Author: Editor

How to Value a Company And Find The Best To Invest?

For investors, company valuation is a crucial part of determining the potential return on investment. Start by looking at the value of the company’s assets.

One of the most confusing questions for all beginners in the market is how to value a company. The worth of the companies is important for every investor. And the question of how to value a company has a sense for any investor, entrepreneur, employee, and for any size company. Thus, you have to find the best way to determine the worth of the company. Do you need to ask to see the company’s books or you can value a company based on the existing customers or news? How much time will it take to learn how to value a company? When you notice some interesting companies where to go first? Yes, you can ask in many ways how to value a company.

The first comes first.

For every investor, the value of a company is a crucial part of determining the potential returns on investment. Every investor should know if the company is fair valued, undervalued, or overvalued because it has a great impact on a company’s stock or stock options.

For example, a higher valuation might indicate the options will grow in value.

So, if you want to know how to value a company, be prepared to take into consideration a lot of the company’s attributes. This includes revenue and profitability growth, stage of growth, operating experience, technology, commodity, business plans. Yes, but the list isn’t full without market sentiment, growth rate, overall economic circumstances, etc.
To understand how to value a company in a simple way, you can take a few factors into account.

What metrics to use to value the companies?

Here is how to value a company and basic metrics you can use for that. You can use the P/B ratio and P/E ratio. These two metrics are important when you want to evaluate the company’s stock. These basic metrics you can apply to almost all types of companies. But it is important to know the other and often unique factors that can affect the process of how to value a company.

One of the variables in the valuation of a company’s health is debt. But a company’s debt is not continually easy to measure or define. So this metric can make the company’s value difficult to value.

When you want to value a company or stock, it is smart to use the market approach that includes a comparative analysis of precedent transactions and the discounted cash flow which is a form of intrinsic valuation since it is a detailed approach, and also uses an income approach.

How to value a company’s stock?

There are several methods that may give you insight into the value of companies’ stocks.

They are the market approach, the cost approach, and the income approach. The cost approach means that a buyer will buy a share of stock for no more than a stock of equal value. The market approach is based on the belief that in free markets, supply and demand will push the price of a stock to a point where the number of buyers and sellers match. The income approach defines value as the net current value of a company’s future free cash flows.

Market value as a method on how to value a company

The market value is simple. It represents the shares trade for but tells us nothing about stock’s intrinsic value. Thus, we have to know the stock’s true worth. This is a key part of value investing.
The stock value is shown in stock price. The P/E ratio is helpful to understand this value. To calculate the P/E ratio just divide the price of a stock by its earnings per share

When the P/E ratio is high it is a signal for higher earnings for investors. This ratio is helpful to use if you want to know how to value a company. The P/E ratio shows the company’s possible future growth rate. But you should be careful when using the P/E ratio to compare similar companies in the same sector.
Investors connect value to stocks with P/E ratios. If the average P/E ratio is, for example, 20 – 23 times any P/E ratio above 23 times earnings is classified as a company that investors keep in high

Investors and traders use the P/B ratio to compare the book value of a stock to stock’s market value. To calculate the P/B ratio use the most recent book value per share and divide the current closing price of a stock by it. If the P/B ratio is low you can be sure the company is undervalued. This metric is very useful if you want to have accurate data on the intrinsic value of the company.

But be aware, there are several P/E ratios and numerous variations, thus you have to know which one is in play. For more about this READ HERE

Cost approach or book value

Book value is the amount of all of a company’s tangible assets (for example equipment) after you deduct depreciation. So, when we are talking about the company’s “net capital value” it means the book value, estimated by the company’s book of net tangible assets over its book of liabilities. To calculate the book value you have to divide the net capital value by the number of outstanding shares. The result is a per-share value. The book value never takes into account the brand, keep that in mind.

Income as a method on how to value a company

Use the capitalized cash flow to calculate a company’s worth when future income is expected to stay the same as it was in the past. But if you expect the income is going to vary, use the discounted cash flow method.

Calculations are simple, divide the result from capitalized cash flow or discounted cash flow by the number of shares outstanding and the figure you get is the price per share.

Bottom line

By understanding how to value a company you’ll be able to understand the essence of making investment decisions. No matter if you want to sell, or buy, or hold the shares of stock in some company. Warren Buffett, for example, uses a discounted cash-flow analysis.
Sometimes, the company valuation is held as the market capitalization. So, to know the value of the company you have to multiply all shares outstanding by the price per share. For instance, a company’s price per share is $10 and the number of outstanding shares is 4 million. If we multiply the price per share by the number of shares outstanding we will find this company is 40 million worth.

To be honest, it isn’t too hard to value the public company. But when it comes to private companies it can be a bit harder. You can be faced with a lack of information. For example startups. They don’t have a financial track record and you have to value these companies based on the expectation of future growth. To value an early-stage company can be a great challenge.

Before you invest in any company, you’ll need to determine its value. This is important because you need to know if it is worth your time and money. Think about the company’s value as its selling price. Maybe it is the simplest way.

27th March 2020
Stock Buyback: How Does It Impact investors?

A stock buyback decision may send a questionable signal to investors. Not all buybacks will show the management’s opinion that the stocks are undervalued.

By Guy Avtalyon

A stock buyback or a stock repurchase refers to a situation when a company buys its outstanding shares. The reason is simple, they want to decrease the number of available stocks on the market. Did you know this practice was illegal in the past? Oh, yes! It was illegal because it was seen as a type of stock manipulation. Today, a stock buyback is legal, of course.

When a company buys its stocks it can cancel them or hold them for re-issue later. To perform a buyback, a company can get its stocks in the market like any other investor. Also, there are two other ways to do so. The company may announce a proportional offer and buy equivalent parts from its shareholders. The other way is a tender offer. This means the company invites its shareholders to sell stocks by buying back a fixed number of its stocks at a specified price.

Tender offers are made publicly. The company invites shareholders to sell their stocks at a specified price and usually, they have a defined time frame to do that. The price specified is often at a premium to the market price. It can be conditional upon a minimum or a maximum number of sold shares.

The law demands public companies to buyback stocks from funds generated from profits or the gains of a current issue of stocks.

Buyback can be offered over a specific period. For example, a company announces its plan to buy back $70 million worth shares in the next 3 years.

What are the reasons behind a stock buyback

A stock buyback enables the company to invest in itself. When a company buys back its stocks it actually reduces the number of shares outstanding on the market. But at the same time, this increases the proportion of shares held by investors. A stock buyback is a business action. For example, the company sees its stock is undervalued, so it makes a buyback. This action is usually aimed to provide investors with a return. Such a company is bullish on its operations at that time, and stock buyback can significantly increase the earnings gained from shares allocation. The point is that the stock price will rise only if the P/E ratio is sustained. Also, when the company reduces the number of shares outstanding, it makes them worthier. That is the way to increase the stock’s EPS, stock price, and decrease the P/E ratio.

A stock buyback shows to investors that the company has enough cash deposited aside for unpredictable difficulties and a low chance of financial problems.

Also, a company can do that for the purpose of compensation when it wants to award employees or management with stock and stock options. That’s also the reason behind stock buyback, to avoid the dilution of existing stockholders.

How stock buyback is carried out?

The company may present to its shareholders a tender offer. Shareholders have an opportunity to tender all their shares or part, a portion of them. The company limits the time for that. The price of a stock is at a premium price or the current market price. The premium price is compensation for stockholders that are willing more to offer their stocks, rather than hold them.

