Discovering Trades

Determining trades is a personal choice that may change 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. Key is just as large a theme as technical, neither is right or wrong, a strong fundamental will render the cause for the overall larger direction of trend and the technical charting can help with the timing of entry, exit, trade management and even the overall fiscal 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, possibly all of them? Once you are clear on your ‘trading time frame' you can get down to business. Swing, momentum and any other short term trading is commonly going to be technical trading.

Fundamental Analysis

Trend and position trading are long term scenarios. Finding a trend to trade will most likely come more under fundamental analysis. At hand is fiscal fundamental analysis such as the rudiments: 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 great 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 is performing. Another way of finding value is to subtract the company's debt from the book value, 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.