Category: Stocks

Stocks are maybe the best way to build wealth. Holding them means that someone owns a share in the company that issued the stock. Exactly this Traders-Paradise wants to explain to its visitors.
The majority of traders trade them, ordinary people are investing in them and they are building their future based on stock quality. If the stock is good, it will increase your capital.
In this category, Traders-Paradise explains what are stocks and why people should invest in them. Our experts’ team explains how to effectively buy an ownership share in the company. You can read what is beneficial, how much you can earn by trading them, and how much by holding them in the long run. Also, Traders-Paradise provides readers a full insight into stocks’ nature, how volatile they can be, why stocks are the best way to build and grow the wealth.
Here we explain what is the primary reason that investors own stock. Just to mention, the returns are potentially great.
Also, we explain how stocks work.
Readers will also find is it better and wise to buy stock in just one company or that could have a negative influence on their investment portfolios. Also, we explain how to structure your stock portfolio when you hold shares of companies from various industries and geographies.

How stocks differ?
Most investors hold common stock, but there are many kinds of them, for example, preferred stocks. Traders-Paradise explains all the benefits from any kind of them, how to profit by trading them. So, here you’ll find trading and investing strategies, all calculations, and methods to evaluate the value of your holdings.

Good Returns On investment – How To Know Where To Invest?

The long-term returns seem attractive, and it is easy to start investing. But you must have realistic expectations.

By Guy Avtalyon

Good returns on investment is what every single investor wants. But some have unreasonable expectations. Especially beginners. They are hunting stupid high returns on investments and lose money. No matter what asset class is, they are looking for high rates of return. Nothing is wrong with that, but a dose of reality is necessary for investing. Dreaming is okay, of course since it can motivate us to reach our goals but if our dreams are unrealistic it can deliver us the stress when we unveil that reality isn’t like our dreams.

So, everyone including beginners in the stock market must understand what are good returns on investment. We would all like to become rich overnight, that is a legit dream but the real-life is something different. One of the main problems is that beginners don’t understand the effect of compounding nor how it works. Most of them don’t know what good returns on investment means, how much it is.

First of all, temper your expectations.

Over almost the last 100 years, the stock market’s average return is about 10% per year. But returns are infrequently average. So, if you are one of the new investors you have to know several things about what good returns on investment is.

What are good returns on investment?

You have to know that historical data shows that the average stock market return is 10%. Are you surprised? What did you expect? Oh, we know! You heard the stocks are among the riskiest investments and the high risk may provide you a high potential reward, right? That’s true but it will not happen overnight. Let’s go back to average stock returns.

The S&P 500 Index is the benchmark measure for annual returns. When we said the average annual return is 10% it wasn’t quite true. The truth is that you have to reduce this 10% by inflation. For example, if you start to invest now you can expect to lose buying power of 2-3% per year which is caused by inflation.

The stock market is directed on long-term investments. That means you can invest your extra or saved money you will not need for the next five years or longer. If you don’t like this you may prefer a shorter investing period, for example, a year or two. Well, then the stock market isn’t for you. Choose one of the lower-risk alternatives. For instance, a savings account. Yes, you will have the lower returns, but you’ll be protected from stock’s volatility.

As we mentioned above, the average return per year is 10%, but it is actually far away from average. There were periods when it was dramatically lower but also the periods when the returns were much, much higher. That’s due to the stock’s volatility. We have to say and this may sound illogical for beginners, but even during the volatile market’s years, returns can be good.

Your expectations must be fair

Honestly, you have to learn this. Especially if you’re a new investor. You may think you can earn 25% on your stock investments over several decades. We have to tell you, your expectations are extremely big. It’s not going to happen. Maybe this is rude to say, but that’s insane. Yes, we know you found someone out there who promised you that high returns, but you have to understand cush lied to you. Such is counting on your lack of experience, and on your greed. Are you greedy? Go to the casino! Start gambling! Stock investing is a serious job, hard work, also connected with a lot of pleasure and passion with one single most important goal – to have good returns on investment and over time, to provide financial security for yourself. Well, and maybe, just maybe you’ll become rich.

So, your financial foundation should never be based on dangerous opinions and actions. Don’t be irresponsible. What you really need is your investment to provide you a nice retirement, you wouldn’t like to end up with less money than you expected.

The meaning of good returns on investment can be confusing for someone, particularly young investors because when you enter the stock market you might know only about a 10% annual return rate. But keep in mind, you don’t have guarantees that they are going to repeat themselves. The returns on investments never were a smooth or upward path. remember, markets are volatile and you may suffer great losses over time. But what is important and everyone should know that that’s the nature of the free-market. Over a long-time period, you’ll beat the market if you follow some rules.

How to calculate the rate of return

Let’s say you already have determined your investing goals. You clearly know what your target is. Also, you have to identify the amount of capital and time you have to invest. All information you need is in front of you. So, let’s see the magic of compounding.

For example, you have $2.000 to invest. Assume that the annual rate of return is 10%. After one year you’ll have $2.200, right? But what if you want to sell your whole investment after 2 years, for example, for $3.000. Super done! Your profit is $1.000 which is a 50% return. Amazing! Oh, wait! You have to pay capital gains taxes. Take away 15% from your gain. Well, your profit isn’t $1.000, it is $850. You’re left with $2.850. Well, you still have good returns on your investment after two years. It is 42,50% now. Did we have inflation? Of course, we did. So, you have to count inflation of 4% for 2 years.

Let’s do it.

$2,850×0.96×0.96=$2,626.56

That is 31.32% real return of your investment. This $2.626 amount still isn’t bad but it’s far away from your $3.000 and 50% where we started this calculation.

Look, the annual rate represents the profit you earn on your investment per year, or how much will you get in return for each dollar invested every year.

There is a simpler calculation. Just find a simple percentage. For example, you invested $1.000 and your gain is $300. What will your return be?

(300/1000)x100 = 0,3×100 = 30%

This approximative value. But if you want to know the exact you’ll need the first calculation we showed you. That is a well-known ROI, return on investment.

Can the stock market give you good returns on investment?

The stock market is unstable and unpredictable, so you’ll never have any guarantees there. But if you consider this 10% average return you’ll understand that investing in stocks may provide you financial security in the long run.

What are the good returns on investment today?

Well, the answer is pretty complex but to make it simpler, use this rule of thumb: If the recent returns were higher than average, the future returns will be lower.

That’s why it is much better to calculate, for example, 6% or 7% of the average annual of return when estimating your returns over time. Because, as you can see, this average return is rare. It is higher or lower. Also, there is some psychological effect, if you expect too high returns you’ll be disappointed if your investment never gives you that. Also, you’ll be glad if your investments beat your expectations.