The company may buyback stocks on the open market, also. Some have buyback programs and from time to time you can see their offers. The share buybacks have a stimulative effect. Companies have more cash on hand to pay their debts or to provide cash for further operations. Also, some companies can extend share buybacks, which leads to a faster reduction of their shares float. Increasing the company’s important financial ratios also can be one of the reasons as much as undervaluation or ownership consolidation. For example, large, expanded buybacks may affect the share price to go up.

Generally speaking, buybacks are a sign of a company’s capacity to return value to its shareholders. One historical data is interesting. The companies that practice regular buybacks have outperformed the wide market.

The influence on investors

To the investors that own stock in the company that is doing buybacks, the stock buyback will boost the value per share. This action will give them more money and fast. But to really have any benefit from the company’s stock buyback you must hold enough stock. Otherwise, the buyback will not affect you significantly. To be honest, the greatest portion of the stock holds a small group of investors and they will have greater benefits from this gain.

That’s true, but also the truth is that the wealthiest 10% of investors hold 80% while almost 80% of shareholders hold just little as 8% of all stock shares.

A stock buyback isn’t cheap. Companies are spending a lot of money to exercise the buybacks. Some investors think that using extra cash for buying their shares in the open market is quite in contrast to what the companies have to do. They think they should reinvest that extra cash to support growth, to develop the company and provide more jobs or to expand the existing capacity.

Moreover, some investors claim that stock buybacks are synthetically pushing the per-share price higher. Also, they argue that this move is beneficial for management only. It isn’t secret that management’s capital is connected to stock ownership in their company.

The conclusion is – the stock buyback can drive the per-share price higher and the stock may look more attractive. The company will have the same earnings but the number of shares outstanding will be reduced.

Lately, companies like this practice, since the stock buyback is one way more to return value to shareholders. The others are dividends.

Buybacks vs dividends?

Both offers are all about how to return funds to investors. But which of these two programs investors like more? In case the financial markets are ideal, in the meaning of perfection, it shouldn’t matter.

For example, ABC company has one million shares in issue and excess cash of $2 million which it wants to distribute to investors. After this distribution, this ABC company expects profits of $1 million yearly and also expects a P/E ratio to be 8 times. So, this company can distribute this $2 million as a dividend of $2 per share or as a tender offer of 200,000 shares at $10 per share.

No matter which distribution they choose the total market value will be the same. Whichever method they choose the risks will be the same. But let’s do some math. So, we have to multiply the total market value by the P/E ratio.

In our example, it is:

total market value = $1 million x 8 = $8 million

But what we have here is if the company prefers to pay dividends, there will be a million shares in issue. Under the buyback, there will be 800,000 shares in issue. So, the value per share will be $8 (simple math: $8million/1 million) under the dividend option and $10 ($8 million/800,000) under the buyback option.

Let’s examine a case of a shareholder that holds 5.000 shares in both the dividend and the buyback situation. Such has a choice to hold or sell the shares.

As you can see this is the same for investors. Under both dividend and buyback options, shareholder’s wealth remains the same.
For dividend options, the shareholder has 5.000 shares worth $8 each plus $2 dividend per share. Which makes $50.000. While under the stock buyback option a shareholder will receive $10 per share, which is $50.000 also. Thus, for a shareholder both options are equally beneficial.
The above case is accurate only if the financial markets are perfect. But in the real world, they are not. So, shareholders may prefer buybacks.

26th March 2020
Price Action Strategies For Profitable Trading

Experienced traders use price action strategies in trading to make more profitable trades. Price action strategies are one of the most used in current financial markets.

Price action strategies in trading are present for quite some time. They are here for good reason. That’s why these strategies are frequently used in the financial market. Price action strategies are used by both long-term and short-term traders. The point is that analyzing the price of a security is maybe the simplest but at the same time the most powerful approach to getting an edge over the market. And that is crucial for any trader. Having an edge means that you’ll not be found out by the market.

Okay, you might think you are a great trader because you had several winnings. Do you really think that having luck is the most important part of trading?

Anyone can do the same if the lucky is a matter of importance.

Relying on luck is the danger because the wheel of fortune is turning around. And eventually, your winning trades will become great losses. All the profits you made during your winning streak will vanish like a soap bubble. That’s because you don’t have an edge. Actually, in this case, your edge is with the market which is too risky because at some point that edge will play out in favor of the market securing that trader loss.

If you don’t have an edge and the edge is in the favor of the market, it is a matter of time until the edge starts to play out and you’ll become a loser.

Think about this as a casino, for example. All tools and machines in the casino have odds adjusted in favor of the casino. In any case, the casino is the winner. Yes, from time to time someone will make a lot of money, but there are many losing players, more than winning. So, the casino will be the winner in any case.

That is the casino’s edge. The exact comes with your trading if you are only considering your next trade and never think about trading inside the market’s overall edge.

Stay focused on the price action

Price action is a trading method that enables a trader to understand the market and make trading decisions based on current and real price actions. So, in price action strategies you are not relying only on technical indicators. As you can see, the action price strategies are dependent on technical analysis. Some traders use price action strategies to generate a profit in a short time.

If you want to be a price action trader, you must be focused on price action. This sounds like nonsense, you may think. But if you want to evaluate deeper, you will find the majority of traders think the price action strategies are the same as pattern trading. And that is a great mistake.

While pattern trading requires just staring at the last candles of the chart and making a trade based on them, for price action trading you’ll need more. Yes, in pattern trading the last one or two candles can be an excellent entry signal, in price action strategies they are just candles among many many other candles on the chart.

Every successful price action trader knows how to read a price action chart as a whole and knows how to force them to tell the entire price action story. Price action traders have to interpret the real order flow, support and resistance, traders’ behavior and trends through the live price action.

What is price action trading?

Price action trading is trading in which traders base their decisions on the price movements of an asset which can be stock, forex, bonds, etc. There is no need to use other indicators, your trade is based on price action solely. Of course, you can use other methods but it will have a very small impact on your decisions.

The price action traders believe that the only valid source of data flows from the price itself. For example, when the stock prices go up, the price action traders know that investors or other traders are buying. Based on the aggressiveness of that buying, price action traders estimate will the prices continue to rise. These traders don’t care why something occurs. Their all concern is to find the best possible entry point with lower risks but with greater profits. For that to know, they are using real-time data, for example, volume, bids, offers, magnitude and similar. Also, historical charts are very important.

In trading – what is that?

First of all, price action trading is the method where you make all your decisions from the so-called “naked” price chart. That means there are no other indicators. All we have is price action. That’s a lot of data because all markets generate data about the price changes over different periods. And that data is displayed on the price chart. What can you read there? For example, everything about the beliefs and behavior of other traders and investors, no matter if they are humans or computers. Data is for a specific time frame and all opinions, beliefs, all financial data, news that affects price change, and behavior are visible on the chart as price action.

The most important part, with knowing the price movements, you’ll be able to develop a really profitable trading system. All signals from the price action chart have a general name – price action trading strategies. These strategies can give you a chance to predict future movements with a high level of accuracy so you can make a profitable strategy.

Price action trading strategies can be used on a broad variety of securities including stocks, bonds, derivatives, forex, commodities, etc.

