Simple Stock Trading Formulas
How to Make Money Trading Stocks
Number of pages: 268
Publisher: Blue Zen Publishing
BBB Library: Economics and Investment
ISBN: 978-0615988320
Editorial Review
As a frequent contributor to Futures Magazine, MoneyMorning.com, Traders.com Advantage and other top financial publications, I know from experience that stock trading offers enormous profit potential for traders if you have the right tools for success. But, each year, millions of aspiring stock traders still come to the stock market but still fail to achieve any meaningful success despite being armed with the latest indicators or some expensive stock trading system. There are two main reasons: One, they lack a proper foundation in the study of price action and, two, they lack a method to show them where to find trading opportunities and when to pull the trigger. Price action is the language of the market that is spoken to you each day through price charts and, if you understand what its trying to tell you, then you'll never lack for low-risk trades again. But, you also have to have a stock trading method that provides a set of rules to show you when a trade is setting up with the least amount of risk combined with the highest probability of success. Without understanding either of these concepts, you're chances are slim that you'll succeed. But, if you have the patience, drive, and discipline to apply a few simple rules along with sound fundamental and technical analysis, then the odds are on your side that you'll succeed. In Simple Stock Trading Formulas, you'll read about the role of both the stock exchanges and stocks themselves so that you understand how the game is played. Next, you'll learn how to look under the hood to find fundamentally sound stocks that have the highest chance of becoming a high-performer, avoiding the stagnant, lifeless stocks that are going nowhere. Then, you'll get to the meat of the book and get a in-depth breakdown on technical tools, price patterns, how to spot compelling technical criteria, mindset, and a set of rules-based stock trading strategies that work in any market condition.
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Extensive research on mutual fund returns has confirmed that professional investors fail to beat a passive index of all stocks over time:
Some of the biggest news events that drive the prices of individual stocks are earnings announcements. In the US, companies announce their financial results every three months
Being a successful stock trader is as much about having a good strategy as it is about doing great research or having great insight. People should understand that they are not Wall Street analysts.
one approach is to screen for companies that have lower P/E, P/B, and FCF yields than the overall stock market, an ROE that is consistently above 15%, and a performance over the past year that is at or above the level of the overall market
Three of the most important are the growth rate of earnings, the capital efficiency of the business (a measure of how much money they need to invest in order to get an additional $1 in earnings), and the balance sheet of the company.
Three of the most important are the growth rate of earnings, the capital efficiency of the business (a measure of how much money they need to invest in order to get an additional $1 in earnings), and the balance sheet of the company.
As a reminder, free cash flow is a company's cash flow from operations (CFO) minus capital expenditures.
look at the dividend yield, which is the annual dividends per share divided by the stock price. This can be interpreted as the percentage of your initial investment that you will receive in income every year. For instance, if you are paying $20 for a stock and it has paid a $1 annual dividend for the past couple of years, you will get 5% of your money back every year.
The most common of these is the price to earnings ratio, or PE (commonly said "P" to "E," "PE Multiple," or just "Multiple"). To calculate this important ratio, simply find the price per share of a stock and divide it by its earnings per share (which you can find from the bottom line of the income statement or from just about any financial website). This ratio is of limited use on its own, but it can be very useful when compared to: 1. The average multiple the company has traded at in its past 2. The average multiple for stocks in the overall market 3. The average multiple for companies in its industry
The future return for stocks can be estimated as the dividend yield plus the growth rate in dividends plus any expected change in the dividend yield (the latter accounts for a change in stock market valuation). Using the dividend growth rate over the past twenty years of roughly 4% and a current dividend yield of 2.1%, this would mean that you could expect stocks to return roughly 6% a year over the next ten years or so.
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