The best approach in the stock market, if you want to make real money, is to buy stocks at good prices and sell them at a profit. What is a good price? To figure it out you’ll have to know how much money you want to get when you sell it.

Good returns on investment for an active investor is 15% per year. For this to reach you’ll need to be aggressive in looking for bargains. It isn’t hard to achieve. For example, your buying power can be doubled every 6 years if you have average annual returns of 12% after you pay all taxes, also, count the inflation for each year. This is one way to beat the stock market. The other is to become a trader but a smart one. The coronavirus is causing people from almost all parts of the globe to halt their activities. People are urged to stay home, schools are moving to online learning. Take this as an advantage and learn something useful, why not?

7th April 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
The Average Daily Trading Volume How to Calculate

(Updated October 2021)

A stock’s daily trading volume shows the number of shares that are traded per day. Traders have to calculate if the volume is high or low.

The average daily trading volume represents an average number of stocks or other assets and securities traded in one single day. Also, it is an average number of stocks traded over a particular time frame.

To calculate this you will need to know the number of shares traded over a particular time, for example, 20 days. The calculation is quite simple, just divide the number of shares by the number of trading in a specified period. Daily volume is the total number of shares traded in one day.

Trading activity is connected to a stock’s liquidity. When we say the average daily trading volume of a stock is high, that means the stock is easy to trade and has very high liquidity. Hence, the average daily trading volume has a great impact on the stock price. For example, if trading volume is low, the stock is cheaper because there are not too many traders or investors ready to buy it. Some traders and investors favor higher average daily trading volume because the higher volume provides them to easily enter the position. When the stock has a low average trading volume it is more difficult to enter or exit the position at the price you want.

How to calculate the average daily trading volume

As you expected, it is quite simple. All you have to do is to add up trading volumes during the past days for a particular period and divide that number by the number of days you observe. It is usual to calculate ADTV (Average Daily Trading Volume) for 20 or 30 days but you can calculate it for any period if you like. For example, sum the average daily trading volumes for the last 30 days and divide it by 30. The number you will get is a 30-day average daily trading volume.

Since the average daily trading volume has a great impact on the stock price it is important to know how many transactions were on a particular share. The same share can be traded many times, back and forth and the volume is counted on each trade, each transaction. For example, let’s say that 100 shares of a hypothetical company were purchased, and sold after a while, and re-purchased, and re-sold. What is the volume? We had 4 transactions on 100 shares, right? So, the volume in this particular case would be expressed as 400 shares, not 800 or 100. This is just a hypothetical example even though the same 100 shares could be traded many more times.

How to find the volume on a chart?

Thanks to existing trading platforms it is easy since each will display it. Just look at the bottom of the price chart and you’ll notice a vertical bar. That bar indicates a positive or negative change in quantity over the charting time period. That is the trading volume.
For example (if you don’t like too much noise in your charts), you will use 10-minutes charts. Hence, the vertical bar will display you the trading volume for every 10-minutes interval.

Also, you will notice that these bars are displayed in two colors, red and green. Red will show you net selling volume, and green bars will let you know the net buying volume.
You can measure the volume with a moving average, also. It will show you when the volume is approximately thin or heavy.

What is an average daily trading volume for a great stock?

Are you looking for the $2 stock with an average daily volume of 90,000 shares per day? It won’t be easy. Sorry!

The stocks that traded thinly are very risky and changeable. To put this simple, we have a limited number of shares in the market. Any large buying might influence the stock price skyrocketing. The same happens when traders and investors start to sell, the stock price will fall. Both scenarios are not beneficial for investors. So, you must be extremely careful when trading stocks with daily trading volume below 400.000 shares. You can be sure it is a thinly traded stock even if it is cheap as much as $2. The stocks with low prices carry higher risks. For example, penny stocks.

Here we came to the dollar volume. While the daily trading volume shows how many shares traded per day, the dollar volume shows the value of the shares traded. To calculate this you have to multiply the daily trading volume by the price per share.

For example, if our hypothetical company has a total trading volume of 300.000 shares at $2, what would be the dollar volume? The dollar volume would be $600.000. This is a good metric to uncover if some stock has sufficient liquidity to support a position.

To decrease the risks, it is better to trade stocks with a minimum dollar volume in the range from $20 million to $25 million. Look at the institutional traders, they prefer a stock with daily dollar volume in the millions.

Understanding Average Daily Trading Volume

Average daily trading volume can rise or drop enormously. These changes explain how traders value the stock. When the average daily trading is low you have to look at that stock as extremely volatile. But, the opposite is with higher volume. Such stock is better to trade because it has smaller spreads and it is less volatile. To repeat, the stock with higher trading volume is less volatile because traders have to make many and many trades to influence the price. Also, when the average trading volume is high, trades are executed easily.

This is a helpful tool if you want to analyze the price movement of any liquid stock. Increasing volume can verify the breakout. Hence, a decrease in volume means the breakout is going to fail.

The trading volume is a very important measure.

It will rise along with the stock price’s rise. So, you can use it to confirm the stock price changes, no matter if it goes up or down. When we notice that some stock is rising in volume but there are not enough traders to support that rise and push it more, the price will pullback.

Pullback with low volume may support the price finally move in the trend direction. How does it work? Let’s say the stock price is in the uptrend. So, it is normal the volume to rise along with a strong rising price. But if traders are not interested in that stock, the volume is low and the stock will pullback. In case the price begins to rise again, the volume will follow that rise. For smart traders, it is a good time to enter the position because they have confirmation of the uptrend from the price and the volume both. But be careful and do smart trading. If the volume goes a lot over average, that can unveil the maximum of the price progress. That usually means there will be no further rise in price. All interested in that stock already made as many trades as they wanted and there is no one more willing to push the stock price to go up further. That often causes price reversal.

Bottom line

The average daily trading volume shows the entire amount of stocks that change hands during one trading day. This can be applied to shares, options contracts, indexes or the whole stock market. Daily volume is related to the period of time. It is very important to understand that when counting volume per day or any other period each transaction has to be counted once, meaning each buy/sell execution. To clarify this, if we have a situation in which one trader is selling 500 shares and the other one is buying them, we cannot say the volume is 1.000, it is 500. Anyway, this is an important metric that will show you if some stock is easy or difficult to trade.

13th March 2020
Share Turnover Ratio – What Is It and How to Calculate?

The share turnover ratio isn’t the most important measure you have to take into consideration when picking a stock but it is important to know will you need a lot of time to sell off the stock.

Share turnover ratio shows how difficult or easy, is to buy or sell shares of some stock on the market. Share turnover ratio compares the number of shares traded during some period with the total volume of shares that available for trade during the given period. Investors often avoid the shares of a company with low share turnover.