Price action strategies

Trendline strategy

One of them is the trendline strategy, very simple to use. The main point here is to know how to draw trendlines. This is an important part because only if you do it properly you’ll be able to predict where the price will bounce off the trendlines. Well, you’ll take a trade based on it so be consistent in how you draw trendlines.

Breakout strategy

The other price action strategy is a breakout. For example, a stock price is moving with a specific tendency. When it breaks the tendency, it is a signal for a new trading opportunity. To make this clearer, suppose a stock traded between $9 and $6 for the last two weeks. Suddenly, it moves above $9. So, the stock price changed the tendency. That is the signal for traders that the sideway moves are probably finished and the stock price is possible to go up to $10 or more.
Of course, you might be faced with a false breakout, but it is also an opportunity to trade in the opposite direction of the breakout.

Bars formation

Another price action strategies examine the price bars formation on a specific model of the chart. For example, candlestick charts. If traders use candlestick strategies, for example, the engulfing candle trend strategy. It is important to wait until the up candle engulfs a down candle during an uptrend. That should be your entry point, the moment when an up candle goes above the opening price of the down candle.

You can use price support and price resistance zones. That could give good trading chances. Support and resistance zones occur where the price has tended to reverse in the past and these points may be relevant in the future.

Bottom line

Price action strategies aren’t suitable for long term investments. They are aimed at short-term traders. So many traders don’t think that the markets never operate on consistent patterns. They believe the markets work randomly. The consequence is that they don’t think it isn’t possible to have a strategy that will work in any case. If you combine technical analysis with historical price data, price action strategies will allow you to make profitable trades.

These strategies are very popular today due to its advantages. They provide flexible trades, access to many asset classes, use of any software, apps or trading websites. Moreover, traders have a chance to backtest any strategy on historical data. Also, maybe the most important part of price action strategies is that the traders have an opportunity to choose their actions on their own. So, that creative approach to trading is important for many of them.

A lot of proponents on price action trading insist on high success rates. Trading has the potential for making great profits. Traders-Paradise suggests testing and acting after that. Just to be ready to meet your best possible profit chances.

25th March 2020
Shiller CAPE Ratio – The Measurement Of Market Valuation

The Shiller P/E or the cyclically-adjusted price-to-earnings (CAPE) ratio of a stock market is a market valuation metric that eliminates change of the ratio caused by the difference of profit margins during business cycles. It is the regular metric for evaluating whether a market is overvalued, undervalued, or fairly valued.

Shiller CAPE ratio or the cyclically-adjusted price-to-earnings ratio of a stock market is one of the regular metrics if you want to evaluate whether a market is overvalued, undervalued, or fairly valued.

Shiller CAPE ratio, developed by Robert Shiller, professor of Yale University and Nobel Prize Laureate in economics. This ratio usage increased during the Dotcom Bubble when he claimed the equities were extremely overvalued. And he was right, we know that now. Shiller P/E is actually a modification of the standard P/E ratio of a stock.

Investors use this Shiller CAPE ratio mostly for the S&P 500 index but it is suitable for any. What is so interesting about the Shiller CAPE ratio? First of all, it is one of several full metrics for the market valuation able to show investors how much of their portfolios should wisely be invested into equities.

The ratio is based on the current relationship among the price of equities you pay and the profit you get in return as your earnings.

For example, if the CAPE ratio is high it could indicate lower returns across the following couple of decades. And opposite, a lower CAPE ratio might be a sign of higher returns across the next couple of decades, as the ratio reverts back to the average.

Investors use it as a valuation metric to forecast future returns. The metric has become a popular method to get long-term stock market valuations. To be more precise, the Shiller CAPE ratio is the ratio of the S&P 500’s (or some other index) current price divided by the 10-year moving average of earnings adjusted for inflation.
The formula is:

CAPE ratio = share price / average earnings over 10 years, adjusted for inflation

That was the formula but let us explain a bit more how to calculate the Shiller CAPE or also called Shiller’s P/E ratio.
What you have to do is to use the annual earnings of the company in the last 10 years. Further, adjust the past earnings for inflation.

How the Shiller CAPE ratio works

As an investor, you know that the price is the amount you have to pay, and the value is the amount you get. That’s clear. We have to compare the price to the value and that’s why we have many metrics to do so. One of them is the P/E ratio, read more HERE.

It is legal that everyone wants to buy a healthy company when the shares are trading at a low P/E ratio. This means you can get lots of earnings for the price you paid. This is valuable for index too. Just take an aggregate price of the shares of the company from, for example, the S&P 500 index for one year and divide that number by the aggregate company’s earnings for that year. You will get an average P/E for the index.

But it isn’t quite true. For example, during the recession. At the time of the recession stock prices will fall as well as companies’ earnings (okay, they may fall significantly sharper). The problem is that the P/E ratio can rise temporarily. The investors want to buy when this ratio is low but temporary high P/E can send them a fake signal that the market is overpriced. And what is the consequence? Investors wouldn’t buy at the time when it is the best solution.

So, here is the Shiller CAPE ratio to fix that. Shiller invented a special version of the cyclically-adjusted price-to-earnings ratio to help fix this simple calculation. If we use his CAPE ratio we’ll have a more accurate understanding of the ratio between current price and earnings. This ratio employs the average earnings over the past business cycle, not just one year that may have bad or good earnings.

The importance of the ratio

Shiller himself explained this the best. He used 130 years of data and noticed that the returns of the S&P 500 over the next 20 years are fully inversely connected with the CAPE ratio at any observed period. How should we understand this? Well, when the CAPE ratio of the market is high, that means the stocks are overvalued. So, the returns in the next 20 years will be lower. Hence, if the CAPE ratio is low, we can be sure the next 20 years the returns will be satisfying.

This is natural and logical. Cheap stocks can increase in price no matter if it is from a growing company’s earnings or a rising P/E ratio. Contrarily, when stocks are expensive and have a high P/E ratio, they don’t have too much space to grow. It is more likely they have more chances to drop when market correction or recession comes.

How to use the Shiller CAPE ratio

Shiller warned against using CAPE in short-term trades. The CAPE is more helpful in predicting long-term returns. Siller said in an interview: “It’s not a timing mechanism, it doesn’t tell you – and I had the same mistake in my mind, to some extent — wait until it goes all the way down to a P/E of 7, or something.”

But really, you have to combine CAPE with a market diversification algo or some other tool for that. Maybe the most important part is that you never get fully in or fully out of stocks. As the CAPE is getting lower and lower, you are moving more and more in. We think the CAPE ratio for March this year is 21.12. Check the Shiller P/E ratio HERE

So, it isn’t super high. We, at Traders-Paradise, think the stocks should be an important part of your portfolio. Don’t get out of the stocks and go in cash because the CAPE is at 21. It is smarter to buy less and expect poorer returns in the next several years. Some experts noted that markets are most vulnerable when the Shiller P/E is above 26 like it was in February this year. Some stats show that investors respecting Shiller’s ratio are doing better.

Bottom line

Since Shiller showed that lower ratios signify higher returns for investors over time, his CAPE ratio becomes an important metric for predicting future earnings.

There are criticisms about the use of the CAPE ratio in predicting earnings. The main matter is that the ratio doesn’t take into account changes in the calculation of earnings. These kinds of changes may turn the ratio and give a negative view of future earnings.

