THE ART OF STOCK MARKET INVESTING: The Beginners Guide: How To Trade And Generate Wealth & Cash Flow Day By Day Using The Right 2020 & Beyond Trading Strategies & Psychology. Options-Swing-Forex by Gordon Swing

Author:Gordon Swing [Swing, Gordon]
Language: eng
Format: mobi, epub
Published: 2020-03-28T00:00:00+00:00

Chapter 5: Technical analysis

So far, we have only dealt with the theoretical aspects of stock trading. In this chapter, we take a more technical view of things. Prepare to delve deeper into the mathematical and analytical aspects of stock trading so that you can start doing your own analysis. The tactics explained below will help you as a newbie and even as a professional when you need subtle reminders that can make a difference in how you trade.

Analysts often analyze stocks to understand the probable direction they are likely to take. Take a look at some of the variables that stock analysts rely on and define some important terms that will help you understand further:

A stock’s market cap/capitalization is defined as the value of outstanding shares of the stock. The higher it is, the better established a company. Exchange regulatory bodies require that publicly traded companies provide quarterly or annual earnings reports. Market analysts usually use these reports as indicators for how companies are performing. They analyze aspects such as the earnings per share of a company, which often reflects the company’s profits divided among stock shares. They also analyze financial ratios that indicate financial profitability, stability, and growth potential. These ratios are described below

Debt to Equity Ratio: The debt to equity ratio is the primary metric analysts use to measure a company’s financial stability. This ratio shows the percentage of operations funded by debt in a company in comparison to the percentage funded by equity investors. Analysts find that a lower debt: equity ratio is best as an indicator for those looking to invest.

Price to earnings ratio: This is the ratio of stock in a company in relation to its earning per share. Higher ratios denote that investors are willing to pay higher share prices for the stock of the company. They believe that the company is likely to grow and that the stock price is likely to go higher as well.

Return on equity ratio: The return on equity ratio is an expression of the company’s net income in comparison to the company’s equity investment and indicates a company’s potential to grow.

Profit margin. The profit margin ratios vary, and investors may look at different profit margins to determine which companies are ripe for investment. There are many types, for instance, net profit margins and operating profit margins. Analysts may look at the absolute monetary profits of a company, but they prefer these margins because they are usually an indicator of a company’s percentage profitability. An example is when a company shows a large profit, let us say, $5 million. While this may look like a big figure, it may translate to a 4% profit margin. In such a case, even a small revenue decline may prove fatal to the company’s profitability.

There are mainly two approaches to investing in the stock market: growth investing and value investing.

Value investing involves investing in well-established companies that have proved to be profitable over time and are likely to offer dividend income regularly. This

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