Share turnover is a measure of stock liquidity. When we want to measure it we have to divide the total number of shares traded during the given period by the average number of shares available for sale. For example, if the 1 million shares are traded during the year, and the average volume of shares for sale was 100.000 then we can say that turnover was 10 times. Shares can have higher or lower turnover. The higher share turnover shows that the company has more liquid shares.

So, we can say that the share turnover compares the number of traded shares to the number of outstanding shares. When we see a high level of share turnover, this means investors can easier and smoother buy and sell the shares.

They often believe that smaller companies have less share turnover because they are, as investors think, less liquid than big companies. But that might be a great mistake. It isn’t rare that smaller companies have a greater amount of share turnover compared to big companies.

How is this possible?

Very often the reason is the price per share. Big company’s price per share can be several hundreds of dollars and only rich investors are buying them. Yes, large companies have huge floats, thousands of shares might trade daily. But what percentage do they have? The real percentage of their total outstanding shares is small.

On the other side, a small company’s share is significantly cheaper and such is traded more frequently. So, they may have a higher daily trading volume.

Possibilities of share turnover ratio

The share turnover ratio compares sellers versus buyers of stock. To calculate it we will need two numbers to know. One is the daily trading volume of stock and the other is the number of shares available for sale. This second number is actually a daily float of stock, the total number of outstanding shares. The result is expressed in percentages. And you will see, every time when we get as a result, the high share turnover ratio we can be sure that there is a high daily volume and low float. Also, a low daily volume and the high float will always give us, as a result, a low share turnover ratio.

But these figures are so relative. The real share turnover ratio depends on the company and the sector it belongs to. For example, you can see from time to time that some stocks have a high turnover ratio but it can be periodically. When the demand for some stock rises, the turnover ratio will grow at the same time. So, this ratio isn’t able to show how the company is healthy.

The limitations of share turnover ratio

The share turnover ratio can show how easy investors can buy or sell their shares of some stock. Literally, this ratio isn’t able to tell us anything about the company’s performance. Let’s assume you are examining a large company’s stock. You know that the company has, let’s say, 4 billion shares outstanding. It is a really large company. Also, the known fact for you is the averaged trading volume. It is, for example, 40 million per month. So, this company’s share turnover ratio is 1%. What does this number tell us? The stock is illiquid. Would you avoid this stock? Remember, it is a big, well-known company, with great history, with a permanent rise, good management, great prospect. Of course, you wouldn’t. Contrary, everyone would like to buy that stock. That is a case with Apple, for example. Would you avoid investing in that company? The point is that the low share turnover ratio shouldn’t be the most important concern when picking a stock.

Moreover, when a stock is dropping and only a few want to buy it, that stock will have low turnover. But the same is true if the stock is expensive. If single share costs, for example, $800 only a small number of investors can afford to buy it and the share turnover ratio will be very low.

So, do you understand why this ratio isn’t reliable when you want to estimate how good stock is? That is the reason why you should use the other parameters too.

Is this measure important at all?

In short, yes.

It is an important measure and investors should be aware of it. A low share turnover ratio indicates that you may need a lot of time to sell off such stock and, what is also important, the stock price may decrease while you are waiting to find someone and sell it. Hence, not many investors are willing to put their money as such a risk and buy the share of the company with a low share turnover ratio. But always keep in mind, a low share turnover ratio is normal for a small market-cap company. But we owe you an explanation of what is an average daily trading volume.

Average daily trading volume

Average daily trading volume or short ADTV is the average number of shares traded during one day in a particular stock. Daily volume simply means how many shares are traded per day. So, we can average daily volume. It is a crucial measure because high or low trading volume triggers different kinds of traders and investors. Some investors and traders favor high average daily trading volume. It is because with high volume is easier to get into and out of the position. As we already said, when the stock has low volume it is more likely to be harder to enter or exit at the proper price since there are less buyers and sellers. But when the traders and investors start to value the stock differently ADTV can increase or decrease. For example, if the average daily trading volume is higher, that means the stock is less volatile and more investors would like to buy it. But this doesn’t mean that stocks with high volume don’t change in price because they can change a lot.

The higher the trading volume is, the more buyers and sellers will easier and faster execute a trade.

This is a useful tool for analyzing the price action of any liquid stock. For example, the increasing volume may confirm the breakout. If there is any lack of volume, the breakout may fail. But that is the subject for a longer article.

Bottom line

Several figures and ratios deliver information about stocks and represent great help to investors when deciding whether they should buy or sell. The stock volume and the share turnover ratio are one of them. They provide valuable information about any stock.

Share turnover ratio is an important measure for investors but shouldn’t be used as a sole criterion. If investors or traders use this one solely it is more likely they will miss out on very important data, for example about the quality of the stock, and make a wrong investing decision.

One suggestion before doing anything in real: use our preferred trading platform virtual trading system and check the two formula pattern.

12th March 2020
52-Week High or Low – Should You Buy Or Sell Stocks

(Updated October 2021)

When you see a stock going to its 52-week high or low, what is your first reaction? Do you think you should sell or buy it? This is a difficult part and we will explain why.

A 52-week high or low is a technical indicator and every investor or trader should keep an eye on these tables because it is the simplest way to monitor how our stocks are doing. For example, you want to buy some stocks and this can be the best way to check their recent prices. A 52-week high or low will help you to determine a stock’s value and usually can help to understand the future price changes.

Investors often refer to the 52-week high and low when looking at the stock’s current price. When the price is nearing the 52-week low, the general opinion is it is a good time to buy. But when the stock price is approaching the 52-week high, it can be a good sign to sell the stocks.

So, the 52-week high or low values might help to set the entry or exit point of your trade.

Prices of stocks change constantly, showing the highest and lowest values at different periods of time in the market. A number marked as the highest or lowest stock price over the period of the past 52 weeks is called its 52-week high/ low.

How to determine the 52-week high or low

It is based on the daily closing prices. Don’t be surprised if you can’t recognize some stock. Stocks can break a 52-week high intra-day, it may end up at a much lower price, a lot below the prior 52-week high. When that happens, the stocks are unrecognized. The same comes when the stock price hits the new 52-week low over the trading session but doesn’t succeed to close at a new low.

Well, the stock’s inability to make a new closing 52-week high or low can be very important.

If you watch the prices for some stock, for example, over a particular period of time, you will notice that sometimes the price is higher than others but sometimes it is lower than all others.
The 52-week high or low for the price of any actively traded stock (also any security) shows the highest and lowest price over the previous year that is expressed as 52 weeks.

For example, let’s assume you are looking at changes in the price for some stock over the prior year. You found that the stock traded at $150 per share at its highest and $80 at its lowest. So, the 52-week high or low for that stock was $150/$80.

