a. The com­pa­ny’s finan­cial statements

The finan­cial state­ments will give you an insight into the com­pa­ny’s over­all health. You need to look at the rev­enue, expens­es, and prof­its to get an idea of where the com­pa­ny is head­ing. You can find this infor­ma­tion in the annu­al report or on the web­site of the Secu­ri­ties and Exchange Com­mis­sion (SEC).

b. The com­pa­ny’s prod­ucts and services

You need to have a clear under­stand­ing of the prod­ucts and ser­vices offered by the com­pa­ny. This will give you an idea of how much demand there is for their prod­ucts and ser­vices. If there is high demand, then the prices of their assets will go up. On the oth­er hand, if there is low demand, then prices will go down.

c. The indus­try trends

It’s impor­tant to stay up-to-date with indus­try trends. This way, you’ll know if the com­pa­ny is doing well or not. For exam­ple, if there is a new tech­nol­o­gy that every­one is using, then com­pa­nies that are using this tech­nol­o­gy will see their stock prices go up. On the oth­er hand, if there is a reces­sion, then most com­pa­nies will see their stock prices go down.

d. The polit­i­cal sit­u­a­tion in dif­fer­ent countries

You need to be aware of what’s going on in dif­fer­ent coun­tries around the world. Polit­i­cal unrest can cause asset prices to rise or fall sharply. For exam­ple, if there is a war going on in one coun­try, then oil prices are like­ly to go up because that coun­try might stop export­ing oil. Sim­i­lar­ly, if a coun­try has new trade sanc­tions imposed on it, then its cur­ren­cy might depre­ci­ate sharply against oth­er currencies.

e) Nat­ur­al disasters

Nat­ur­al dis­as­ters can also have a big impact on asset prices. For exam­ple, if there is a hur­ri­cane in the Gulf of Mex­i­co, then oil prices are like­ly to go up because pro­duc­tion will be dis­rupt­ed. Sim­i­lar­ly, if there is a drought in Cal­i­for­nia, then food prices are like­ly to go up because agri­cul­tur­al pro­duc­tion will be affected.

There are two ways to iden­ti­fy the right time to buy or sell:

a) Fun­da­men­tal analysis

Fun­da­men­tal analy­sis is all about look­ing at the under­ly­ing fac­tors that affect asset prices. This mosly includes eco­nom­ic indi­ca­tors, polit­i­cal fac­tors, and wars. You need to have a sol­id under­stand­ing of how these fac­tors impact asset prices. Fail­ures are often made by fun­da­men­tal ana­lysts who don’t take into account all the under­ly­ing factors.

b) Tech­ni­cal analysis

Tech­ni­cal analy­sis is all about look­ing at past price move­ments to pre­dict future price move­ments. This is done by using tech­ni­cal indi­ca­tors such as mov­ing aver­ages, sup­port and resis­tance lev­els, and Fibonac­ci lev­els. Tech­ni­cal ana­lysts also use charts to iden­ti­fy pat­terns such as head and shoul­ders, tri­an­gles, and dou­ble tops/bottoms. You can use tech­ni­cal analy­sis to find the actu­al val­ue of a secu­ri­ty by :

i. Iden­ti­fy­ing the trend

The first step is to iden­ti­fy the over­all trend. You can do this by using a mov­ing aver­age. A mov­ing aver­age is sim­ply the aver­age price of a secu­ri­ty over a cer­tain peri­od of time. The most com­mon time peri­ods are 50 days, 100 days, and 200 days.

ii. Iden­ti­fy­ing sup­port and resis­tance levels

Once you have iden­ti­fied the trend, you need to iden­ti­fy the sup­port and resis­tance lev­els. These are sim­ply the lev­els where the price is like­ly to find sup­port or resistance.

iii. Iden­ti­fy­ing Fibonac­ci levels

Fibonac­ci lev­els are sim­ply hor­i­zon­tal lines that are drawn at cer­tain per­cent­age points above and below a recent high or low. The most impor­tant Fibonac­ci lev­els are 23.6%, 38.2%, 50%, 61.8%, and 100%.

Here’s how to use stop-loss orders correctly:

• Set your stop-loss order at a lev­el where there is like­ly to be strong sup­port or resistance.
• Set your stop-loss order at a lev­el where you are com­fort­able los­ing the money.

a) Set your stop-loss order at a lev­el where the mar­ket is like­ly to reverse.

For exam­ple, if you bought shares of ABC com­pa­ny at $100 and you set your stop-loss order at $95, then you will sell your shares auto­mat­i­cal­ly if the price falls to $95. This will lim­it your loss­es to $5 per share. But if you set your stop-loss order at $90, then you will sell your shares auto­mat­i­cal­ly if the price falls to $90. This will lim­it your loss­es to $10 per share. So, it’s impor­tant that you set your stop-loss orders cor­rect­ly in order to beat the mar­ket spread.

b) Anoth­er way is to use trail­ing stop losses.

A trail­ing stop is a type of stop loss order that adjusts to the chang­ing price of a secu­ri­ty. It “trails” the secu­ri­ty’s price by a set per­cent­age or dol­lar amount. For exam­ple, if you enter a short posi­tion in a stock at $10 and set a trail­ing stop loss at $11, your stop loss order will adjust to $9 if the stock price falls to $10. Trail­ing stop loss­es can be a won­der for your trad­ing career if you use them cor­rect­ly. They are not a sil­ver bul­let, but when used cor­rect­ly, they can be a pow­er­ful weapon to defeat the mar­ket spread.