Some important concepts relating to Fundamental Analysis
1. Fundamental Analysis: What is it? Fundamental analysis is the study of analyzing the economic aspects of a business, industry, security, or commodity. It is primarily done for investing purposes, but may also be applied to analyze stocks, commodities, bonds, etc. Fundamentals are analyzed using the following formula: P/E Net Income ÷ Average Price Per Share The P/E ratio is the price-to-earnings ration. It compares the current market value of a company's stock (the price) to how much those shares (shares outstanding multiplied by price per share) would cost if they were sold on the open market. If the ratio is high, then investors expect the company's earnings to increase over time. 2. How does it work? To determine whether a particular investment is worth buying based on fundamentals,
1. Fundamental Analysis Fundamental analysis is the first stage of analyzing stock data. Fundamental analysis analyzes the fundamentals of a company, including things like its financial statements, market cap, earnings, revenue, etc. 2. Technical Analysis Technical analysis is what most traders do after they have done fundamental analysis. Technical analysis involves using charts to analyze past prices to predict whether future price movements will follow certain patterns. 3. Market Cap Market cap is simply the total amount of money a company is worth. A high market cap means that a company's value is high; while a low market cap means that a companies value is low. 4. EPS (Earnings Per Share) EPS is calculated by dividing net income by the amount of shares outstanding. If the number is gr
1. Diversify your holdings When investing in stocks, the idea is to invest in many different companies in different industries. When a company goes bankrupt, investors lose money; however, if they diversify their investments and hold shares of several different businesses, they will not lose everything at once. By holding different types of assets, the chances of losing money decreases significantly. If a company fails, the shareholder may only lose money invested in that particular company, while still being able to keep their investments intact. 2. Don't put all your eggs in one basket If someone were to put all of their money into one investment, then when that investment loses value, they will have no other way of getting back what was lost. Instead, they should spread out their funds
1. Setting Up a Trading Journal You should start setting up a trading journal right after you get started in the market. Before doing anything else, you need to have a record of everything that you do. This way, if something goes wrong, you have a reference point to review what went wrong. If you want to keep track of how much money you’ve earned, then you would create a column in your journal called “Cash Earned”. If you want to know where you spend your money, you could add a column called “Spending Money”. You could even make columns for each month, so you know exactly where you spent your money throughout the year. 2. Daily Logging The first thing to do is log your trades daily. How much did you trade? What time of day was it? What were you thinking at the time? These questions can hel
Know Your Risk Tolerance This may seem obvious, but if you don't have a risk tolerance, you won't trade. If you're not comfortable taking your profits and cashing out your losses, then good luck making any money. The biggest mistake people make is they assume that riskier trades will always pay off. In reality, many times you'll lose money by going long, and win back some of that loss by exiting before the market goes back down. You want to stay away from these high-risk positions until they start working. Don't Get Too Obsessed with Market Timing Trading is about keeping a level head, analyzing situations and responding accordingly. Many traders get caught up in trying to predict what's coming next, instead of just reacting to what happens. Don't fall victim to market timing and try to ti
Dividends are paid out to shareholders if company profits exceed certain thresholds. How does the stock market work? What happens to the value of a stock over time? A fundamental understanding of how corporations make money is necessary to gain a full picture of the stock market. Let's take a look at some basic terminology related to stocks before we dive deep into how they actually work. The Basics of Dividend Stocks A dividend is an amount of cash or shares that companies pay investors out of their quarterly earnings (also known as net income). Investors who own stocks have the right to receive these payments in addition to any other forms of compensation they may be receiving. Companies are not obligated to pay out dividends, however in many cases they choose to do so in order to reward