The CAPE ratio was proved as important for identifying potential bubbles and market crashes. The average of the ratio for the S&P 500 Index was between 15 -16. The highest levels of the ratio have exceeded 31( February 2020). For now, the Shiller CAPE ratio announced market crashes three times during history: Great Depression in 1929, Dotcom crash in 1990, and Financial Crisis 2007 – 2008.

Opponents of the CAPE ratio claim that it is not quite helpful since it is essentially backward-looking, more than it is forward-looking. Another problem is that the ratio relies on GAAP earnings, which have been changed in recent years.

The proponents claim the Shiller P/E ratio is good guidance for investors in determining their investment strategies at various market valuations.

Historical data show that when the market is fair or overvalued, it is good to be defensive. When the market is cheap, companies with strong balance sheets can produce great returns in the long run.

24th March 2020
Ratios Important To Make Profit In Stocks

If you want to buy stocks, the wrong way is to follow your intuition and expect everything will work spontaneously.

By Guy Avtalyon

Ratios important to make a profit in stocks is something we will explain to you why that is and how to calculate and examine them. The truth is, you have to favor investing and trading strategies to eliminate emotions. These ratios will give you insight into a company’s fundamentals and let you evaluate a company’s health.
Stock investing demands a rigorous analysis of financial data if you want to find out the company’s real worth. Investors commonly estimate profit, losses, check business accounts, cash flow, balance sheets. You might think it is too much work and give up or, what is really dangerous, you might buy a stock without any estimation, like you are buying a lottery ticket. Yes, sometimes evaluating the right stock can be hard and eat your time. The question is why should you do that? Instead, you can find a lot of these data free on the internet.

Understand ratios before buying

Much more before you buy stocks, it is very valuable to know how to calculate, understand, and read ratios when you see them. It doesn’t matter if you get them from your broker or you find them on the internet. Ratios are important to make a profit in stocks because they will tell you everything about the company you want to invest in. If you don’t estimate the ratios, the possibility of making the wrong investment decision will increase. Just ask yourself, do you really want to invest in a company with debt, that hasn’t enough cash to maintain it or support the operations, and moreover, has low profitability? To be honest, estimating ratios or calculating them isn’t a foolproof method but it is a way for fast checking of the company’s health.

What ratios are important to make a profit in stocks?

The most common categories are related to earnings and the balance sheet since they are crucial indicators of a company’s health. The crucial ratios show the company’s income and its ability to persist solvent. But you can use a lot more ratios important to make a profit in stocks and we would like to show you how to put them to work to help you make a proper investment decision.

So, let’s start!

P/E Ratios Important To Make Profit In Stocks

It is the most usually mentioned ratio. The price-to-earnings ratio is sometimes called P/E or just pE ratio. This ratio measures the share price correlated with the earnings per share. The P/E ratio is helpful when you want to compare the stock of one company with the stock of some other from the same industry. By using it you’ll be able to unveil if some stock is underpriced, overpriced, or in harmony with other companies in the same industry. This ratio is a very popular metric and the calculation is quite simple. All you have to do is to divide the value per share by earnings per share for one company. Calculate this ratio for the last four quarters (of course you can do this for several years) and if all of them were equal remember, the lower the P/E ratio is better.

Use forward earnings

Also, use forward earnings, which is the average of Wall Street’s projections for the current fiscal year. According to Benjamin Graham, it is proposed the stocks should trade for a P/E multiple equal to 8.5 times earnings plus doubling the growth rate of earnings. If you want to estimate some cheap stock, well, the P/E ratio maybe isn’t an adequate metric.

For example, the S&P 500 trades for 19,47 times during the past four quarters of earnings reports. The average P/E for the last 80 years is 15.86, which means the market is a little pricey. This is just an example and figures can be inaccurate at this moment.
So, if the P/E ratio is lower than average, it’s a sign that you’ve found a potential bargain. Well, you don’t have all the relevant data to decide whether to buy a stock or not. A lot depends on growth, so the next ratio to watch is the PEG ratio.

PEG ratio

The PEG ratio is a pick of growth investors. To calculate it just divide the P/E by the company’s growth rate earnings expected in the next five years (this is the most accurate). Again, Graham, of course, and efforts to gauge the size of a discount or premium you will pay for growth. If the PEG ratio is less than 1 (which is low PEG), it implies the stock can be undervalued. Contrary, if the PEG ratio is higher than 1 or more, it is an indicator that the stock is overvalued. But the PEG ratio isn’t ideal, it has some downsides. By using the PEG ratio you are not able to predict future growth rates.

Use Price-to-Sales Ratios important to make a profit in stocks

P/S ratio is similar to the P/E ratio and to calculate it just divide the market capitalization by the company’s total sales for the last 12 months. So, put aside the earnings. This ratio will tell you how much you will pay for every single dollar in yearly sales. To make clear why we have to put aside the earnings. Well, there are periods when the company doesn’t have earnings so the total sales can tell better about the company’s value than the P/E ratio can. Maybe even more, because no one can manipulate the sales, earnings are something that can be manipulated. If the P/S ratio is low in comparison to other companies, that means a company could be a winning investment.

But be careful, sometimes a low P/S ratio can be spoiled if the company has a huge debt and permanent lack of profitability.

Price-To-Book or P/B

Use this ratio to compare the stock price to the company’s book value. A P/B is expressed as a difference between assets and liabilities, meaning assets minus liabilities. If P/B is low it may indicate a good buying opportunity. When the book value per share is higher than the stock price, it is an indicator that the stock is undervalued. The idea behind is to understand how much money you’ll have in case you sell all of it.

This is price multiple metrics. The P/B is used when comparing current multiples to historical averages. This ratio is useful for comparing the companies that provide some kind of services, for example, meaning they don’t have a real property. For instance, the equipment company has little book value but trade at very high P/B value multiples, sometimes 25 times over book value.

Price/Cash Flow or shorter P/CF ratio

It measures the value of a stock’s price related to its operating cash flow per share. It is particularly helpful for evaluating stocks that have positive cash flow but have non-cash charges and are not profitable.

The formula is

P/CF = share price / operating cash flow per share

You have to count the operating cash flow for the previous 12 months. Further, have a focus on cash generated by the company, forget depreciation from earnings, or amortization. This measure is better than the P/E ratio to compare the valuations of companies from different countries. You know that different countries have different depreciation charges and that may influence earnings. Lower P/CF is better, but remember, almost all companies have extra cash flow, not all is coming from the operations.

For example, free cash flow. It is the amount that the company owns after paying debts, dividends, buying back stock. If cash flow is negative it shouldn’t be a red alarm until it becomes a constant problem. If that is the case, the company can easily meet the solvency problem.

Why ratios are important to make profit in stocks?

Ratios important to make a profit in stocks are also dividend yield, dividend payout ratio, return on assets (ROA), return on equity (ROE), profit margin, a current ratio, etc.

There are so many tools, websites, reports that are useful. You have to analyze a stock before you buy it. Also, you have to know the time frame of your investment. We always say stock trading is different, it isn’t the same as investing. Researching stock will take some time, you can’t finish it in a few minutes. But it is completely irresponsible to buy any stock without researching and evaluating by using ratios mentioned above.

If you are a trader maybe this can help you. Test it with our preferred trading platform virtual trading system. In investing, permanent study and examination are crucial.

23rd March 2020
The Stock Price Pattern How To Identify It

The price pattern is a visual illustration of market psychology. It shows when traders are inspired and move, when they are taking a breath and when they are willing to move further.

