Stock Trading tips - Trading Strategies for The Active Trader

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stock market Investment tips
Technical analysts are familiar with breadth
indicators. This is a class of indicators
designed to measure how broad the participation
in a price move is. The general idea behind
breadth indicators is that a healthy trend will
have broad participation. In a bull market, for
example, most stocks should be in
uptrend's. This is based on the theory that a
market with just narrow leadership is likely to
reverse. This was seen in 2000 when just a few
stocks were moving higher. These stocks carried a
great deal of weight in the indexes and pushed
the indexes up. Breadth warned of a problem and
the bear market was a problem. A popular
breadth indicator is the advance-decline line
which is calculated by subtracting the number of
stocks declining every day from the number of
stocks advancing. A/D line advancing issues
declining issues Every day, technicians complete
this simple calculation and chart the result,
adding todays result to the data. Generally, we
see a line (the breadth indicator) that closely
tracks the price action. The Breadth of
Fundamentals When analyzing breadth indicators,
technical analysts are generally looking for
short term trends. There are tools and
techniques technicians can use for longer term
analysis but breadth analysis is usually focused
on the short term. Fundamental analysis, on the
other hand, is generally focused on the long
term. Fundamental analysts will study financial
statements, using data that us updated just once
every three months. The relatively slow pace of
changes in the data drives a longer term
perspective analysis for practitioners. Tools
of fundamental analysts are well known. They
often consider different ratios based on
financial statements to develop a market opinion.
A financial statement actually consists of three
different components and its possible to derive a
ratio based on data from any of the
components. The first part of the financial
statement is the income statement. This includes
information about sales, expenses and income.
Analysts created the price to earnings (P/E)
ratio and price to sales (P/S) ratio to gauge
the value of a stock based on the information in
the income statement. The next part of the
financial statement is the balance sheet. Here
the company provides information about its
assets and liabilities. Analysts subtract the
amount of liabilities from total assets to find
the book value of the company. They can then use
the price to book value (P/B) ratio to value the
stock. The final part of the financial statement
is the statement of cash flows. This statement
records how a company uses cash. Analysts have
developed a number of calculations to help them
interpret cash flow. Among the most popular
tools are those associated with free cash flow
(FCF). FCF is a measure of a companys financial
performance, calculated as operating cash flow
minus capital expenditures. FCF represents the
cash that a company is able to generate after
spending the
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money required to maintain or expand its asset
base. The price to FCF (P/FCF) ratio is used to
measure a stocks value. These tools are
generally applied to an individual stock. For
example, we may want to know whether a stock is
cheap, relative to its peers, based on the P/E
ratio, the P/B ratio or some other measure. There
are also a number of other tools that can be used
to value stocks. Less popular is the idea of
applying breadth analysis to fundamental
indicators. For example, we could find how many
stocks are trading with a low P/E ratio. This
would tell us whether or not the market as a
whole is more generally overvalued or
undervalued. These are stock market investment
tips that need to be considered before buying
them. Some Stocks to Consider For those looking
for value in the current market, there are a few
stocks that are cheap on all of our screens.
These include Gulf Resources (Nasdaq GURE), AU
Optronics (NYSE AUO), LG Display Co. (NYSE
LPL), Consumer Portfolio Services (Nasdaq CPSS)
and AEGON (NYSE AEG). During a bear market,
that list of buy candidates will grow and value
investors will be rewarded for their patience.
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