Tag: trading volume

  • How to Find a Stock Worth Trading?

    How to Find a Stock Worth Trading?

    How to Find a Stock Worth Trading?
    To find a stock worth buying several parameters should be estimated and examined. Here is what really matters.

    By Guy Avtalyon

    If you want to know how to find a stock worth trading, think about the stock’s valuation, strategy, plans for diversification, and your appetite for risk.

    The first consideration on how to find a stock worth trading should be the company’s earnings. Profitability is important because when you buy a stock, you’re buying a part of the company. Calculate its P/E ratio, just divide the share price by a company’s annual net income. 

    For example, if a stock trades at $30 and has an annual net income of $3 the P/E ratio is 10. The general rule of thumb: if the stock’s P/E ratio is higher than the broader market P/E, it is considered expensive and vice versa.

    But the P/E ratio isn’t a perfect measure. For example, a small, fast-growing company may have an extremely high P/E ratio but earnings are poor while the stock price can be high. You have to gauge if there is any potential for strong growth and if there is, such stock may not seem expensive.

    So, look for trends in a company’s earnings growth. Find do the earnings regularly increase. If you have a confirmation for that, get it as a good indication that the company is operating well. There is no need for an incredible increase, even a small increase can be an indicator of a positive outlook, but only if it is consistent over a long time.

    Volatility matters

    The volatility in the stock market is natural. The companies are losing value in the markets from time to time but also could increase the value. Every trade you make in the stock market is actually kind of betting on the market direction, on the volatility, or both.

    For stocks trading, volatility is good for the long term because you have to make a profit. And you can do that only if the stock price fluctuates. If you really want to find a stock worth trading, seek the high volatile stocks.

    If the stock has a high volatility the value could be spread over a large span of values. This means the price of the stock could fluctuate drastically in a short time, which is ideal for fast-moving trading. Contrary, if the volatility is low, the stock’s price will stay almost steady which offers fewer chances for a quick profit.

    Beta as a measure of volatility

    Use beta as a measure to unveil how volatile the particular stock is.

    The beta can predict the total volatility of a stock’s returns against the returns of a related benchmark, for example, the S&P 500. If you find that beta value is, let’s say 1,3 that means the stock price moved about 130% for each 100% in the related benchmark index. Hence, if the beta value is 0.6 that would mean that stock has moved just 60% for each 100%  in the related benchmark.

    Trade volume matters

    Volume is the total number of shares traded in a market during a particular period. Each transaction adds to the total volume. For example, if during one trading day there are 100 transactions, the trade volume for that day would be 100. How to find a stock worth trading when using trade volume? Volume works as a great indicator that adds weight to the market move. For example, if some sudden spike appears, the strength of that movement depends on the volume during the time observed. 

    When picking a stock worth trading, pay attention to how great is volume. The greater volume, the more important the move is.

    How to find a stock worth trading?

    So finding a stock worth trading is a matter of combing for stock with large volume, a current spike in volume, and a beta higher than 1.0. The stock that lacks these elements will be very difficult to trade successfully.

    The way you use these factors will affect your possible profit. The trading style depends on your trading strategies. You have to find a stock whose price changes to profit from that fluctuation. It is impossible to profit from trading stocks if there are no changes in price. Also, the same comes if the volume is low. The low volume shows a lack of buyers and sellers. How to profit from that?

    Stock Price

    You may consider the stock price. Some companies could distribute additional shares and increase the number of available shares but lower the price per share in the market. Some will never do that. It is considered better for investors because such stock could rise more in price and worth more after some time. Anyway, the stock price will show you how many shares of a particular stock you can buy for the capital you have. Pay attention to stock price historical performances. That will give you a clue how the stock is possible to play in the future and is your chosen stock worth buying.

    But active traders will prefer, for example, stocks in play but they’ll need to carefully watch the news because such stocks are not the same every day. 

    How to find a stock in play worth trading?

    These stocks are suitable for day traders because they are changing dramatically sometimes during the trading day. Also, they carry enough volatility to generate favorable risk and reward trading ratios.
    Day traders will normally look for stocks that have big price changes during the one trading day. These stocks are not a good choice for investors with a long time investment horizon.
    Active traders expect more action. They exit the trade much before the end of the trading day, sometimes a few minutes after they enter the trade. These trending stocks can be found on many broker’s trading platforms. There you’ll find stock worth trading.

    Bottom line

    Trading, even if it is considered as a risky strategy, can be highly profitable. Of course, if you know how to find stock worth trading. As we mentioned above, pay attention to trading volume, volatility, liquidity, and price. All of these criteria together will help you to find the stock worth trading.  

  • Stock Market Bottom And How To Recognize It

    Stock Market Bottom And How To Recognize It

    Stock Market Bottom And How To Recognize It
    Nobody can with certainty predict a stock market bottom. Still, it’s worth at least thinking about different entry points to let your money work for you.