The stock price pattern represents a form of price movement that is recognized by a set of trendlines and curves. Changes between rising and falling trends are usually shown by price patterns. The stock price pattern is important for technical analysis because it shows the current movement but also enables traders to predict future changes. For example, if the stock price pattern shows a change in trend direction, it is a reversal pattern. But if the pattern shows a continuation that means the trend proceeds in a direction following a shortstop.

To explain this a bit clearer, for example, you are driving your car and the traffic is heavy, and you have to drive and stop, and drive and stop. Every time when you see the brake lights in the car in front of you, you know that you have to slow down. Otherwise, you’ll crash into the other car. The unknown fact is will the car in front of you continue to move in the same direction, pull aside or stop after that slowdown.

The same is with the stock price pattern.

When you notice a stock price pattern beginning to develop on a chart that is the sign the stock is going to slow down or consolidate. At that moment you have to slow down too and estimate what may happen. Also, at that very moment, you cannot know if the stock price will breakout and continue to move in your direction or it will change direction.

Every trader must understand how important the stock pattern is. It is a really valuable tool that you need in your trader tool kit. Recognizing and understanding patterns isn’t easy but once you learn how to do that, you’ll be able to uncover the future price action with high probability.

Characteristics of the stock price pattern

So, we all understand that the price pattern is an evident picture of market psychology. It shows when traders are motivated and move, when they are taking a pause and when they are ready to move further. For some image in the stock chart to be a pattern, some conditions must be fulfilled.

Every single pattern is composed of four parts. Firstly, the pattern has to show an old trend. This means the trend of the stock price when it started to form the pattern. Also, the pattern must show the consolidation area. The consolidation area represents the zone where the trend is channeling or undefined. It is the area defined by set support and resistance levels. Further, the pattern must unveil the breakout point. That is the level where the stock price breaks the consolidation area. And, also as a part of an image on the chart to confirm it is a pattern, you must clearly see the new trend. The new trend represents the trend of the stock price when it starts coming out of the consolidation area. That’s how you can know that the stock price creates a pattern.

What types of stock price patterns do we have?

Chart patterns are an essential aspect of technical analysis. You’ll need to understand them. Stock price patterns are classified into two main categories: continuation patterns and reversal patterns.

Continuation pattern unveils you the new trend has the same direction as the old trend was going.

The reversal pattern shows you the new trend is in reverse directions and starts to move in the opposite direction from the old trend direction. And that is the main difference between them. – the direction in which the new trend is moving.

Both types of patterns have the characteristics we mentioned above.

Trendlines

Stock price patterns are recognized using a series of lines and curves, as we said. But how to guess trendlines and draw them? It is important to locate zones of support and resistance.
To draw trendlines just connect by straight lines the dots of highs or lows, meaning descending peaks or ascending troughs. When the stock prices have higher highs or higher lows we are speaking about an up trendline. The opposite occurs when we notice a down trendline. That means the stock price has lower highs and lower lows.

The body of the candle bar will show where the bulk of price activity happened. So, it is a better point where to draw the trendline.

To draw a trendline you can use closing prices instead of highs or lows. And it is maybe better because the closing prices express the traders’ decision to hold a position. But be careful, the trendline drawn with only two points may not be quite valid. Always try to find three or more points.

Uptrend happens where the price is making higher highs and higher lows. Up trendline connects at least two of the lows and registers support level below the price.

The downtrend is the point where the price is making lower highs and lower lows. Down trendline combines at least two of the highs and shows a resistance level above the price.

Consolidation happens where the price is swinging between an upper and lower span, which are shown as parallel and horizontal trendlines.

Continuation stock price pattern

A price pattern that signifies a brief break of a current trend is a continuation pattern. It is just a break, a short time for traders to take a breath when an uptrend occurs or to relax during the downtrend. The first is in connection to the bulls, and second to the bears.

While a stock price pattern is developing, we can’t know if the trend will continue or reverse. So, we have to take attention to the trendlines and realize if the price breaks above or below the continuation area. It is always better to suppose a trend will continue until it is verified that it has reversed. Keep in mind, if the pattern needs more time to develop and you see the large price movement inside the pattern, it is a stronger sign the price will significantly break below or above the continuation zone.

But if the price remains on its trend, it is a continuation pattern. Continuation patterns can be pennants, flags, wedges, triangles.

Pennants are created by using two converging trendlines.
Flags can be drawn with two parallel trendlines.
Wedges are created with two converging trendlines, but both have to be angled either up or down.
Cup and handles, which is a bullish continuation pattern. When having this pattern, you can be sure an upward trend has stopped for a short but will proceed after the pattern is confirmed.

Triangles are the most popular chart patterns in technical analysis and they occur more frequently than the other patterns since they can last from a few weeks to several months. There are three most typical types of triangles: symmetrical triangles, ascending triangles, and descending triangles.

Reversal pattern

It indicates a change in the current trend. This pattern indicates the period where the bulls or the bears have run out of money. This means the trend will pause and then continue in the same direction.

For example, an uptrend backed by enthusiasm from the bulls will pause. That means the influence of both the bulls and bears, so the result is a change in trend to the downside. The reversal that happens at market tops is a distribution pattern. That means more sold than bought assets. Opposite, a reversal that happens at market bottoms is an accumulation pattern, which means there are more bought than sold assets.

When the stock price reverses later, we are talking about the reversal pattern. Reversal patterns can be head ad and shoulders, double tops or bottoms, gaps.

Bottom line

You can identify the stock price pattern when the price makes a pause which indicates the zone of consolidation. Trendlines help in recognizing the price pattern that can develop in forms of flags, pennants, and double tops. The volume will decline during the pattern’s development, and increase when the price breaks out of the pattern. To have the better trading experience you can learn more in the Two Fold Formula book but first, try it with our preferred trading platform and check it.

22nd March 2020
Gross Margin How To Calculate And Why It Is Important For Investors

The gross margin helps investors to examine a company’s potential for profitability. But investors shouldn’t rely on it as the only metric.

Gross margin represents the companies’ net sales revenue minus the cost of goods sold or shorter COGS. Why is this so important? Gross margin is the sales revenue companies keep. To put it simply, that is the money the companies left over when they pay all cost, fixed and variable related to their production but subtracted from their net sales. Fixed and variable costs are purchasing the materials needed for production, plant overhead, labor. So, the higher gross margin means that a company retains more capital. That money company usually uses for debt payments or some other costs.

To calculate it we need to know two figures: net sales and cost of goods sold. Net sales is calculated if subtract returns, discounts, and allowances from the gross revenue.

So the formula to calculate the gross margin is expressed as

gross margin = net sales − COGS

This is is an important metric. It enables companies to fund investments during periods of growth and be profitable when the growth declines. Many factors add to a company’s capability to keep a high gross margin. That can be products that deliver high ROI, pricing discipline, etc. It reveals how much a company is able to invest in further development, sales, or marketing and consequently, can it be the winner in the market.

The importance of gross margin in investing

Every single investor would like to discover the next big player in the market and invest in the company in its early days and ride those stocks to enormous gains. For example, some of them did it in the early days of Apple, Microsoft or similar.

Though, finding these stocks is the tricky part. Early-stage growth companies don’t have obvious and constant earnings. Some investors who invested in such companies usually end up in loss. Since there is no earnings yet, what do you have to look at? Simple, look at the gross margin and cash flow. For early-stage companies, but not for them only, these two metrics are most important. Well, you have to understand one important thing. Some companies will heavily spend to develop some products or expand their business during some period. So, it might be some losses over those periods that can last even a few years. But every investor is expecting that, right? Hence, the most important for you as an investor is to determine if the company is able to be profitable after all.

