Bryan Sumner
Read this 49 page Quantum Swing Trading FREE Report. Turn $200 into $100K in just 3 months with this Penny Stock Trading FREE Report. Meet the High Velocity Market Master and get your FREE COPIES of the Ulimate Day Trading System and the Universal Risk & Money Management Tool just now! Many investors and traders when they hear the word fundamental analysis start sweating and get anxious, fundamental analysis need not worry you, if you know how to keep it simple. Follow the K.I.S.S principle when doing fundamental analysis. You don’t need to do an MBA from Harvard or Stanford to master fundamental analysis.
When you do fundamental analysis of a company and its stock, you should always start with these four basic questions! 1) What is this company’s value relative to its peer companies? 2) What is this company’s growth rate? 3) What is this company’s return on capital? And 4) What is this company’s debt level?
When you have answered these four basic questions, you will get an idea what should be the true value of this stock. You don’t need to fret over calculating the exact intrinsic value of a stock like a Wall Street Expert. You just need to figure out that this stock is worth between $20-30 while it is trading for just $15 per share at the moment.
If you don’t know intrinsic value, it is the supposed true value of the stock. It may not be what the market value at that time is. But over time, the stock will surely attain what it’s intrinsic value is. Now why fundamental analysis works?
Suppose, you have a apartment that you rented for $1500 per month. Compare this with your friend’s apartment who pays $2500 per month. You can easy figure out that the value of your friend’s apartment is double your apartment. In the same way, companies are value by their earnings. Each company reports its quarterly earnings statement. By looking at the quarterly earnings report of different companies, market figures out which stock has more value. So a company’s value is based on its future expected earning potential.
Another reason why fundamental analysis works is that arbitrageurs keep the prices in check as they are always looking for mispricing in the market. This mispricing in the market gives them an opportunity to make riskless profit. So, they immediately pounce on the arbitrage opportunity. When many try to take advantage of that arbitrage opportunity, the mispricing is leveled out and the market prices equal out.
Suppose a company ABC stock is selling for $10 and its’ market value is $100 million with $150 million in cash and no debt. An arbitrageur will immediately detect this arbitrage opportunity and buy the company for $100 million. Use the cash to pay for its purchase. So, fundamental analysis works because firms, individuals and governments are always looking for making riskless profits in the market.
Tags: fundamental analysis, fundamental analysis basics, how to do fundamental analysis, stocks fundamental analysis, why fundamental analysis
Posted in Stocks · March 11th, 2010 · Comments (0)
Turn $200 into $100K in just 3 months with this Penny Stock Trading FREE Report. Read this 49 page Quantum Swing Trading Report plus the shocking Profit Button Report that applies no matter what you trade-stocks, forex, futures or options FREE. Meet the High Velocity Market Master and get your FREE COPIES of the Ultimate Day Trading System and the Universal Risk & Money Management Tool just now! Every day you will come across a new trending indicator. The number of trending indicators now available is mind boggling. Almost all these trending indicators use price and volume in their charts. So using many will not give you an advantage. What you need to do it to use only one trending indicator and combine it with candlestick patterns to generate accurate trading signals.
First, you need to eyeball the chart to determine if the market is in a trend. You can also use the ADX ( Average Directional Index) Indicator to determine the trend. Unlike the oscillators that have a range between which they oscillate, a trending indicator has no upper or lower bound. The higher the trending indicators reading, the stronger the underlying trend!
Now these trending indicators can be applied to almost all markers stocks, futures, currencies, commodities, ETFs and so on. So mastering one trending indicator can give you the edge to trade different markets. The three major trending indicators are: 1) Moving Averages, 2) Directional Movement Index (DMI) and 3) Moving Average Convergence Divergence (MACD).
Directional Movement Index (DMI) is a powerful trending indicator. DMI not only reveals the direction of the trend but also tells whether it’s strength is increasing and when it is about to end.DMI is composed of three charts or plots.
+DMI, -DMI and ADX. +DMI ranges between 0 and 100 and indicates how effective the bulls were in pushing prices above the last day’s high. -DMI also ranges between 0 and 100 and shows how effective the bears were in pushing prices below the previous days low. ADX measure the difference between the two +DMI and the -DMI. ADX gives the strength of the trend.
Most traders use +DMI and -DMI crossovers as trading signals. When the +DMI crosses above the -DMI, it signals that buyers are now in control of the market. When the -DMI crosses above the +DMI, it signals that the sellers are now in control of the market. You must master this technical indicator if you are a serious trader.
However, frequent crossovers between the +DMI and the -DMI means that neither the bulls nor the bears control the market. This will reflected by the ADX being below 20 meaning the market is ranging. Most charting software now available provide DMI in the arsenal of indicators that you can use. DMI is calculated over 14 days and ADX over 25 days. You need to master this one trending indicator.
Tags: +dmi, adx, directional movement index
Posted in Stocks · March 11th, 2010 · Comments (0)