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Posts Tagged Fundamental Analysis

Forex Trading Strategies – Which One You Should Use?

Nov 13

Posted by ArtQ in Finance | No Comments

If you have tested or do real trading for some times, you must realize that there are many forex trading strategies that can be applied. Each of it has its own advantages and disadvantages, ask for different data and condition, and will show its true potential in particular currency pair.

Basically, forex trading strategies can be divided into two major:

1. Technical analysis
This strategy is utilizing data as its main information source, especially charts to predict the future market movement. There are various methods to read this data such as candlestick charting or Elliot wave, but basically they search for patterns in the chart for a given time and looking for relationships between various indicators such as price and volume. You need the right tool for this, learn about it at technical analysis software.

This strategy is preferred by most traders and they use it in daily basis to decide the best transaction available currently. Usually, each trader has their own way to interpret the data by using various variables and designed specifically for a particular market he is in. These difference in methods make them have different winning rates even though they can access the same data; the trader with a better method will get more profits.

2. Fundamental analysis
This strategy relies on various economy factors such as overall state of economy, interest rates, production, earnings, and management. For example: some news such as Non Farm Payroll or Wholesale Inventories can affect the market greatly. If you can predict where it will be headed before the news released, you can gain a lot of profit.

On some occasions, there are important meeting holds by certain persons who have high influence in the state of economy. For example, a meeting about deciding a new interest rate or inflation will have great impact in the currency values. Usually it will be already too late to enter the market when the result has been announced, so you have to use the current data to analyze and guess the result before.

Fundamental analysis use is not limited to short term trading, it can also applied on long term forex trading strategies. This is rather complex, but basically you predict the future trends of the market based on how the new policy will affect the market in long run.

There are also other methods in forex trading strategies aside from technical and fundamental analysis such as Scalping.

Scalping
The aim of scalping is making a series of continuous small profits where those profits will be accumulated as big profit at the end of the day. A scalper will need to devote his time to keep watch of his open position, but it is easier now with the use of automated trading software. For example: When a trader who using scalping strategy sees a sharp movement in the market, he will use the opportunity to make profits even if it just 10 pips.

Scalping is not a method that can be used by any trader, it requires patience and no emotion involved. A scalper will follow his proven strategy even if he sees opportunity to gain more; he will close the position, get small profit and move to the other potential transaction. Scalping can be very tiring and hard for a human trader, but not for a robot; read about the best scalping robot at FAP Turbo Review.

If you are still unfamiliar with forex and looking for a suitable forex trading strategies then I suggest learning technical analysis first, it is the basic of almost all strategies. Another alternative: just go with a proven system, check it at best trading system.

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Choosing the Right Trading Strategy: Fundamental and Technical Analysis

Nov 7

Posted by ArtQ in Finance | No Comments

 

When you are interested in investing or index trading, one of many questions you must answer is whether you are interested in fundamental or technical analysis as your trading strategy. These are the two primary investing methodologies, and each system has its own characteristic advantages and disadvantages. The strategy you choose will depend largely on your goals and the current financial markets.

In general, technical analysis is a trading strategy that looks at the past price movements of a particular security in order to predict future price movements. Fundamental analysis, however, focuses on economic factors directly affecting the company when deciding what to buy or sell.

A Closer Look at Fundamental Analysis

Fundamental analysis looks closely at a business, analyzing its cash flow statement, income statement, and other financial records to determine the intrinsic value for that particular company. When the stock price is below this supposed intrinsic value, the asset is considered a good buy. A stock is considered a poor investment if the purchase price is greater than its intrinsic value. Of course, there are many other economic factors considered by the fundamental analysis trading strategy, but this gives a basic idea of how the analysis works.

Fundamental analysis requires that investors take a long term approach to looking at a company or an asset. Most fundamental analysts want many years’ worth of information from the companies they are considering investing with in order to make a decision. Also, the investments are considered long-term investments, as it takes a while for the company’s actual value in the market to reach its intrinsic value as stated by the analyst. In a down economy, this can translate into lost income, because the investor must buy and hold the asset for many years without seeing any increase in value. The investor is assuming that the increase will come later and that the stock will eventually have the same value as the company’s intrinsic value.

