Today I will be going over a couple more stock trading strategies and how to interoperate statistics. First I will go over the remaining stock trading strategies. One way to try and predict what a stock is going to do in the near future is to look at where it is in relationship to it’s 50 and 25 day moving average. There are many ways to interoperate the same information. In general if a stock breaks through it’s 50 day moving average it can often mean that it is headed down. But on the flip side if a stock is already on the down side it can often find support (meaning stop it’s slide) by resting on the 50 or twenty day moving average. Another instance where it pays (literally) to pay attention to the moving averages is when a stock is on the up swing and extended way out over it’s moving average. Most times (but not all) when this happens the stock will pull back and rest on the moving average before breaking out or just flat lining for a little while. A good illustration of this property can be found in the chart below, which is a chart of Sandridge Energy. You can see that through lat December and just into the New Year this stock went way up. Then just as it entered the New Year it laid out a perfect pennant flag but then instead of breaking out it crashed down and took a bit of a plunge. The reason for this is because it was extended way out over its 13 (green line) and 50 day (purple line) moving averages. Between golden and death crosses and now this it very important to pay attention to moving averages. Now I am going to discuss key statistics like such as shares outstanding or return on equity. The first and most important step is to know your company, for instance, what are they producing and are they in a sector that you believe can make money and will continue to grow? After that you need to research some key statistics. You can access a company’s statistics by going to yahoo finance, looking up the companies symbol and then going to key statistics. Lets use the company UPS as an example. One of the first things I want to know about the company is how big are they? This is represented by the companies “Market Cap” which is the number of shares times the price of one share. Basically how much the company is worth. In the case of UPS the market cap is about $72 billion dollars, which is pretty big. After that I want to know things like how much cash they have on hand (Total Cash), how much debt they have (Total Debt), how much return they get on their investments (Return On Assets) and how much their shares are really worth (Book Value Per Share). The first three can tell me what kind of position they are in fiscally and how well managed the company is. The last one can tell me whether the stock is over have under traded (if it’s over traded maybe it will come down and if it’s under traded maybe there is room for growth). Some other key statistics to look at are Shares Outstanding (how many shares the company has out there), Short % of float (how many of the shares that are owned are short) and Net Income Avl To Common (how much money they made with over head). Short % of float is good for trying to see if people think the stock is headed down or not (high % of float means people think the stock is going down). If the Short % of Float is very high the stock might be about to take a turn for the worst. Shares Outstanding and Net Income are important because they let you see how much the company is making (during earnings net income usually expressed as amount of money per share so you need to know both the amount of shares and the net income to know how much money per share the company is making). Lastly it’s important to know when the company you’re investing in is going to report earnings. If a company reports bad earnings then the stock will almost always take a plunge, on the flip side if it reports good earnings then it will go up. Sometimes it’s not a good time to take a position in a stock that is about to report earnings because it’s a bit of a gamble to keep a stock through earnings.
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