogram and MACD line. In this case, there was no candlestick signal to confirm a trade, so we would have stayed out of the market. Hopefully, you can see from the examples that I’ve given that learning how to trade divergence between the MACD and price can be a very powerful tool in your arsenal. Trading MACD divergence in combination with almost any other type of trading strategy can increase that strategy’s profitability exponentially. Final Thoughts: Trading MACD divergence, if done correctly, can provide you with a real edge in the market. It can be a powerful early indicator of trend reversals when combined with another trading system – preferably a system based on leading indicators. MACD divergence isn’t foolproof. This technique does not work well in range bound markets, and on its own MACD divergence will often give you many false positives. This is especially true when the market is trending strongly in one direction for an extended period of time. It is important to only trade divergence signals that occur during periods of distinguishable higher highs or lower lows in price. Strong, parabolic moves in price, in one direction or another, with little to no retracement, do not make good divergence signals. Are you trading MACD divergence correctly? Hopefully, this article shed some light on any mistakes you might be making with this popular trading technique. Like anything else in trading, you can’t expect to be an expert divergence trader overnight. Be sure to do plenty of backtesting and demo trading before trying any new trading strategy in your live account.
It’s been a while since we hanged out for coffee on these streets. Today you’ll experience what we term as ‘The FSC Experience’ (The Fourthstreet Consultants Experience). An exclusive one-on-one consultation session with you. This is what we do every day; we listen, we advise, we train, and mentor new and experienced traders into profitable and consistent independent traders. I thought to extend today’s consultation session to you, right at your convenience and comfort. I look forward to enlightening you, and there’s no better way of articulating that bargain than by sharing one of the most thrilling & revealing sessions that I held recently with a client, a gentleman who graced our offices. His name is Patrick (Not his real name). We have held numerous consultation sessions at our offices, and others on phone and via skype with potential clients. But Patrick’s session was different. You know Catholics have a session in their worship services they call the ‘Sacrament of Penance’. The confession with a priest. I am not about to be a priest, nor am I Catholic, but with Patrick, I must admit it felt gratifying to listen and offer my professional counsel to a man really hungry and in need of the truth and growth. I trust we’re well acquainted by now. That was the talk before Thee Talk. Let’s indulge. This article is an attempt to summarize my journey into the world of trading, while at the same time edifying you on factual guidance on what it takes to trade profitably and consistently for the long term. It’s 2.30 PM, a gentleman walks in our offices, bold and well-composed. It’s one of those hot afternoons at the office, and interestingly, everyone is busy attending to their own business, stuck on their screens, a deafening silence! I am reading an article by Peter Thiel, the topic “Life is Short. That’s the point.” I propose you look him up, check his works. He’s one of the most brilliant thinkers and writers of our times. It’ll be worth more than a dime for your time! After the salutations, Patrick is served coffee and we start chatting. From the beginning, he sounded so enthusiastic about venturing into the world of Forex trading. That got me hooked to the conversation. I quickly gather that he’s not new to trading. But he was oblivious of consistent profitable trading, and that’s what led him to knock our doors. “How and where did you learn about forex trading?” I posed the question to understand his locus. He is open and doesn’t shy from telling the truth about his journey into the world of trading. He explains that he has watched a number of YouTube videos on different forex ‘strategies’, including scalping, fundamental trading, and a few technical setups. He further explains that he had a chance to attend a few trading training seminars organized by Forex brokerage companies, where they were taught on how to place trades on MT4 using the short timeframes of 15mins and 30 mins. Some of the trainers had actually promised to be sending trading signals to guide them initiate trades and Wolla!! There was so much light and glamour to the party that he hurriedly signed up for a live account with a forex broker, funded it with $500 of his hard-earned money. Ready to set off on his journey to ‘turn his life around.’ His exact words, not mine. I couldn’t help but only imagine the mental ruin and the emotional weight of the person in front of me. Not to mention the financial degradation he had been through for the past four months of his journey into trading. I could relate. It took me almost a year to land on a reputable and credible trading platform to learn from. Of course, I paid expensively for my mistakes & assumptions. However, 12 years later, I owe my success to that first move to go for reputable trading education. One thing that new traders fail to acknowledge is that the cost of not subscribing or enrolling for a trading course is way greater than the price you pay for that course/education. Why would you put your time, energy, and resources on the line for a ‘war’ that’s beyond your prowess? So guys, today I am going to be blatantly honest with you. There’s No single Forex brokerage company in the world that will ever serve you coffee, and shed light on facts about what it really takes for you to achieve consistent profitability in trading. Sounds harsh, right? The sole goal of Forex brokers is to get as many clients signing up for trading accounts as possible, and for them to fund those accounts with as much as they can, as quickly as it calls for. Brokers don’t care much if you’re losing or winning. Why should they care anyway when they are getting their profits from spreads and margins, regardless of whether your trades end up losing or winning?? The more the trades you make in a day, or an hour for that matter, the merrier for them. They all about volume, quantity over quality. This is the reason why most brokers preach the gospel of trading shorter timeframes of 5 minutes and 15 minutes. Anything to hook you into high-frequency trading. A great deal of business for the broker, but a painful journey resulting in overtrading, emotional instability, and financial losses, especially for newbie traders such as Patrick. It’s therefore upon you, as a new trader, to look out for what’s best for you. Essentially, any credible and successful trader will outrightly tell you that trading off any timeframe lower than 4 hours or at the very least, 1 hour is guaranteed to ruin not only your capital but also your mental and emotional balance. I have been there, I have done that, and it simply doesn’t work! And even if it worked for a few individuals, why would you spend your life getting adrenaline rush and sweating your but all day, when you could place your trades, set up your limits to control your risk and