Technical Analysis

Investors and traders always are looking for an edge in forecasting stock prices to improve their trading results.When investment professionals as a group make their decisions,they often analyze fundamental information such as economics,politics and demographics.They look back to the past to forecast what may happen in future.Investors and speculators react the same way to the same types of events again and again.It means they are employing technical analysis of the markets.This discipline relies on generous amount of historical price data,readily available in computer applications.

   The biggest advantage of using a historical database in making trading decisions is that it gives the analyst perspective.A sharp price increase in one stock may be taken as a bullish sign until it is viewed as part of a longer chart that has been declining for the past six months.A chart is nothing but making patterns of price movements over time.

   By plotting the closing prices of stocks each day,you can get the basic chart of that stock and you will come to know in which direction the stock price is heading.
Below is the one year chart of Apple Inc by depicting a daily closing price.

Stock charts come in many flavors.Some prominent ones include point and figure chart,candlestick chart and the ever-popular bar chart.The bar chart is the main market analysis tool in the western world and a key component of technical analysis worldwide.Bar charts are easy to create,interpret and maintain.Each individual bar use daily open,high,low and close price.They are plotted together in a vertical line each day as shown below.Overtime,the bars rise and fall to form the chart patterns and we will see in detail.

Critical part of fundamental analysis-Company Earnings

   Fundamental analysis include the general economic and market conditions that impact a stock,as well as the financial information about a company's activities and its financial successes and failures.Taking the time to analyze the fundamentals of a stock puts you one step ahead of the trading crowd.

  The first step you take in conducting fundamental analysis is selecting an industry or business sector that interests you for possible stock selection.Regardless how you start,you need to narrow down your list of companies you want to compare in similar sectors,so you can find the best opportunity.Using fundamental analysis,you can determine how a stock's price compares with those of similar companies based on earnings growth and other key factors including business condition.Earnings and earnings growth are key factors that is to be considered as a part of fundamental analysis.Whether a company is meeting its own projections and analysts expectations is the most important clue about how a company is doing and how the stock market will react to its periodic reports.If the company fails to meet expectation,the market will likely to punish the stock by driving the price down and vice versa.

  So keeping an eye on earnings report is the most important step you take to get an idea of how the company is performing and so you will know when to enter and exit the stock

Check this site for scheduled earnings report calender
 http://biz.yahoo.com/research/earncal/today.html

Calender of the release dates for the Economic indicators

ECONOMIC INDICATORS NEED TO WATCH	RELEASING SCHEDULE	TIME
Gross Domestic Product(GDP)(includes preliminary and final reports)	The last business day of every month	8:30 A.M
Consumer Price Index(CPI)	15th of each month	8:30 A.M
Producer Price Index(PPI)	13th of each month	8:30 A.M
Consumer Confidence Index(CCI)	Last Tuesday of each month	10 A.M
Retail Sales data	12th of each month	8:30 A.M
Jobless claim	First Friday each month	8:30 A.M

Fundamental Analysis-2

Gross Domestic Product: (GDP)

   GDP represents the monetary value of goods produced during a specific period in the economy.Expect this data released the last business day of every month. GDP indicates the pace at which the economy is growing.In the GDP,you'll find numbers for consumer spending,private domestic investment,government public spending and the net exports and it includes all information about labor and property involving business activities.
   If GDP fails to meet expectations set by the analysts or exceeds market expectations,stock prices will be affected at least temporarily.

Consumer Price Index: (CPI)

   CPI measures the cost of a representative basket of goods and services,including food, energy, housing, clothing,transportation,medical care,entertainment and education.The financial markets,in general, look for a rate of increase in the range of 1% to 2%; anything higher may be a sign of inflation and  can cause at least a temporary shock to the stock prices.

Producer Price Index: (PPI)

   This is a collective data full of other indexes that affect domestic producers,including goods manufacturing,fishing and agricultural and other commodities.The labor department collect more than 100,000 prices each month from 30,000 production and manufacturing firms to calculate this data.This gives traders clues about what to expect in the next CPI release.

Retail sales data:

  Tracks information about retail sales by large corporations and by small retail outlets.This data is particularly important whenever you're trading stocks in the retail sector.The surveyed number changes from month to month.When the number is negative,it means sales levels decreased from previous month.

Jobless claims:

  The employment situation summary,is one of the most important leading indicators to watch.This rport is released every month and this sets the expectations for the rest of the reports that month.For example,signs of a weak labor market indicates poor retail sales,and expect housing starts also negative.This also can send shock waves through the financial markets  and thus affect CPI,PPI reports.On the other hand,stock prices can rise dramatically whenever the report indicates better than expected numbers.
    The two key parts of the report that traders need to watch are-

    1.Unemployment and new jobs created
    2.Average weekly hours worked and average earnings.

Consumer Confidence Index: (CCI)

   This is another key report to watch.When consumer confidence is high,they are more likely to spend, automatically the financial and retail sectors will improve and results in higher stock prices.This index is compiled through a sampling of 5000 households and is most accurate indicator of consumer confidence. When confidence is trending lower,the Fed is more likely to cut interest rates.Similarly, a rapidly rising trend in CCI can lead the Fed to raise interest rates to cut off inflation;a rise in interest rates can send stock prices lower.