Fundamental analysis has a longer history of use by investors. People have been investing this way for many years. Conventional financial wisdom holds it to be the safest method of investment. However, in order to succeed in long-term investing using fundamental analysis, you must have a thorough understanding of economics, the resources necessary to find the economic statistics about a particular company, and a sound company in which to invest. In some cases, investors have lost money when companies that seemed to have solid financials suddenly filed for bankruptcy protection. In the long term, some losses like this may not affect an overall investment plan, but for many seeing them is discouraging in the short term. This has led to a growth in the popularity of technical analysis and index trading.

A Closer Look at Technical Analysis

Those who are interested in swing trading often take the technical analysis approach. This involves analyzing the stock alone and not focusing on the economic factors affecting the company. The technical analyst feels that it does not matter how much intrinsic value a particular company has if that value is not reflected in the stock market, because the value may never be felt by the investor. Everything someone who is index trading using a technical approach needs to know is found in the stock charts.

This means technical analysis tends to be a trading methodology with a shorter time frame. The goal is not to buy an investment and hold on to it for a long time, but rather to buy an asset when it has a low price and sell it as soon as it has gained enough to make the trade worthwhile. These investors are constantly making trades back and forth, which is why this type of trading is often called swing trading. The charts they use are also short-term in scope. They may cover a few days or a few hours, depending on the type of trading being done, but they rarely cover several years. The goal of the index trading investor is to see what the stock is likely to do in the short term, in order to decide whether or not there will be some increase in the near future.

Of the two types of investing, technical analysis tends to have the greatest amount of success in the short term.  Traders using technical analysis need a reliable trading strategy in order to cement their gains over the long term.

Technical analysis and trading often perform very well when the the market as a whole is performing poorly.  When markets as a whole hold steady or drop, there will always be days when a particular stock will do very well, and others when it will do very poorly.  Index trading allows the investor to analyze past trends and predict when these spikes and drops will occur.  This means that the investor can sell when the price jumps up and buy when the price goes down, creating a return even in a time when buy and hold investors are not seeing any. With a good trading system, returns are possible with almost any up or down movement in an asset price.  With buy and hold investing and fundamental analysis the investor is waiting on a company to perform well in order to see a return.  If that company’s product or service stops selling well, the investor will lose significant amounts of money.

Which is Right For You~Which Trading System is Best for You}~{Which Method is For You}~Which Trading System is Best for You}?

It is up to you to look at your financial needs and goals and decide which method of trading you are going to use. Are you looking for a long-term investment option, or do you want a short-term option to get you through the current economic downturn without significant losses? Do you need to see an increase in your investment soon for an upcoming expense, or do you have the luxury of time to wait for future increases? Perhaps a balanced approach, with both types of investments in the same portfolio, will better serve both your long-term and short-term financial goals. Regardless, understanding both schools of thought and how they play out in an economic downturn is crucial to your investing success.

 

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What Is Fundamental Share Analysis? Part Two

Oct 17

Posted by ArtQ in Finance | No Comments

Brought to you by ETF trend trading.

Although the raw data of the Financial Statement has some useful information, much more can be understood about the value of a share by applying a variety of tools to the financial data.

Earnings per Share
The overall earnings of a company is not in itself a useful indicator of a stock’s worth. Low earnings coupled with low outstanding shares can be more valuable than high earnings with a high number of outstanding shares. Earnings per share is much more useful information than earnings by itself. Earnings per share (EPS) is calculated by dividing the net earnings by the number of outstanding shares. For example: ABC company had net earnings of $1 million and 100,000 outstanding shares for an EPS of 10 (1,000,000 / 100,000 = 10). This information is useful for comparing two companies in a certain industry but should not be the deciding factor when choosing stocks.

Price to Earning Ratio
The Price to Earning Ratio (P/E) shows the relationship between stock price and company earnings. It is calculated by dividing the share price by the Earnings per Share. In our example above of ABC company the EPS is 10 so if it has a price per share of $50 the P/E is 5 (50 / 10 = 5). The P/E tells you how much investors are willing to pay for that particular company’s earnings. P/E’s can be read in a variety of ways. A high P/E could mean that the company is overpriced or it could mean that investors expect the company to continue to grow and generate profits. A low P/E could mean that investors are wary of the company or it could indicate a company that most investors have overlooked.