When to buy a stock

What do you think? Is it better to buy stock from the 52-week low record or from the 52-week high record? You can find these lists on financial sites like Yahoo Finance, for example. On one side you have stocks with new highs and on the other, you have stocks with new lows. What would you choose?

This isn’t a trick question. If you follow the rule “buy low, sell high” you might think that some stock from a 52-week low list can be a great opportunity. You may consider it an unfortunate event and suppose the stock price will go up. Remember, you have only this information – highs and lows. Buying stocks at the bottom can be a good choice but you don’t have other important information about the company to make a proper investment decision. So, when making your decision based only on one info, you are gambling. You have no guarantees that the “bottomed out” stock will go up to the top or catch upward momentum. So, you will need more information to pick the stock from the list.

But the dilemma may come the same with stocks from the 52-week high list. You might think these companies are successful and the progress will continue. Well, sincerely, you might be right. The company’s management is doing something good. There are a lot of chances for that stock to keep moving forward. So, you will make a slightly better guess than buying stock from the 52-week low list.

You see, the rule “buy low, sell high” isn’t always accurate. You don’t have any hint that stock from the bottom will ever come out.

The 52-week high or low is just an indicator of potential buying or selling. To do that you will need more information.

Trading based on the 52-week high

What’s going on when stock prices are heading toward a 52-week high? They are rising, it is obvious. But some traders know that the 52-week highs represent a high-risk. The stocks rarely exceed this level in a year. This problem stops many traders from opening positions or adding to existing positions. Also, others are selling their shares.

But why? The rise in the stock price is good news, right? Profit is growing, the future earnings outlooks are bullish. This can keep prices successful, at least for a week, sometimes for a month. If the news is really good and fundamentals show the strong result the stock breaks beyond the 52-week high, share volume greatly grows and the stock can jump over the average market gains.

But how long can this effect last?

The truth is (based on research, one important is Volume and Price Patterns Around a Stock’s 52-Week Highs and Lows: Theory and Evidence, authors Steven J. Huddart, Mark H. Lang, and Michelle Yetman) shows that the excess gains decrease with time. This research reveals that small stocks initially provide the biggest gains. But, they usually decrease in the following weeks. Large stocks generate greater gains initially, but smaller than small stocks do. So, excess gains that generate small stocks far pass these the larger stocks generate during the first week or month following the cross above the 52-week highs.

This is very important data for traders and their trading strategy would be to buy small-cap stocks at the moment when the stock price is going just above the 52-week high. That will provide them excess gains in the next weeks, according to the research mentioned above.

Intra-Day 52-Week High and Low Reversals

A stock that makes a 52-week high intra-day but closes negative may have topped out. This means the price may not go higher the next day or days. Traders use 52-week highs to lock in gains. Stocks hitting new 52-week highs are usually the most sensitive to profit-taking. That may result in trend reversals and pullbacks.

The sign of a bottom is when a stock price hits a new 52-week low intra-day but misses to reach a new closing 52-week low. This happens when a stock trades is notably lower than its opening, but rallies later to close above or near the opening price. This is a signal for short-sellers. They are buying to cover their positions.

Bottom line

To conclude, the strategy of buying stocks from the 52-week high list breaks the rule buying low. Yes, but hold on! The rule “not buy at high” can be applied to stocks that unnaturally bid up some kind of market over-reach. For example, the stock whose price has surged 30% over a single day. Drop it out! Neglect them.
You want stocks with steady growth over a long time into the list. When you recognize such stocks, start to evaluate them. Examine every single detail about the company.

Buying for bargains is a good strategy, but it is also a good cause for selling a stock at or near its 52-week low.

Finding the winners can be trickier. One suggestion, start from the top and eliminate every stock with an unrealistic increase. They are on the top by mistake, trust us. Find stable winners. Do we have any valid proof that they will not continue to rise? Of course, they can.
If you want to trade based on the 52-week high effect, keep in mind, it is most functional in the very short-term. The largest profits come from rarely traded stocks with small and micro-cap.

Remember, the 52-week high or low represents the highest and lowest price at which a stock has traded in the prior year, expressed in weeks. It is a technical indicator. The 52-week high describes a resistance level and the 52-week low represents a support level. Traders use these prices to set the purchase or sale of their stock.

5th March 2020
How to Survive the Market Downturn?

The global uncertainty due to the coronavirus outbreak forces investors to a smart allocation. Avoid companies with high debt, stay focused on the sustainability of earnings.

By Guy Avtalyon

How to survive the market downturn? We heard so many investors asking this. Boosting the concerns were profit warnings from the companies in Europe, the US, and all over the world. Everyone is talking that a key earnings target would take longer to meet. The reason is the coronavirus outbreak adds uncertainty in the main markets. Many well-known large companies plunged and had to mute growth for this year due to the COVID-19 outbreak. We are sure you are following what’s going one with that and also, we hope you are following WHO’s advice to protect yourselves.

Our concern is how to survive the market downturn, what investors have to do now when the markets are down.

Financial pandemic

Asia Pacific markets dropped today (February, 28) due to fears about the coronavirus. These fears continue to urge a global sell-off.
Japan’s Nikkei 225 dropped more than 3% in today’s morning trading. South Korea’s Kospi and Australia’s S&P/ASX 200 fell more than 2% each.
Hong Kong’s Hang Seng fell 2.7%, while the Shanghai Composite fell 3.4%.
Also, we have a historic plunge in the markets in the US. Three major US indexes slipped into correction territory on Thursday. The S&P 500 had the worst day since 2011. The Dow sank 1,191 points, which is a drop of 4.4%. This was the worst one-day point drop in its history.
Coronavirus appears as a ‘financial pandemic’. The global oil benchmarks, US crude, and Brent crude fell Thursday lower by 3.4% and 2.3%.
Even China search giant Baidu warned that revenue could fall as much as 13% in the first quarter and its core business could fall by 18% compared to the same time last year.

How to survive the market downturn?

So, the coronavirus has continued to spread, the stock market has started to feel the uncertainty. No one knows how this situation could affect companies over the world. Or investors. This epidemic like any other came suddenly and caused a shock to the global economy. As always, this situation lead (and it did) to great changes in the stock markets. Investors’ fears became a truth. And also, this led to panic selling.

What a great mistake!

Why do we think it is a great mistake? Okay, we all want our wealth to grow, not to vanish. These stock market ups and downs are hard to look at for all of us. That’s why it is so easy to be caught in emotions.

Investors are frightened and worried and that can lead to panic. And panic can lead to quick and imprudent sellings. We want to help you to avoid this mistake that may cost you very much.

