Finding trades is a personal choice that may alter as you discover new markets and new trading methods. There are of course the two basics approaches towards the markets, fundamental and technical or perhaps is a mix of both. Fundamental is just as large a topic as technical, neither is right or wrong, a strong fundamental will deliver the reason for the overall larger direction of trend and the technical charting can assist with the timing of entry, exit, trade management and even the overall financial plan.
In finding trades, you need to ask yourself a few questions first. What's my original plan for being in the markets? To hedge, invest, position trade, swing, or day trade, perhaps all of them? Once you are clear on your ‘trading time frame' you can get down to business. Swing, momentum and whatsoever other short term trading is regularly going to be technical trading.
Fundamental Analysis
Trend and position trading are long duration scenarios. Finding a trend to trade will most likely come more under fundamental analysis. At hand is financial fundamental analysis such as the fundamentals: company's cash flow, debt, share value, P.E ratio, EBIT debt equity ratios, and looking for companies that are undervalued. At times some companies could simply have more cash in the bank and therefore be undervalued. When looking for value doesn't forget to add in earnings, the complete methodology used by Benjamin Graham and Warren Buffet. They know earnings are a key component to identifying undervalued stock.
Other aspects such as quality of management and, also if that management has a significant stake in the company to show commitment, i.e. having roughly a third of the shares being owned by insiders. That shows that the interests of management and shareholders are aligned. Of course this depends on the size of the companies.
Institutional ownership is a good sign in the bigger picture and how the sector which the company is in performing. Another way of finding value is to deduct the company's debt from the book rate, to find the net worth and then divide that into how many shares outstanding on the market, and you'll have a book value per share. Now compare that to the current share price for a price book ratio. There are services that can assist in pulling this information together for you along with software programs that filter through the financial data and offer possible trades; these services cost around $1000 annually.
About the Author:TradingLounge™.com.au and the TradingLevels™ Analysis Service have been developed by Peter Mathers to meet a growing demand for accessible, sensible education and his TradingLevels™-based analysis. Delivering high quality analysis and trades recommendations for shares, CFDs, fx trading, indices, commodity, the TradingLounge™ has been in strong demand growing from strength to strength. Peter is author of "Trading CFDs in Today's Markets". If you want to know more about trading analysis, click here.