For example, you are examining a fresh company in the market. It has fantastic revenue growth. Always ask yourself how capable is the management in turning sales into profits? Here is this important metric on the scene to help us. It is the best tool we have to examine a company’s potential for profitability. Use the formula above and calculate it before deciding to buy any stock. Never overlook the importance of gross margin.

A real-life example

Let’s assume a company you are estimating has $10 million in sales. The costs of purchasing materials and labor amount to $6 million. What will be its gross margin? Let’s use the formula.

$10.000.000 – $6.000.000 = $4.000.000

That is a 40% gross margin rate. This figure is important but you’ll need to estimate if a company is on the way to profitability. So, watch for increasing gross profit margins. The increasing gross profit margin will show if there is an uptrend.
Also, increasing gross margin is connected to research and development. For example, biotech and technology companies need money to invest in these sectors. Companies with increasing gross margins always invest more cash in future operations.

What does the gross margin tell investors?

The gross margin is the part of the revenue that the company retains as gross profit. For instance, when a company’s quarterly gross margin is 40%, that means it retains $0.40 from each dollar of revenue produced. You can use any currency, of course. Since COGS has been already subtracted, the rest of the fund can be used for interest fees, debts, dividends payment, etc. Gross margin is very important for companies, not for investors only. By using this tool they can compare the expense of production with revenues. For instance, a company has a problem with falling gross margin. What can management do?

They may try to cut labor costs or to find a cheaper supplier. The other solution is to increase the price of the products to increase revenue. But this isn’t always the best solution since the sales may drop due to increasing prices. Gross profit margins can be useful for investors to estimate company efficiency. Also, this measure can help investors to compare the companies with different market caps.

How gross margin influence the profitability

To explain the influence gross margin has on profitability, let’s examine an easy example. For example, two companies are the same, but their gross margins are different. They have the same revenue, distribution, operating costs, almost everything is the same. But, company ABC is generating double the operating profit of company XYZ. If we want to value these companies, we can conclude that company ABC should be valued more than twice the value of company XYZ.

But what if company XYZ has a temporary hard time making gross margin below, for example, 10%? What is this company is investing in research and development, and thus has an expense for that of about 30%? Does this make it less efficient and favorable? Maybe this company is doing something on the go-to-market side to get more customers? So, this part has to be examined also. What we want to say is that one metric isn’t good enough, you have to use several to get the full picture of the company’s performances. Even companies with low gross margins can be profitable in a long haul.

Is it important in stock picking and investment?

Some investors misunderstand the gross margin also called gross profit margin with profitability ratio operating margin.

Remember, different companies have different gross margins and that depends on the essence of business. That is the reason why you should never try to compare the gross margins of companies from different industries. Do it in the same industry. Of course, you can make comparisons for companies with different market caps.

When you are estimating the gross margin willing to pick a stock to buy, remember that the majority of the companies are following the market cycles. When the market is booming the demand is very high, while in the dropping market the demand is low. During the bull market, period companies with a high gross margin will be a favorable investment. Hence, when the bear market starts such a company will suffer more. Well, how is that possible? The company with a high gross margin tends to grow faster, its profit and EPS grow faster, and higher EPS means higher returns for shareholders. But when the bear market occurs the profit of such a company will usually fall faster.

Of course, the management has the possibility to reduce the costs and limit the operating margin decline.

Bottom line

Investors can use this metric while deciding to invest in some company but shouldn’t be relied on it as solely one. They have to use it along with other metrics to pick a stock they want to add to the portfolio. Companies with high gross margin can deliver strong returns but the other parameters should be included also. Keep in mind that some early-stage companies can be a good choice too, also if the other metrics show that.

20th March 2020
How to Invest When the Coronavirus Pandemic Sends the Stock Market Down

The markets entered the bear territory but it isn’t the reason to stop investing. Actually, despite the coronavirus pandemic and oil wars, it is the opposite.

By Gorica Gligorijevic

When the market comes into this situation the logical question that smart investors ask is how to invest when the coronavirus pandemic sends all markets down.

Should we stay away and wait for market consolidation or to act and profit? Let’s change our positions for a sec. Instead of being investors, let’s try to assume how managers of the companies are acting now. Yes, some closed up. But we don’t want to talk about them, we would like to discuss serious, responsible managers with the ability to project future actions related to their business and the companies. Like them who are investigating and planning how to beat the competition, or how to become more competitive after all, the investors should do the same thing. Investing should be a game without ending, renewed all the time. Investors may move their assets from one industry to others but should never stop investing.

So, the question of how to invest when the coronavirus pandemic sends all markets down sounds logical for amateurs. Professionals are looking even now for new and better opportunities.

One reason is to overcome this market down and the other is to find market players that can produce a bigger profit. The market is here and it will never stop working. So, why would we do the opposite?

What can generate gains during the pandemic?

This pandemic influences markets all over the world. Coronavirus outbreak hits almost all countries on the globe and as well their economies.

Global markets had been beaten almost overnight. The main problem, according to some analysts, is investors getting panic in the downturn markets. The events are accelerating sharply, faster than spreadsheets and charts could predict them. Advanced investors shift into funds, options, or some commodities to hedge their investment portfolios. The others with a lack of experience, haven’t time to do that. Also, badly timed and wrongly settled hedges may produce big losses. Moreover, put protection is becoming incredibly expensive. Market makers avoid the opposite side of the trade.

But maybe it is even worse for those who shifted into cash to find a better buying opportunity after the outbreak. Yes, cash is the position too, but if you stay too long in that position might cause the earning of zero. Yet, it is better than losing capital but you’ll miss the opportunity to profit. Yes, even now while markets are down you can still earn. There are some industries and sectors where you can invest especially now. Of course, no one can guarantee that stocks will rise forever, but why don’t we call stats as help.

How to Invest in Biotech stocks

Here are some ideas on how to invest when the coronavirus pandemic causes all markets to drop.

So, according to data biotech stocks are a good choice right now. Also, health care. Maybe more than ever both sectors are active these days. The virus COVID-19 is still greatly new and the subject of many scientific types of research. They are all looking for COVID-19 treatments. The companies involved can be a great opportunity. For example, large and mid-cap companies from that sector. According to data, closed near 52-week highs at the end of last week. On the last trading day, they played very well. For example, MASI which is a large seller of pulse oximetry to hospitals. Or CNC, and some others like QDEL, just take a look at its historical data.

Or maybe Roche Holding AG ROG, which gained 3.7% in premarket trading today (Thursday, March, 19) just after they announced its plans to work on Phase 3 clinical testing Acterma. It is a drug used in rheumatoid arthritis treatments but showed good results in treating patients with COVID-19 with severe pneumonia.

Roche announced it is in consultations with the FDA. This company needs the authorities’ approval to start research with the Biomedical Advanced Research and Development Authority. It is expected that about 330 patients from all over the world will take part in that. Recently, Roche got FDA’s approval for manufacturing COVID-19 tests for the U.S.

Roche’s stock fell 7.7% in the last 12 months.

Small-cap companies from the same sector are not such a good choice because there are too many speculations around them and it is possible for investors to end up with losses faster since those companies could disappear overnight.