Let’s take a look at an example that may help you to learn how to keep your hands off your investments. Especially now with a major market slide. Let’s say you entered this year with $100.000 in your investments. But it is the end of February and the stock market is dropping (You have the last data above) and let’s say, you already lost $10.000. Can you afford to lose an extra $10.000 if the market continues to fall? So, how to survive the market downturn? If you want to survive this storm your first thought might be to sell off, for example, mutual funds and move into the money market. That’s a mistake, that’s wrong. Don’t do that! The stock market can rebound. Yes, it will take a few months till then, at least two, but when it does that you’ll be able to recover your losses and gain more. So, don’t keep your money on the sidelines. Investors that did such a thing extremely regretted it.

Try to separate your emotions from the investment decisions. One day, very soon, whatever looks like a disaster now, can be just a twinkle in your investing history.

How to survive the market downturn by keeping fears under control?

Do you know a saying on Wall Street? It is something like: The Dow climbs a wall of worry. What does this saying want to tell us? Dow Jones will continue to rise despite economic downturns, pandemics, natural disasters, or any other catastrophes. That’s why we have to keep our emotions under control, our fears in check. This market correction just looks like a massive disaster but it is just one short period in the market’s cycle.

Well, how to tell you this? When some economic slowdown appears it is so normal for the stock market to go negative. For long-term investors that means nothing. They bought their shares at a low price when the market was down. So, consider if there is a buying opportunity. Always keep in mind the old maxim “buy low and sell high”.

Reexamine your portfolio and your investment strategy instead of panic. Choose to be strategic with actions.

What are the benefits of a declining stock market?

The market is down, so what? Will it be a market correction? No one knows. What do we have to do? To stick to our investment plan and goals. Don’t damage your portfolio.

Investors turn into stocks when the market approaches new highs. When the market drops they are running away. So, what are they doing? Buying high, selling low? The consequence is that they have poor returns. Can you see the problem? It doesn’t have to be like that. Some investors know how to benefit from the market drop, how to survive the market downturn.

Ways to survive the market downturn

Firstly, they know how to recognize the problem, meaning they understand the essence of investing. With that knowledge, it is more possible to avoid unfavorable investment performance. So, learn!

If we sell out of fear when the market is down, we are actually generating minimal returns. At least, we should think about this before executing a trade on such occasions. The next step is to change our mentality, the way we think. For example, we all like when the price of electricity goes down, right? But we are not excited when the stock price is going down. Here is the catch!

How can money go further?

It can be achieved if we buy more shares since the prices are lower. We can buy more shares even if the amount of money we planned for that stays the same. So, our money will go extra. Further, we can reinvest dividends. That can be a notable portion of our returns. We found some studies that show the dividends added 5 percentage points of the entire 7.9% returns of stocks. These studies cover the period from 1802 to 2002. So, if we want better returns we need to reinvest dividends.

One of the benefits of a declining market is a chance to sell high and buy low but through rebalancing. This means we have to sell winning assets, the assets that increased in value, and provide money to buy assets at a lower price but with a good future perspective.

Typically, bonds are better players in everyone’s portfolios, so sell them and go into stock funds. Analysts revealed that this only step in rebalancing can increase risk-adjusted returns, even up by 21%.

Is the dropping market a good experience?

A dropping market provides us priceless experience. Don’t underestimate this. That new knowledge will give us a valuable answer on how to survive the market downturn in the future. At least, we’ll be able to understand how we manage our emotions. That can be the core of our future investment goals. If we feel uncertainty about every small change in stock price, we should go into a safer investment. Maybe stocks are not for us. But if we enter the fight and end up with more winners, only the sky’s the limit.

We don’t like to guess if this will be a market correction or not. No one can do that, whoever tells that can predict the next stock market move, lies. We don’t know. All we know is that the best way is to stay in your investment plan. This is smart trading!

28th February 2020
Exit Strategies For Smart Trading

Most traders fail because they don’t have the exit strategies but they are maybe more important than entries.

Exit strategies for smart trading mean that you as a trader know where to stop losses and take the profit. Of course, you can’t do it randomly by setting stop-loss at 1%, 2%, 5%. Anyone who wants to become a trader must know the statistics: 90% of traders lose money when trading the stock market. Well, 10% make money all the time. Traders-Paradise’s aim is to show you how to trade smart, how to enter the elite club of 10%.
Everyone seeks to be in the 10% who make money, but the number of those who really want to devote is surprisingly small. You will need exit strategies for smart trading.

But there is a problem. Exiting a trade makes traders hesitant. We want to explain exit strategies, their importance, and give you a chance to make a profit, not a loss. In simple words, we’ll explain to you how to do “smart trading”.

Trading is easy but you need the know-how

Stop-loss (S/L) and take-profit (T/P) are the two main points that traders have to plan ahead when trading. Successful traders know there are several possible results in trade. They know that they can exit too early or too late and miss out on the profit. The other solution is to exit a trade at an accurate time which results in making money. We want you to look right there, to the point where you can exit your trade in profit.

Have you ever heard saying “let your profits run”? Well, some will run for a long time but some will fall on the start.

If you want to earn in trading stocks you have to do something that others don’t. You need an exit strategy established for each trade. This means you must have a trading plan.

Knowledge united with experience and effort to produce success

To make this clear, you will not find any consistently profitable trader who will tell you that relies on luck. Every successful trader has great knowledge, experience, and trading goals.

Some statistics tell us that learning to trade stocks requires two to five years of experience. Well, that’s hard work and commitment and there are no shortcuts. Don’t be worried or give up now! Trading stocks isn’t rocket science! The interesting thing with rookies is most of them seek for complicated solutions. Don’t let be seduced by gurus in the industry. The whole thing can be very simple.

The exit strategies for smart trading

One of the exit strategies for smart trading is to use targets to book partial profits. How does it work? Before you enter the position you have to define targets and when they come, take some part of your position off for profit. The portion of how much you’ll take off depends on your risk tolerance and trading plan. An experienced trader will take off 1/3 of their position or even half when the first target is scored.

Advantages

This has several advantages. The stock market is volatile and stock prices are shifting direction quickly, so it is smart to book a part of the profit because you will not like to look at the market going against you. It is a bad experience and painful. So, try to avoid that. Well, when you take off some part of the profit, you will still have the other portion in the game. Smart enough? Anyway, this trading plan is simple. But there are plenty of other exit strategies for smart trading.

One of them is profit targets which means to identify the profit targets for the current cycle of stock. You would like to know where the price is possible to go. The point is to determine if you have to get out or stay in. But placing profit targets shouldn’t be randomly placed. So the most important feature you need is to check if your exit strategy is good. How can you do that – find HERE. This a game-changer. Check it out! Note, you shouldn’t place your profit targets too far away or too close.

Stop-Loss strategy

Did you make your first stock trade? What are you doing now? Are you relaxing and waiting to become a billionaire? Don’t do that! Even if you see your stocks running higher there will be one or few starting to fall. What are you going to do now? You have to know that just one loser can ruin your whole capital.