    By Guy Avtalyon

    The questions for the past several weeks mainly were all about the stock market bottom. Did the stock market hit the bottom? Will the stock prices stop dropping? Have stocks reached support levels? When will prices stop falling? 

    Stock traders have so many questions these days and weeks. But do they really know where to look? 

    Maybe one of the most terrifying jobs related to investing is about the stock market bottom and how to recognize it. The idea to predict when a given stock will hit the bottom is old as much as investing and trading. The point is to recognize the point where the stock will no longer drop. The rule of thumb is: buy low, sell high. The problem arises when we have some unpredictable events in the market such as this one, coronavirus pandemic. That has an influence on the global economy, almost all economic and political events, and decisions. So, with a high level of certainty, we can say finding the stock market bottom can be a discouraging job.

    Well, this kind of question traders ask almost every day but are they looking in the right place to find the answer? For example, investors are looking at Dow Jones. Is it the right place? We are afraid that the value of DJIA isn’t able to alarm you when the stock market hits the bottom. Okay, it will tell you but after it happened. 

    So what to do? 

    How to recognize the stock market bottom? 

    If you want to find it, you’ll need some indicators. Indicators can tell you when is the stock market going to hit a bottom but also when it is going to recover. By using indicators you’ll not miss the beginning of the wave. When buying a stock you want to do so at the lowest possible price but you wouldn’t like to hold falling stocks. You would like them to start rising after you bought them, right? That’s why it is so important to recognize the stock market bottom. The point where the stock can find support.

    That knowledge can give you huge profits and prevent huge losses. So, how can we know with certainty that a stock has touched a low point? To be honest, no one can do that with 100% certainty and consistency, but traders and investors have some tools, fundamental and technical trends, and indicators. They arise in stocks when they are about to tap the bottom.

    The indicators of stock market bottoms

    Some indicators can help us determine when the stock market is going to form a bottom. What we really need to have are indicators of the health of a global economy and what the main participants in the market are doing with their money. But keep in mind, there is no such thing as a magic indicator to identify a stock market bottom. We have to look at several indicators to have an idea of the economy’s and stock market’s health.

    Second, we have to look at history because it will tell us that the average bear market persists about 17 months. Also, it corrects around 35% from the maximum. But keep in mind that you cannot find the two bear markets alike 100%. All we can do is to suppose that the next will be similar. 

    Further, we have to understand the valuation. For example, the S&P 500 has a P/E ratio and earnings. The P/E ratio will move up and down depending on the market period. It will be up when we have good earnings growth, all ratios including the P/E ratio will go up. But when the circumstances are changed, with rising pessimism the valuation is likely to go down. 

    For example, when the S&P Index was above 2.500 the P/E ratio was at 19.

    Also, the higher the VIX is, the chances for the stock market to hit the bottom are growing. These first two days in April this year, VIX traded between 54 and 57. If we take a look at historical data we can see that in 2008, the VIX was somewhere between 70 and 95. During the March this year, VIX traded over 75.

    Other indicators of the stock market bottom 

    The stock market fell over 25% in 3 weeks. This is the sharpest drop in history. The biggest decline occurred on March 12th, the biggest since the market crash in 1987. Many investors thought that a stock market hit a bottom. 

    If you want to recognize when the stock market bottom is, check out your emotions. Did you feel fear at that time? If yes, you were one of the millions with the same emotion. Fear was so obvious in the middle of March. To be honest, almost all were panicked.

    But we have to try to be reasonable. Just take a look at the charts and the technical levels for those days. Can you notice the major pivot? Do you notice a bottoming tail and a huge volume? 

    Okay! A major pivot, bottoming tail, and a huge volume on the same day and combined with a market 3-weeks decline of 25%, are indicators there was some at least short-term bottom.

    What to do when the stock market is near the bottom?

    The most intelligent investors started to buy those days. Small chunks, nothing big. Smart investors are doing such a thing to accumulate their full positions. The point is to buy 25% or 30% even 50% of the total position. That will keep your potential stress down and provide you an all in all a better average. But remember, don’t buy some small-cap, go for the brands. 

    Where is the market bottom now? 

    That is the most frequently asked question since coronavirus appeared. 

    Market experts like to say that it’s impossible to time the market. Well, it isn’t the truth. If we can see the market tops, why shouldn’t we see the market bottoms? Institutional investors know that. Follow what they are doing. Their actions could be the key bottoming signal. Follow-through has been noticed at almost every stock market bottom. This signal is extremely important because it can provide you profits when the early stages of a new market uptrend is confirmed.