How to Invest in Safe-haven stocks

Do you know how important soup is important today? What do you think, can some producers of soup be a safe-haven investment? The example of Campbell Soup Company shows us it can.

Popular safe havens are running a bit better than their growth equals. They are paying high dividends reducing the losses caused by lower prices. For example, Campbell Soup Company is paying a 2.84% forward dividend yield. Moreover, the company is trading near a 52-week high after its earnings report.

Also, Mondelez International traded at $46.55 and with a dividend yield of 2.45%. This sweets producer is a super-force: Toblerone, Oreo, Cadbury, Belviva, TUC. The company produces pre-packaged goods. And that kind of producer is among the most desired safe-haven stocks right now since its goods can be used at consumers’ homes. There is no need for visiting restaurants and being in the crowd.

MDLZ stock is outperforming the S&P 500 by more than 10%. For some investors, the problem with this company can be its exposure to China, and store shelves are less stocked now. But the company’s branch in China is very close to setting the situation to normal.

Maybe Johnson & Johnson a 134 old company? It is one of the largest healthcare companies in the world. The company covers pharmaceuticals, medical materials, and devices, surgical and orthopedic robotics, etc. It has well-known products Band-Aid and Tylenol. The analysts are optimistic about the company’s long-term growth prospects.

How to invest during the coronavirus pandemic?

This can be an ethical and financial question. Both are inappropriate. Money has to work.

It is true, in just several weeks, the Coronavirus pandemic hit almost a third of the world market cap. The Sensex is 20% below from its highest highs reached just two months ago. The Indian equity market bounced back last Friday. The other markets have fallen even more.
The coronavirus spreading caused panic all over the world and lessened the confidence of investors.

The other unpleasant events happened also. For example, the crude oil war between Russia and Saudi Arabia has added volatility to the markets. But something has changed. It isn’t all about the coronavirus outbreak, the other things influence the markets also.
The commodities and currency market are in turbulence because of the crude oil war. This is a crash of huge magnitude. It will take time for confidence to come back but that doesn’t mean we have to sit aside. This can be a great opportunity to invest.

The stock market condition today

Stock market volatility is normal, and also discouraging but doesn’t have to be. For some investors, it is almost impossible to avoid panic and sell-off, we know that.
One of Wall Street’s main stock benchmarks, the Dow Jones, dropped and entered bear market territory on Wednesday, March 11. Dow Jones has been in a bull market since the financial crisis in 2008-09. Also, the big volatility is present, partially due to the oil price war but also, due to the fears of the coronavirus. Of course, that is stressful for investors. But they know, as much as we know, that stopping investing is the worst scenario ever.

So, how to invest when the coronavirus pandemic sends all markets down sounds illogical for professionals. Investing must continue. And we show you where and how. Stay invested! Maybe this can help.

19th March 2020
The Bear Market Starts – How To Avoid Big Losses?

We are not clairvoyants so we cannot predict how long this bear market will last, but what we can do is to suggest to you how to overcome this market condition.

The bear market starts. Dow Jones closed down over 20% on March 11 compared to its highs in February. That is the end of its historic bull market run. The bear market starts. Actually, it started at the moment as the pandemic was declared by the WHO. What to do with your investments right now? Will the stock market crash?

No one knows for sure what will happen next. But it is quite possible that the coronavirus could put stocks down for a long time. What makes us afraid is that the bear markets can go along with the recession.

Investors are panicked. Past several weeks the stock market was switching so fast and unpredictable. Michael Macke, founder of Petros Advisory Services told CNBC Make IT about investors’ feelings: “like we are all Chicken Little.” His comment was relating to the tale about the chicken who was claiming the sky was falling, but the chicken was wrong, right or wrong? “Only after the fact will we know for sure if we have a bear market or even a recession,” said Macke.

Nothing can last forever, even bad or good. The good times must come to the end at some point. This is particularly true for the stock market. And this bullish period did it. So, the bear market starts.
After a fairly exciting run, the stock market lastly jumped into the bear market territory. Investors are disturbed and panicked.

But what do we know about the bear market?

What to do when the bear market starts

The bear market is a point when stock prices drop at least 20% from a recent high. They will stay down there for a while. But how long will it take for the stock market to recover? What to do? Will the recession come too? What to do with investments? How to avoid losses and is that possible at all? This is a turbulent time. So many questions but several answers.

If we try timing the market we’ll be foolish. So, let’s see what experts have to say. First of all, they say drops like this one is a good opportunity to buy more stocks, particularly the people investing for retirement. This is important for younger investors who couldn’t buy stocks during the bullish market because the prices were too high, hitting all the time the new highs. If you have some spare money and you don’t need it in the next, for example, five years, put it in investments. But if you think you will need that cash it is smarter to stay away from the stock market. The history of the 200-years old stock market shows that the market will start to rebound as the bad news stops coming and the prices will stop to decline.

What is smart to do during the bear market period?

When the bear market starts, it is smart to check your concrete investment strategy. If you are a young investor it is quite possible you are facing the bear market for the first time in your life. So, this is a great opportunity to check your risk appetite and how much you are able to manage it. You might obtain a valuable lesson.

Even advanced investors do the same. They are reviewing their portfolios to be sure that the investments they are holding are suitable for their investing goals. It is very important to see your investments are in line with the risks you take. Some experts think that pilling off into safer investments is a bad decision. And maybe they are right. History shows that if you successfully handle your stocks during the bear market, it is more possible to profit a great when the market recovers. Yes, this all about long-term investors because investing isn’t about a moment in time, it is a process over time.

What is the best strategy when the bear market starts?

No one likes this. This enemy is dangerous so don’t try to fight back with it. The most important is to stay calm. Okay, you may play dead as you should do when you meet the bear in the woods. Just lay down and pretend you are dead. This was a joke but it works when the bear market starts and everything seem so uncertain.
So, don’t be frightened. Fear is a bad partner now.

Do you know the old saying on Wall Street? “The Dow climbs a wall of worry.” What does it mean? This means the markets will continue to rise despite anything. Nothing can stop that. No matter if we have an economic crisis, terrorism, or other misfortunes. Just keep your emotions under control and far away from investment decisions. Look, today’s catastrophe will be just an unpleasant flash one day. Nothing more. Well, it can last a few years but still.

It is a normal condition

The other important thing. It is normal to have bad years in the stock market. They are coming in the cycles and it isn’t unusual. For long-term investors, this is particularly a favorable situation. They can buy stocks at discount.

Speaking about this bear period, it might be smart investing in, for example, NFLX (Netflix) can be a good choice. Due to the coronavirus outbreak, and pandemic people have to stay at their homes and what are they going to do? Watching TV, of course. That will bring a higher income with more subscribers, consequently, the dividends could be higher and the stock price will rise. But don’t buy Uber’s stock, for instance. You might wonder why. It is quite simple to explain. As more people will stay at home, less income will be for Uber and prices can drop. (Thank you Guy, for these examples.)

Maybe the stocks of the companies that are involved in vaccine development or anything related to this unfortunate situation are not bad decisions. Pharmaceutical, detergent, soaps, antiseptic, hygienic supplies producers, virus testing, and other biotech companies. Think about this.

Diversification can help also

The point is to have a well-diversified portfolio. If you don’t have yet, it is time to add bonds, cash, stocks. The percentage of each will depend on your risk tolerance, goals or are you an investor with a long time horizon or not. A proper allocation strategy will save you from potential negative forces.