The point is that the stock market is risky and all money that you invest in stock may end up in 100% loss. Of course, you shouldn’t stop investing and trading. So, just take some steps to ensure that you reduce your losses. There is a way to do it. If you place a stop-loss, you practically ensure that your losses do not exceed a specified amount. A stop-loss order means to sell a stock when it enters an established price or percentage. For example, you bought a stock for $100 and you don’t want to lose more than 7%. All you have to do is to place a stop-loss order at $93. If your stock drops below $93 your stock will be automatically sold. The other possibility is your stock is going up. So, let’s say, it trades at $160. That’s a very nice profit of $60 or 60%. What can you do? Just lock in profit at $130, for example, and set a stop order at the same amount.

The benefits

A stop-loss strategy provides you to stay in the game. If you put a 4% stop on your trades, you will never lose more than 4%, for example. It is simple, yet many traders do not use it. Moreover, they don’t have an exit strategy. We have to say, that isn’t trading, that is gambling.

What stop loss percentage should you use? Some experts’ recommendation is 8%. At the moment you buy a stock, immediately put a stop-loss at the level you are willing to lose. Nothing less, nothing more. You can adjust your stop-loss order depending on the stock price direction.

Why exit strategies for smart trading?

Exit strategies boost assurance and profitability. Calculate reward and risk levels before entering a trade, find a strategy to exit the position at the most profitable price, no matter if you are taking a loss or a profit.

The traders caught the losses due to a lack of exit strategy from the trade before they entered the trade.

The majority just take the position in the stock market. Do they have any idea of where to exit the position? What to do if the stock moves in both beneficial or bad directions? A lot of traders ask for help after taking a position. Hence, you should never fall into that trap. You MUST have exit strategies for smart trading. Otherwise, you will lose your capital, home, family. Exit strategies bring discipline. It is important for every trader to take out the profit at the right time. Let us ask you something. Why are you trading stocks? To make money, of course. That’s why you are in the stock markets. Taking profits is the main goal, right? That is possible only and ONLY if you have an exit strategy.

18th February 2020
Adjusted Closing Price – Find a Stock Return By Using It

A basic mistake is considering the closing prices of stocks for analysis instead of Adjusted closing price.

If you’re a beginner in investing, you probably already noticed the expression like “closing price” or “adjusted closing price.” These two phrases refer to different ways of valuing stocks. While with the term “closing price” everything is clear when it comes to the term “adjusted closing price” things are more complex.

When we say closing price it refers to the stock price at the close of the trading day. But to understand the adjusted closing price you will need to take the closing price as a starting but you’ll have to take into account some other factors too to determine the value of the stock. Factors like stock split, dividends, stock offerings can change the closing price. So we can say that the adjusted closing price gives us more exact the value of the stock.

What is Adjusted Closing Price

Adjusted closing price changes a stock’s closing price to correctly reveal that stock’s value after accounting for every action of some company. So, it is recognized as the accurate price of the stock. It is necessary when you want to examine historical returns.

Let’s say this way, the closing price is just the amount of cash paid in the last transaction before the closing bell. But the adjusted closing price will take into account anything that might have an influence on the stock price after the closing bell. When we say anything it is literally anything: demand, supply, company’s actions, dividends distribution, stock splits, etc. So, you will need adjustments to unveil the true value of the stock.

It is particularly helpful when examining historical returns. Let’s do that on an example of dividend adjustment calculation.

The adjusted closing price for dividends

When a stock increases in value, the company may reward stockholders with a dividend. It can be in cash or as an added percentage of shares. Whatever, a dividend will decrease the stock’s value since the company will get rid of the part of its value when paying out the dividends. So, the adjusted closing price is important because it shows the stock’s value after dividends are posted.

Subtract the amount of dividend from the previous day’s price. Divide this result by the same day’s price. Finally, multiply historical prices by this last figure.

For example, the prior trading day was Tuesday and a stock closing price was $50. The day after, on Wednesday, it starts trading at a last price minus dividend, for example, trading ex-dividend based on a $4, so the stock will be trading on Wednesday at $46. If we don’t adjust the last price the data, for example, the charts will show a $4 gap.

What do we have to do?

We have to calculate the adjustment factor,

So, by following already described we have to subtract the $4 dividend from the closing stock price on Tuesday (in our case)

$50 – $4 = $46

Further, we have to divide 46.00 by 50.00 to determine the dividend adjustment in percentages.

46.00 / 50.00 = 0.92

The result is 0.92.

Let’s see how to adjust the historical price.

The next step is to multiply all historical prices preceding the dividend by this factor of 0.80. This will alter the historical prices proportionately and they will stay logically adjusted with current prices.

After stock splits

Stocks split occurs when the price of individual shares is too high. So, the company may decide to split stocks into shares. When the company increases the number of shares, the logical consequence is the value of each share will decrease due to the fact that each share factors a smaller percentage.

In our example, if the company splits each $50 share into two $25 shares, the adjusted closing price from the day prior to the split is $25. The adjustment reveals the stock split, not a 50% decline in the share price.

New Offerings

For example, the company decided to offer extra shares to boost capital. This means the company issues new shares of stock in a rights offering. The right offering means that the shareholders have the chance to buy the new shares at lessened prices.

But what happens when new shares come to the market? The price of the shares, of the same company, that are already on the market will drop. How is that possible? Well, think! The number of shares is increased and each of them now cost less. It’s almost the same with a stock split.

The adjusted closing price values the new offerings and the devaluation of each individual stock.

Find a stock return

A stock’s adjusted closing price provides you all the info you need to watch closely to your stock. You can use some other methods to calculate returns, but adjusted closing prices will spare you time. As we see in the text above, adjusted closing prices are already adjusted. The dividends are posted, the stock’s splits are done, the rights offerings also. So we can make a more realistic return calculation. The adjusted closing prices can be an excellent tool that can help us improve our strategies. Moreover, we can do that in a short time since the adjusted closing price already took into account almost all factors that directly impact the overall return. For example, just compare the adjusted price for a particular stock over some given period and you will find its return.

It’s easy to find historical price data, just download it. Further, mark the column of dates and a matching column for adjusted closing prices and set up in descending order. For example, you want to examine a period from March to October. On the top, you should have data for March and below data for April and so.

Let’s find the return

Firstly, compare the closing price in one month to the closing price from the prior month. To unveil the percentage of return you have to divide the chosen month’s price by the previous month’s price. Subtract the number 1 from that result, then this new result you have to multiply by 100 to turn it from decimal to percentage form.
It should look like this:
In March stock price was $50, in April it was $55, so the return was 10%

((55/50)-1)x100 = 10

Since you have to do this calculation for each month add the column for return if you are working in a spreadsheet.