Either way, further analysis is needed to determine the true value of a particular stock.

Price to Sales Ratio
When a company has no earnings, there are other tools available to help investors judge its worth. New companies in particular often have no earnings, but that does not mean they are bad investments. The Price to Sales ratio (P/S) is a useful tool for judging new companies. It is calculated by dividing the market cap (stock price times number of outstanding shares) by total revenues. An alternate method is to divide current share price by sales per share. P/S indicates the value the market places on sales. The lower the P/S the better the value.  

Price to Book Ratio
Book value is determined by subtracting liabilities from assets. The value of a growing company will always be more than book value because of the potential for future revenue. The price to book ratio (P/B) is the value the market places on the book value of the company. It is calculated by dividing the current price per share by the book value per share (book value / number of outstanding shares). Companies with a low P/B are good value and are often sought after by long term investors who see the potential of such companies.

Dividend Yield
Some investors are looking for stocks that can maximize dividend income. Dividend yield is useful for determining the percentage return a company pays in the form of dividends. It is calculated by dividing the annual dividend per share by the stock’s price per share. Usually it is the older, well-established companies that pay a higher percentage, and these companies also usually have a more consistent dividend history than younger companies.

For more financial help please see etf trends and how to compare life insurance.

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What Is Fundamental Share Analysis? Section 1

Oct 5

Posted by ArtQ in Finance | No Comments

Brought to you by best trend trading system reviews.

The investor has many tools at hand when making decisions about which stocks to buy. One of the most useful of these is fundamental analysis – examining key ratios which show the worth of a stock and how a company is performing.

The goal of fundamental analysis is to determine how much money a company is making and what kind of earnings can be expected in the future. Although future earnings are always subject to interpretation, a good earning history creates confidence among investors. stock prices increase and dividends may also be paid out.  

Companies are required to report earnings on a regular basis and stock market analysts examine these figures to determine if a company is meeting its expected growth. If not, there is usually a downturn in the stock’s price.  

There are many tools available to help determine a company’s earnings and its value on the stock market. Most of them rely on the financial statements provided by the company. Further fundamental analysis can be done to reveal details about the value of a company including its competitive advantages and the ratio of ownership between management and outside investors.

Financial Statements
Every publicly traded company must publish regular financial statements. These statements are available in printed form or on the Internet. All statements must include an income statement, a balance sheet, an auditor’s report, a statement of cash flow, a description of the business activities and the expected revenue for the coming year.

Auditor’s Report
The auditor’s report is one of the most important sections of the financial statement. The auditor is an independent Certified Public Accountant firm which examines the company’s financial activities to determine if the financial statement is an accurate description of the earnings. The auditor’s report contains the opinion of the auditor concerning the accuracy of the financial statement. A financial statement without an independent auditor’s report is essentially worthless because it could contain misleading or inaccurate information. An auditor’s report, although not a guarantee of accuracy, at least provides credibility to the financial statement.

Balance Sheet
Another important section of the financial statement is the balance sheet. This is a ‘snapshot’ as it were, of the financial condition of the company at a single point in time. The balance sheet shows the relationship between assets (cash, property and equipment), liabilities (debt) and equity (retained earnings and stock).

Income Statement
The income statement shows information about the revenue, net income, and earnings per share over a period of time. The top line of the income statement shows the amount of income generated by sales, underneath which the costs incurred in doing business are deducted. The bottom line show the net income (or loss) and the income per share.

Cash Flow
The statement of cash flow is similar to the income statement – it provides a picture of a company’s performance over time. The cash flow statement, however, does not use accounting procedures such as depreciation – it is simply an indicator of how a company handles income and expenses. A statement of cash flow shows incoming and outgoing cash from sales, investments, and financing. It is a good indicator about how the company is run on a day-to-day basis, how it handles creditors and from where it receives growth capital.

For more on financial topics please see ETF trend trading and How To Get Your Free Trans Union Credit Report.

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