    The quest for a stock market bottom

    This signal works quite simply. When there is a sustained stock market downturn, the first rising day from the index low is most important. That could be the beginning of a rally attempt. No matter which index you are using S&P 500, Dow Jones or Nasdaq. 

    According to some experts, the gain expressed in percentages isn’t important at this point. Also, don’t pay attention to the trading volume. What you have to look at is a down session and the moment when the index bounces after a great drop and closes close to session highs. Some experts deem that closing in the top half of the day’s trading range is adequate also.

    Further, find a bigger percentage gain in higher volume than the prior session several days in the rally attempt. This time period is making it possible for short covering to resolve and for a rally attempt to gain ground. The rally will be halted in place only if the index reaches a new low.

    How will the market react after the pandemic?

    It is good if the market supports the new buyings, but if it doesn’t, just be patient. Sometimes, breakouts are visible on the charts after a few weeks. This market crash caused by the coronavirus outbreak has a large supply of stocks making the new base. But a lot of them have yet to bottom.

    If an index suffers a decline in higher volume shortly after the follow-through day, the signal will fail in most cases. If close below the low of the follow-through day, it is almost the same. It is more the sign to start selling the stocks you bought recently.

    These signals don’t mean you should rashly jump into the market since they tend to fail after indexes have dropped clearly in a short time. That happened with the stock market correction in February. The more suitable is to buy a few stocks, maybe one or two, and test how they will work. If there is a real uptrend your stocks will rise.

    Every investor wants to know when trends are going to make a significant change. Will they reach tops or bottoms. The truth is no one knows that for sure. Only the big volume spikes, and staying stick to the chosen sector, will give you some clue if the stock has reached the lowest level from which it will not decline more. We pointed just one of the numerous scenarios. There are many others. 

  • Share Turnover Ratio – What Is It and How to Calculate?

    Share Turnover Ratio – What Is It and How to Calculate?

    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.

  • How To Read A Stock Charts With Examples?

    How To Read A Stock Charts With Examples?

    How To Read A Stock Charts? 7
    Amateur traders act upon impulses and this is a problem because all is not as it seems in the market.

    By Guy Avtalyon

    Stock charts are extremely important. When you enter the stock market, which means that you bought your first stock, you will find that you have to follow the movement on the stock market through stock charts.

    First of all, you have to register that fund managers and big investors account for 80% of all trading activity in the market. Their buying and selling will either push your stock up or down. But you are the individual investor and your primary intent is to buy stocks big investors are buying ponderously and of course, you want to stay away from stocks they’re aggressively selling. That’s where charts enter. Once you know what to look for, you’ll see that charts literally show you what these big investors are doing. You’ll be able to fast realize when a stock is being ponderously bought or sold. You’ll be able to use that information to identify the best time to buy, sell, or hold your stock positions.

    There are many different types of stock charts: line, bar, candlestick, mountain, point-and-figure, and others. You can see them in different time frames: daily, weekly, monthly, and intraday charts. Even each style and time frame has its advantages and disadvantages, all of them provide you information important to make investing decisions.

    Also, there are many different types of stock charts that display various types of information. But all stock charts display price and volume. On each stock chart, the price history is visible. The bars represent the amount of trading history.
    For example, on a daily stock chart, each price bar shows the prices the stock traded during that day. On a weekly stock chart, each price bar represents the prices the stock traded over that week.

    The length of each vertical bar shows a stock’s high/low price range. The top of the bar shows the highest price that is paid for the stock per period and the bottom of the bar shows the lowest price paid. The small horizontal slash shows the current price or where a stock closed at the end of the observed period. The price bar is blue if the price of the most recent trade is equal to or greater than the previous period last price, or deep red if it is lower than the previous period’s price close.

    The vertical lines at the bottom of the chart show the number of shares traded during the observed period of the chart. The length of the volume bar shows a value that corresponds to the scale at its right. The color of a volume bar is determined by its corresponding price bar. It’s blue if the most recent trade is equal to or greater than the previous period’s last trade. And magenta if it is less than the previous closing price.
    Well, you are beginners so it is important to show you step by step how to read charts.

    You can use different websites but I think that Google Finance has a smooth user interface.

    How typical stock chart look?

    Now let’s take a look at a typical stock chart. We used Dow Jones Industrial for this guide.

    You can see, the series of letters after the name of the company is the ticker symbol. It identifies the company on the stock exchange.

    We’ll search for AAPL, which is Apple’s ticker symbol.  

    How To Read A Stock Charts? 6

    Then, click the button to expand the chart to full screen:

    How To Read A Stock Charts?
    Now let’s jump into the different pieces and parts of the stock chart so you can begin to read like a pro.

    How to identify the trend lines?

    This is that blue line you see every time you hear about a stock! It’s either going up or down right? The trend line seems like common sense, but there are a few things I want to show so you can understand it in a little more detail.