target your profits, walk away from the screen, attend to other affairs in life such as family and other ventures? More consistent profits, more free time, no mental ruin/adrenaline rush. It’s an absolute win. This is the gospel that your Forex broker and most Forex academies/trainers won’t tell you. Any Forex trainer or course out there that cares about your growth as a trader must be open with you from the word go. Trading can be relatively easy or hard, depending on where you seek education and mentorship, and your commitment to follow the various rules of the game, even when they are seemingly ‘boring’. In fact, profitable Forex/Indices/stocks trading is boring. Jesse Livermore, one of the greatest traders of all times, said it right, “Money is made by sitting, not trading.” What he meant is that the sole job of a trader is to wait patiently for the best setups, and go big with them, as opposed to trying to chase or force trades on the markets every other minute. Having said that, I have nothing against Forex brokers, in fact, we all need them. They are our bridge to access the markets. I am only looking out for the masses out there, such as Patrick, who are enthusiastic and looking forward to kick start their careers in forex trading, so that they don’t make the same mistakes I made during my first days into trading. I am about to cover and expound on my full consultation with Patrick, that is how I got to respond to his trading distresses and inquiries in an elaborate, but precise manner. I’ll put forth the questions as I posed them to him, then I’ll answer to them coherently. You’re welcome to seep some more of your coffee Question One: How and where did you learn about forex trading? Whereas attending trading seminars and workshops is a great way to expand your knowledge about trading, it would be a big joke to assume that that would be all you needed to get started on trading and to be a pro trader. Getting a reputable training education is mandatory for you to learn any new skill. Attaching yourself to a mentor in your line of career shortens your learning curve and grows you as a person. This is how you win, not only in Forex trading but in attaining any significant skill in life. This is also true for watching YouTube videos or reading some blog articles. Not even our blog page at Fourthstreet Consultants is adequate to set off on your path to trading and making consistent returns. Yes, it’s indeed a great place to gather trading incites and knowledge about the various disciplines of the business. But until you immerse yourself into a fully developed, reputable, and tested trading course, that comes with dedicated mentorship, then you’re quite far from the real pie. Let’s be real with life. There’s no shortcut to success. Pilots learn for 5 years before they can get their badges. Lawyers spend at least 7 years to learn and practice law. Boxers and athletes practice for at least 5 years before reaching their career peaks. What about traders? They want to learn everything about trading today and start making handsome returns tomorrow. This is the biggest irony with our industry. Shortly after, most newbies either give up or cry foul of how much trading is ‘gambling’. It might not necessarily take you 5 years to learn and practice profitable trading, but failing to invest in trading education is guaranteed to cost you more in the long-term. Question two: What Type of a Trader Are You? Any trader must answer this question outright without blinking or collecting words. Are you a technical trader? Or a fundamental trader? If that’s the case, are you a day trader, a swing trader, or a position trader? Of equal importance is, do you have a trading plan that strictly guides all your actions on the markets? I put together a guide on how to develop a trading plan here. If you can’t satisfactorily answer these questions, you aren’t yet started as a trader, you only possess ‘ideas’ about trading, and you’re not equipped with the required trading skillsets to engage in live trading activities. Question Three: What are your expectations as you venture into the business of Forex trading? The internet is awash with too much noise, and people selling lies and false lifestyle to woe you into their fishing nets. Most beginners go through a couple of YouTube videos, and just like that, they imagine themselves making the millions overnight from trading. Rude shock! There’s no quick money in Forex trading. No legitimate business model makes profits all the time. Even the biggest companies of our time suffer small losses, and other times, big losses. Varied performance with different seasons is a norm for any business. Different company stocks, for instance, appreciate during certain quarters of the year and dip in other months. Forex trading is no different. With this understanding, your job as a trader is not to avoid losses, but to manage losses by keeping them small, while maximizing on your profits. Our course not only guides you on how to manage your losses but illustrates in expounded videos how to set up your trades on a live account, one funded with real money. We took it upon ourselves to fund a live account with real money $$, and recorded all our trading activities in real-time, for three continuous months. You will hardly get this value from most trading courses out of them. Is your trading coach/trainer daring enough to trade live and record as they practice what they teach you with their money in real-time? This is all that is covered in MODULE THREE of our comprehensive online course. Question Four: Are you always excited and attached to your running/active trades? Anytime you find yourself excited about your entries, getting the adrenaline rush when your trades are running, then everything you’re doing is wrong. In most cases, you’ll have risked a little too much, or got in late into the trade. Essentially, anything you do on the markets without strictly adhering to a documented Trading plan is wrong. As a normal human being, you’re prone to be fearful and/or greedy, which consequently causes you to break your own rules. Consistent and profitable trading is boring. This is because you follow the same set of rules and steps in all your trades. There’s no excitement or anxiety because every action is guided by the trading plan. This is how we train our traders at Fourthstreet Consultants. If you’re to approach Forex trading as a business, you’ve got to learn the rules of the game and detach trading from your emotions. We simply approach every trade with a mindset of Risk Vs. Reward. The discipline to only place trades with low risk and high rewards is not a matter of contention. You can only learn these disciplines through practicing and proper mentorship from experienced traders. So you want to be a profitable trader? Now you know what to do, right? As for Patrick, he is already on his new journey into learning and earning consistently with us, trading off the biggest financial markets in the world where more than 5.3 trillion dollars are exchanged every day. This is it for our coffee date. Please note, you’re the one paying next time. OH, before it slips off my mind, just in case you were still wondering whether to learn Forex trading or pick up an online skill that would add up that extra income for you, this article here is specially the Wake-up call for you. Good luck!