To calculate the average return for the given period, from March to October, just sum each return for all months you observe and divide the result by the number of months.

Simple as that.

Bottom line

The adjusted closing price is a stock’s closing price on any chosen trading day but altered to cover dividends posted and the company’s actions like split shares and the rights offerings that happened at any time former to the next day’s open.

So, you can see that for serious analysis, the closing price will never reveal the real value of the stock, the stock’s value after considering any company’s actions. So it is always suggested to use the adjusted closing price if you want reliable analysis.

You might also like:

>>> Best Trading Strategy Without Indicators In Forex

>>> How to Use Technical Indicators to Analyze Stocks?

>>> MACD Indicator – Moving Average Convergence Divergence

>>> Indicator Trading And How To Use It

>>> P/E Ratio An Quick Method to Value a Stock

13th February 2020
Stock Market Capitalization Is Important And Here Is Why

Market capitalization represents the valid measure of a company’s value. The calculation is simple and easy but helpful.

By Guy Avtalyon

Stock market capitalization or market cap represents the total value of the company’s outstanding shares on the market. As you can find in our Trading dictionary, this is the market value of a publicly-traded company’s outstanding shares.

It is essential for every investor and whoever enters the stock market should know this. You can often hear or read about stock market capitalization in the news, books, or when financial experts are talking about it. But if you want to enter the stock market or you are already there but without experience, it is so important to understand what the stock market capitalization is.

Why is the stock market cap important? How to use it? Can we calculate it? What does it tell us about a company? Take it easy! We will answer each of these questions and more.
First of all, you can’t find a better measure of a company’s size than the market cap is. If you don’t know the size of the company how can you know what you can expect from its stock?

Luckily, the stock market capitalization is easy to calculate. The whole process is simple and everyone can learn it easily.

Understanding market capitalization

Market cap rates a company’s worth on the stock market where it is publicly traded. But also, it shows the stock market’s opinion of a company’s prospects because it reveals how much investors want to pay for its stock.

Let’s say you want to create an investment strategy. Well, you cannot do that without knowing about the company’s size, risks, returns. Only by having all this data you can create an investment strategy that will help you to achieve your long-term investing goals. Moreover, by knowing the market capitalization of some company you’ll be able to balance and diversify your investment portfolio with a mixture of different market caps.

To repeat, a stock market capitalization notes the total value of all shares of stock of some company. Or simpler, it is how much it can cost you to buy all shares of the stock of a company. Of course, at the current market price.

How to calculate the stock market capitalization?

The formula is very simple and clear. It isn’t like some other market data full of fabrications, twists, frauds. To calculate the stock market cap you’ll need two data. One is the number of shares outstanding and the other is the current stock price.

Once you have all the data, it’s quite simple.

The current shares outstanding x the current stock market price = The stock market capitalization

Simple as that.

But we will give you an almost real example.

Let’s say some company has 5 million shares of stock outstanding and its stock trades at $50 per share. Assume you would like to buy all of them.

5 million x $50 = $250 million

So, you would need $250 to buy every single share of this company. Wall Street would say that the stock market cap of this company is $250 million.

Can you see how simple it is? All you have to do is to gather two figures and multiply them.

Why is this so important concept?

Some would say that this measure has the strengths and weaknesses and such people would be right. And here is why.

If you want to compare one company versus others, the stock prices can give you the wrong picture. Stock market cap will never take into account capital structure specifics and that is what may let the share price of one company to be higher than others. On the other hand, it is good because this provides investors to assume the relative sizes of the companies.

For example, an investor would like to compare the company ABC to the company XYZ.

ABC company’s stock price is, for example, $20 with a market cap of $300 million.
XYZ company’s stock price is $200 and its market cap is $150 million.

Which stock to buy? Cheaper or expensive?

And it’s time to explain this dilemma and how to solve it.

Sizing up stocks

There’s a typical misunderstanding that a company’s stock price is more important than its market capitalization. This mistake happens to new investors. Market capitalization is the main factor when you’re deciding a stock. It can tell you about the value of a company.

How is possible the stock with price at $200 worth less than stock with price at $20?

What you have to avoid is a misconception that the per-share price of a stock will give you any perception of the value in comparison to the other stock. It will never do that. It practically gives no insight to investors. The stock price is something very changeable and various companies have a different amount of outstanding shares. So, don’t pay attention to the per-share stock price since it will not give you even a hint about the value of the company. For that, you’ll need to know the market capitalization figure. We already explained how to calculate the stock market cap.

Market cap measures a company’s size, and size will show you what to expect from its stock if you buy them.

The large companies are more stable, they have proven themselves over time. But here is the tricky part, large companies are limited. Frequently, they have no room to develop further.
As a difference, small companies have plenty of room to grow. At the same time, smaller companies are new, its business is riskier and yet have to prove themselves. Their chances of failure are higher.

Stock market capitalization ranges

Companies are ranged in one of three large groups based on their size. So we have large-cap, midcap, and small-cap.

Large-cap: Market value of $10 billion to $200 billion; usually older, famous companies.
Mid-cap: Market value of $2 billion to $10 billion; these are the companies expected to endure fast growth.
Small-cap: Market value of $300 million to $2 billion; these are young companies usually from emerging industries and new technologies.

But also, we can recognize mega-cap with more than $200 billion, on the top of this range and micro-cap of $50 million to $300 million, on the bottom of this range.

The impacts on market cap

Actually, there are several factors. First of all, important changes in the value of the shares since it can change the number of issued shares. No matter if it is up or down. For example, the exercise of warrants on a company’s stock could boost the number of outstanding shares. That can reduce its current value because the exercise of the warrants is performed lesser than the market price of the shares. Hence, it is reasonable to expect an impact on the company’s market cap.

The market cap will not be changed after a stock split or a dividend. Well, the stock price will decrease because the number of shares outstanding increased after a split. For example, the share price can be halved. Despite the fact that the number of shares outstanding and the stock price is altered, the market cap will stay the same. The same comes with a dividend. When the company issues a dividend, the number of shares will increase but the market cap is the same.

Build a portfolio by using market capitalization

You can divide your portfolio by market-cap size. The smaller companies grow faster, but big, well-known companies provide more stability, also pay dividends. If large caps are decreasing in value, small caps or midcaps may increase and help recompense losses. To build a strong portfolio with a decent mix of small-cap, mid-cap, and large-cap stocks, you have to determine your investment goals, time horizon, and risk tolerance. A diversified portfolio that holds different market caps can reduce the risk and help your long-term financial intentions.

12th February 2020
UGAZ Stock and DGAZ Stock The Differences and Relations

The principal objective of UGAZ is to increase the daily performance of UNG by 3 times. The main objective of DGAZ is to produce profits from the losses in the UNG fund.