    You know that stocks will take huge dives and also make huge climbs. If you’ve read previous chapters you’ll know that you have to hold your emotions in control to be a successful investor.

    Never react to large drops or huge gains in a positive or negative way. You are using this piece of the stock chart only to see what’s going on.

    The trend line should motivate you to dig further. For instance, Apple as a company really took off from 2009 to 2012. But in the period 2012/2013, the stock began to go down more than 40%!  This is where your trend line is useful.

    Something is happening and you have to pay attention to it. You have to find out what’s going on with this company. Most strong companies can recover from hits like this, but you have to be careful.

    I have to recall some history here. Right around this time, Apple experienced a few major changes. First, it’s longtime CEO, Steve Jobs, resigned (2011). Also, around 2012, Apple informed that their profit margins were significantly decreasing, despite the growing smartphone market. They were trying to expand the smartphone into developing countries, but they were too expensive to enter there. And the stock price is falling.

    But new CEO Tim Cook made strategic moves with the company and the rest of the trend line shows that.

    How to use trend lines?

    The lesson here is how to use your trend line as a first peek, an indicator of something worth to look int

    The next thing you have to look at is the lines of resistance and support.

    These are levels at which the stock stays within, over a certain period of time. A level of support is a price that a stock is unlikely to drop below, while a level of resistance is one that it’s unlikely to go above. It will stay the same until some major change occurs, such as a reduced profit margin.

    A stock’s price does the same thing within these lines of support and resistance.

    The point here is to know when to buy and when to sell.

    Take a look at Apple’s stock chart again:

    I want to show you how the process is important. You have to know that everyone will draw lines of resistance and support differently, depending on how long they plan to hold the stock. Short-term investors can draw more to analyze trends during a shorter period.

    So, what we can see in this image?

    How to recognize the support and resistance levels? 

    Line A represents the very first line of support shown. Based on trends earlier to this, everyone feels comfy that the stock price won’t go below this point and probably consider buying at this price or higher.

    Line B is the first line of resistance. It is obvious that the stock has peaked at that point for now and it is expected to go higher. Maybe it’s time to consider selling at this price or slightly lower.

    Line C shows, the stock has bottomed out again, thus creating a new line of support.

    Line D shows the stock price has increased significantly and it’s comfortable to establish this as a new line of resistance.

    The trend continues with Lines E, F, G, and H, bringing new lines of support and resistance as time goes on. If it seems complicated, don’t worry. because it is. And a lot of these are speculations.

    The lines of resistance can help you to decide when to buy or sell. But remember, it’s subjective and it won’t give you a clear opinion of what to do. You have to use some of your own analysis and evaluation.

    How to notice in the stock charts if the company pays dividends?

    On the next chart, you can see if and when the company issued a dividend, as well as if there was ever a stock split:

    How To Read A Stock Charts? 4

    A dividend is when the board of directors decides to give a portion of its earnings back to its shareholders. If you own their stock, you get a small piece of the profit.

    Some companies issue dividends, some don’t. If a company doesn’t issue a dividend doesn’t mean it’s not worth investing in.

    Some companies just prefer to focus on growth, so they’ll reinvest their earnings as opposed to giving it back to the shareholders. Apple, in this case, could pay dividends quarterly without influence on growth.

    Also, you can see that there was a stock split in 2014. That is a strategic move made by the company’s board of directors to issue more shares of stock to the public.

    In this case, Apple did a seven to one stock split, noted as 7:1, which means that for every share of AAPL shareholders owned prior to the split, they now have seven.

    The value of the company doesn’t change, but the share price might. Companies will often do this to attract smaller investors when the share price decreases.

    Many times when a stock split happens, more people invest because the share price is often lower. That increases demand and the overall share price.

    How to find the trading volume in the stock charts?

    On the bottom of the chart, you can see many small, vertical lines. This is a trend of the volumes at which the stock is traded. Volumes shouldn’t be the only determining factor when buying a stock. Usually, trading volumes increase when the company is in public focus, in a positive or negative sense.

    When volumes are increasing, it can also shift the price of the stock quickly. Take a look.

    How To Read A Stock Charts? 5

    Line A, shows a high volume of trading activity that corresponded with a drop in the stock price. Maybe some bad news that day caused people to panic.

    Line B, you can see a slight uptick in trading volume that corresponds with an upward trend in the stock price.

    You shouldn’t necessarily have to assume it there will be a connection between stock price and trading volume. But it’s good to know what the volumes have been in the past and what they are currently.

    If the volumes are high, a lot of people are trading the stock that day and it is a good idea to buy or sell it quickly.

    This is the basics of how to read the stock charts. Once you’ve mastered most of these techniques, you should be able to analyze a stock’s historical activity with high success.Â