Further, invest only the amount you can allow to lose, that will not hurt your budget or the whole capital. For example, don’t take short-term loans and buy stock with that money if you don’t plan to hold them for a long time, e.g. five years or longer.
Keep in mind, when the bear market starts, even trivial corrections, can be remarkably harmful.

But as we said, when the bear market starts that may provide great opportunities if you know where to look for. We pointed to just a few examples above. Maybe you should follow what Warren Buffett did. So, buy the value stocks since their prices are going down.

Bottom line

What to do when a bear market starts?

We can’t predict how long this bear market will last. If you’re considering selling off a group of stocks to lower your losses, just don’t do that. By doing so you’ll end up locked in losses. How can that situation help you? But if you have cash available for investing, this bear market period is a great time to do so. Remember, just don’t invest money you may need in the next five years or more.

Also, don’t get scared as some investors are when a bear market starts. The stock market will recover from this as always it did during history. If you buy stocks now and your plan is to hold for a long time, you will have good chances to end up in profit.

Maybe it is best to use our preferred trading platform virtual trading system and check the two formula pattern.

18th March 2020
How to Trade Stocks and Make Money?

Everyone would like to know how to successfully trade stocks but only a few know how to do that. Here are some suggestions.

There are not many people who know how to trade stocks and make money. Statistics confirm this. According to stats, only 5% of traders are successful. That means 95% of traders fail. Surprisingly, some stats show 80% of traders leave trading during their first two years. Moreover, almost half of all traders quit during the first month of trading. The other problem is that traders sell winners in a bigger percentage than losers.
Profitable traders represent a tiny part of all traders with just 1.6% in the average year. Nevertheless, they are very active, the estimate is that they are accounting for 12% of all trading activities per day.

Stock traders’ problems

Maybe the biggest problem in the stock market is that traders don’t learn how to trade stocks and make money. They are gambling, to put it simply. Even when they are using some demo accounts or following elite traders, they use it to set up their trades automatically without a meaningful process or plan. We found an interesting thing, traders and investors usually overweight stocks in the industry in which they are working. That’s smart. That is the industry they know well, the companies are known to them too, so the probability of successful trades might enhance. But there can be some drawbacks too. The emotional approach to trade is one of them. Simply said, these traders may act as cheerleaders. That isn’t smart trading. Even if they have profitable trades, the percentage of such trades is small. Otherwise, there would be more efficient traders in the stock market.

Knowing these stats it’s understandable why traders fail. The trading decisions are not based on research or proven trading methods. They are based on emotions. Instead of learning how to trade stocks and make money, many traders view trading as a kind of game. Don’t hope to make millions with such an approach. It is more likely you will lose your shirt. Trading isn’t a game. On the contrary, it is a profession for which you’ll need skills, knowledge and continual education and development. It isn’t easy and no one should tell you it is. Hence, be careful of your trading decisions.

How professional traders know how to trade stocks and make money?

You might be questioning what professional traders know but you don’t. We are going to explain to you how to trade stocks and make money so you could act like a pro. It isn’t rocket science, actually, it is quite simple but we’ll need your full attention.

First of all, don’t think that becoming an elite trader is something you cannot achieve. You are just a few steps away from being that. All you need to unveil how to trade stocks and make money is just around the corner.

So, let’s start!

Successful traders usually don’t have any insider information that is unavailable to you. You can gather them also but the real question is why should you do that. In fact, all you need to have trading success is a small adjustment in how you think about trading. In simple words, it is all about your mindset. To become a successful trader you MUST change some of your trading practices if you want to know how to trade stocks and make money, of course.

There is no secret recipe on how to trade stocks and make money

Beginners in trading usually are looking for a secret and instant way to success. If you are not one of them, you probably don’t enjoy trading. It is possible you are looking for some tools that will guarantee the profit. Well, it isn’t wrong. There are so many tools out there. Many of them can make your life easier. But you have to love the trading process, even the charts reading and finding patterns. Yes, that isn’t the most exciting part of trading, some may say. But try to look at that from the other point of view. For example, finding just one good, steady, price pattern might enhance your trade and can be beneficial for a long time, maybe for your lifetime.

But let’s stay for a while on the subject of the joy of trading. The point is not to have fun (although you might have fun) but to understand what you are doing while trading and be ready to love it. There is no need to be an adrenaline addict but some dose of willingness to have excitement is necessary still. You have to understand the whole process, from the psychological perspectives, chart reading, to money management. And you have to love it. Otherwise, you will never succeed to become a really profitable trader. In other words, you need passion, knowledge, and tools.

The importance of tools in trading

When you start trading the stock market, you have to make three decisions: buy, sell, stay on the position. For that you need information. You have to know the stock historical performances. It is important to recognize the patterns. And that is exactly what one of the best books is giving to you. Let us introduce and recommend this particular one, the book The Two Formula: The Best Single Trading Pattern I Have Ever Used. This book doesn’t give you only theoretical knowledge. It is based on the personal experience of the author. That is the value per se.

What will you find in the book The Two Formula: The Best Single Trading Pattern I Have Ever Used?

According to the author, Michael Swanson, the first time he used this trading pattern was in 1999. And how good this price pattern shows the fact he is using it for even more than 20 years. He reveals that just one single price pattern is quite enough for successful trading whatever you want stocks, funds, futures, commodities. Basically, you can use this price pattern for anything that you can draft on the technical charts. We have been reading a lot of books about trading. Also, we examined a lot of patterns but this particular one is extremely interesting. This trading strategy is completely unique.

Few words about trading strategies

Essentially, a trading strategy is a method of buying and selling in the stock markets or some other markets. The trading strategy is based on rules that deem to end up with success in trading and in profit. So, most traders are guessing and trying to notice the bottom and the level where the price starts to go up in order to buy an asset in the hope it will rise further. The point is they are often wrong. Go back to the beginning of this article and you’ll see the stats. What do the majority of traders do? They are hunting price movement. But it very often turns into chaos. Why is that? They are not trading, instead, they are gambling, they place trades without a meaningful process.

When they see how big mistakes they have, traders use charts to figure out what is wrong and try to fix it. Sometimes they are spending hours, days even weeks, staring at the charts to predict how the price will go in the future by using technical indicators, a lot of them. And they are confused more and more. These complicated images can fry their brain but their trades will not become more successful.

The simplicity of The Two Formula pattern

For any trader, the simplicity of the pattern is extremely important. If you have too many indicators added to the chart you will have a blurred picture. The essence of profitable trading is to have a steady plan, something that really works when setting the position. You must have confidence in what you are doing and you have to know how your trade will end up. This “Two Fold Formula” book can help to achieve all of that.

Where is the catch?

This book shows how with a one price pattern setup you can make a profit while trading. Basically, it is a simple strategy and that’s why it is an effective one. Easy to understand, easy to use, without misunderstanding. Everything is explained clearly and smoothly and, what is most important, based on personal experience and proven.

Some traders have to lose, but you would have a chance to make a profit with this method. Any trade has only two ends: loss or profit. Why shouldn’t you profit? This may help you to trade like a pro.

Bottom line

People are afraid of the risk, but these two formula pattern seems to be using some good indicators and a more “tuned” strategy.

Pro tip: use it with our preferred trading platform virtual trading system to see if it’s working before trying on real funds (68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money)

17th March 2020