OK,now we knew all the economic indicators and reports,here is your question...what do you do now?
Here are the tasks you need to do-

1.Maintain the calender of the release dates for the economic indicators.
2.Know the parts of the economy that are most impacted by these indicators.
3.Know which economic indicators are most important for the time you are entering into the market.
4.Monitor the trends and get the idea of in which direction market is moving.

See you with next post...

 

Fundamental Analysis-1

Back in old days,you'd call your broker to enter an order and then wait for your broker to phone back and report the fill price.But today the internet has changed everything.You can enter order online,have your orders filled within second ,and receive notification showing the order's price almost as quickly.Online brokers provide a vast information of research and trading tools like real-time streaming quotes,chart analysis and extensive order-entry capabilities.The wealth of online information that can help you improve your trading results is simply remarkable.But here are some of the things you have to do as your daily routine-

1.Monitor economic reports,Earnings reports,and Business news
2.Read analyst's reports,company reports to SEC
3.Research stocks,IPOs
4.Monitor market indexes,sectors
5.Managing your account

   You've probably heard the terms 'Bull market and 'Bear market'.To find out what they mean,you need to understand how economic cycles affect the stock market.

   A bull market is a market in which a majority of stocks are increasing in value and a bear market is a market in which a majority of stocks are decreasing.People who believe in these markets are known to be 'Bulls' and 'Bears'.Regardless of whether the bulls or bears are right,you can make money as a trader.The key:Identify the way the market is headed and then buy or sell into the trend.

    For this,you need to monitor market reports,market indicators as we already said.Everyday that you open your newspaper,you see atleast one story about how economy is doing based on various economic indicators.Popular indicators track employment,money supply,interest rates,housing sales,production levels,purchasing statistics,consumer confidence,and many other factors that indicate how the economy is doing.We focus on the ones that can provide you with the most help in making your trading decisions.The stock market is very sensitive to all these indicators.By knowing these,you can discover how the economy can be driven and how the market listen to political and monetary leaders speech.

Fed watch:

    Watching the Federal open market committee(FOMC) of the Federal Reserve and tracking what it may or may not do to the interest rates is almost a daily spectator sport.When Fed chairman Ben Bernanke speaks,the market listen.i.e, People look for indications of what the Fed may be thinking and what they are going to do with the interest rates.
     The key reason for you to be concerned: A change in interest rates can have a major impact on the economy and thus on how you make trades.An increase in rates is likely to slow down spending,which can lead to an overall economic slowdown.The raise of the interest rates is because the board believes the economy is overheated,which can results in inflation.On the other hand,the Fed fears an economic downturn,the board frequently decides to cut interest rates to spur spending growth.

Money supply:

    This is the key number to watch,because growth in money supply can be leading indicator of inflation in situations when the money is greater than the supply of goods.When more money than goods is around,prices are likely to rise and thus heats up inflation rate.

Inflation:

   Several key economic indicators point you toward ways of identifying the risk of inflation,and are Gross domestic product(GDP),Consumer price index(CPI),Producer price index(PPI),Retail sales data.

And we will discuss each of these indicators in next post...


          

So you want to be a trader......

     Many people have misconceptions about trading and its risks.Trading is a business,and just like any other business,you need to put together a good set of tools to be successful.But you understand that you should never trade with the money you can't risk losing.That means if you want to trade,set aside a portion of your savings that isn't earmarked for any specific use and that you believe you can put at risk without ruining your lifestyle.

    To succeed in trading,you have to be hard on yourself and,work against your natural tendencies,fighting the urge to prove yourself right and accepting the fact that you are going to make mistakes.As a trader,you must develop strategies for when you want to trade,i.e when to enter and when to exit,and not allowing emotional conditions to affect the decisions you make on the basis of the successful trading strategy you developed.

    In this blog, I am only going to discuss about stock trading and not about future trading,bond trading or options trading.


   First of all,you have to understand the terms 'trading' and 'investing'. Well,investors buy stocks and hold them for a longer time,and riding a stock all the way,and possibly even buying more along the way,While the traders hold stocks for as little as a few minutes or as long as several months,and sometimes possibly even a year or more.The specific amount of time depends on the type of trader you want to become.

Yes,there are three types of traders

1.Position Trader
Using technical analysis,finding the most promising stock  trends,and enter  and exit points based on the trends.They can hold positions as long as they want                                                      

2.Short-term Trader
Trading within much shorter time frames than position traders rarely holding stocks for more than a few days and looking for sharp moves.

3.Day Trader
Never leave their money in stocks overnight.This is more like playing video game.They can trade into and out of a stock position in matter of hours,minutes or even seconds.But you need to be  careful while engaging in this risky trading.

There are billions of shares of stocks trading in united states every day and you need to know what stocks to buy and hold for a while.

We will see about some basic terms,types of orders,economic factors that affect everyday market and how to read stock charts in forthcoming posts....