Chapter#2 - Stock Buying Strategies
Chapter#2 - Stock Buying Strategies
Chapter#2 - Stock Buying Strategies
Click to read Chapter#1 - Strat Stock Trading from Scratch
Shares Price Ups & Downs
In Stock Trading, Stock prices change every day as a result of different market forces. Share prices change because of supply and demand. If more people want to buy a stock (demand) than sell it (supply), then the price moves up. Conversely, if more people wanted to sell a stock than buy it, there would be greater supply than demand, and the price would fall.
The Bulls
Abull market is when everything in the economy is great, people are finding jobs,gross domestic product (GDP) is growing, and stocks are rising. Picking stocks during a bull market is easier because everything is going up.
The Bears
Abear market is when the economy is bad, recession is looming and stock prices are falling. Bear markets make it tough for investors to pick profitable stocks.
Stock Analysis
Fundamental Analysis Techniques
There are many Fundamental Analysis Techniques that can be used for picking excellent long term investments. All fundamental investors agree that it is best to get into stocks when they are cheap and sell them once they have gotten up to their expected value. When all or the majority of stocks on the market are cheap based on their fundamentals it is called a "fire sale". It is very important to pick out the industry leader when searching for safe long term investments. Also look at company financial ratios and annual report and compare it to other companies in the same industry. There are three different types of stocks that are good buys based on fundamental analysis:
Income stocks: Stocks that provide a steady stream of income either by dividends, selling of covered calls, or both
Growth stocks: stocks whose earnings are expected to grow at an above average rate.
Value stocks: These are stocks with good earnings and dividends but the market does not notice them.
Technical Analysis
Technical Analysis is a type of stock analysis that deals with a stocks trend and price patterns. This study has proven to be a very good indicator when used correctly. There are various techniques for analyzing ups and downs in company share price by observing historical data.
Technical Analysis assumes four things:
All important information is already priced into the stock. In other words a company's earnings, assets, liabilities are already factored into a stock at all times. Because of this it is not necessary to examine the fundamentals of a company before placing a trade.
Prices move in predictable patterns.
Prices tend to move in a trend and tend to stick with that trend. In other words if a stock is trending upward it is more likely to continue trending upward then come down all of a sudden.
History repeats itself. This assumes that the majority of people will make the same decisions in the future as they did in the past when it comes to investing.
Some of Technical Analysis techniques are:
Chart Patterns
Candle Sticks
Moving Average.
MACD
Stochastics
Volume
There are plenty of soft-wares available which calculate fundamentals of companies and as well as show technical data for technical analysis. To have an idea of such a software check the below mentioned link.
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