For everyone who wants to trade UGAZ stock and DGAZ stock the essential part is understanding the nature of them.

First of all, there is no dilemma should you invest in or trade UGAZ stock and DGAZ stock. There is no such thing as investing in UGAZ stock or DGAZ stock. Forget them if you are an investor, they are not for a long haul. The expense ratio is 1.65% so it is more likely that you will have zero chances to be profitable if you try to invest in them. Let’s say this way, according to historical data, over a period of one year they had a negative return of almost 56% and the negativity is increasing as times go by. For three years, for example, you can lose around 90% of your investment.

So, to summarize, UGAZ stock and DGAZ stock is for short-term trading.

Catch the trends

Trading UGAZ stock and DGAZ stock can turn into a profitable project since you can efficiently track the supply and demand. So, it isn’t hard to catch the trends and make a fortune. Maybe not quite a fortune but a lot of money for sure.

Remember one extremely important thing linked to UGAZ stock and DGAZ stock trading: there is an extremely high risk involved. No one will recommend you trade them but still, there are so many traders doing so.

How to trade UGAZ stock and DGAZ stock?

Okay, let’s look into the Natural Gas Sector. For that, we have to get into UNG, which is the United States Natural Gas Fund. It is an ETF composed to give investors exposure to natural gas and it is a highly volatile fund to trade. If you don’t have a stomach, forget the profit gained from this trading. Modern portfolio theory says that UNG is a fantastic solution for traders who are 100% sure that natural prices are able to rebound. Anyway, traders have to track the prices of natural gas, weather reports (that will give you a view into supply and demand). Don’t be confused!

Cold weather suggests an increased demand for natural gas, hence the rising prices.

Is UGAZ an ETF?

There is a lot to misunderstand energy ETFs and ETNs (exchange-traded notes).

The main energy ETFs are The United States Natural Gas Fund (UNG) and The United States Oil Fund (USO). And there are leveraged energy ETNs that tracking natural gas prices. These cover the VelocityShares 3X Long Natural Gas ETN (UGAZ) and VelocityShares 3X Invest Natural Gas ETN (DGAZ).

Let’s make clear what is an energy ETF. It couples investments in oil, natural gas, and alternative energy. So, it isn’t hard to diversify your energy investment portfolio.

Supply and demand have a great influence on crude and natural gas prices. Their prices tend to fall when the supply is bigger than demand. When we have more supply than demand in the market, the prices will rise.

Politics and crises also can affect these prices. Any uncertainty on the political field such as wars, governmental changes or even tensions will send the crude oil price higher.

We mentioned the weather. The crude oil and natural gas prices will go higher when temperatures could cause a spike in price. But also, when the over the warm periods, when we have an increasing demand for cooling, the price of natural gas can rise.

How to trade UGAZ and DGAZ

Both UGAZ and DGAZ strictly watch UNG stock.

The principal target of UGAZ is to increase the daily performance of UNG by 300% or 3 times. For example, if UNG price raises 1%, UGAZ will manifest a daily gain of 3%. It is better to trade UGAZ when there is bullish sentiment on UNG.

The main objective of DGAZ is to produce profits from the losses in the UNG fund. DGAZ increases the losses by 300% inversely. For example, if UNG price drops by 1%, DGAZ will bring you a profit of 3%. Trade DGAZ when there is a bearish sentiment on the UNG fund.

It is obvious that UGAZ and DGAZ have 3:1 leverage. Great, because that might boost your profit. But, keep in mind, that profit is in direct proportion with the risk.

Trading UGAZ stock and DGAZ stock means to pay attention to the UNG fund. It is the prime ETF that handles UGAZ and DGAZ as leveraged ETFs. That will provide you a view into the direction that this market is going. You have to evaluate should you trade UGAZ or DGAZ because they will give you a profit for opposite moves.

UNG is really a difficult exchange-traded fund.

Firstly, natural gas is a very volatile stock. Further, UNG isn’t directly related to natural gas in the physical sense of it.

Moreover, it doesn’t pay dividends. It uses future contracts and OTC exchanges to detect the natural gas price. Despite the fact that UNG may not be a good investment, UGAZ and DGAZ may be a good fit. How is that? As we said before, UGAZ stock and DGAZ stock are not suitable for long-term investing. And since you will hold your position for a few days or less, you are not interested in dividends and moreover, if the UNG fund has long-term decline, that will not affect the short-term volatility.

How all of this work?

ETNs provide tripled leverage for one trading day. Let’s say the natural gas price increases by 3%, UGAZ will grow by 9% and DGAZ inversely will drop by 9%. That’s why trading UGAZ and DGAZ stock is for short-term traders only. If you plan to invest in them for the long-term, your chances to make a profit are zero.

Think about UGAZ and DGAZ as up-gas and down-gas. When the natural gas price is going up, it will like UGAZ. Hence, when the price is going down, you will profit from trading DGAZ. Simple!

Real-life example

On January 30, DGAZ traded $285.20 which was $18.88 more from the prior trading day. DGAZ stock rose by 6.62%.

It rose from $267.50 to $285.20 and gained 3 days in a row. Will it succeed to continue gaining or take a break for the next few days? We’ll see. Maybe the best example of how this stock is volatile shows the fact that during the trading day the stock oscillated 8.08%. A day low was at $271.09, a day high was at $293.00. In six of the past 10 days, the price up by almost 44%. But volume fell by almost 20.000 shares and it can be a sign that something is going to change in the next days. Falling volume is always a signal of such occasions.

The price of natural gas went lower over the past 3 months, above the 5-year average. Increasing sellings are noticed in the futures market. The current data was not bearish, but the market reacted negatively.

That is how UGAZ stock and DGAZ stock work.

Can you short UGAZ stock?

You can always go short with the leveraged ETF pairs. A popular strategy over the years has been: short both sides of a paired leveraged ETF or ETN, and get the cash. The point is to short the long position on leveraged ETF and short leveraged ETF for the same sum. After that, just watch how volatility can benefit you.

For instance, if we examine imaginary the leveraged ETFs associated with natural gas and we see one is down almost 55% over the last 12 months, while the other has fallen 75%. A trader can short both sides for, let’s say $10,000 each, they easily could find themselves up to $12,900 off the $20,000 total short position. That’s a pretty good gain.

This is true most of the time. But you have to guess the right time frame. Of course, it is always a matter of how fat your account is. Everyone who can stay in the game long enough will be a winner. But it is a big challenge.

Shorting both sides isn’t an easy money way. Shorting makes sense only if you do it with a small part of your portfolio and you have a lot of cash. In any other case, it can be extremely dangerous when shorting both sides of a leveraged ETF.

31st January 2020