TRADING STRATEGIES AND
OTHER ASPECTS OF STOCK ANALYSIS
INTRODUCTION
• Stocks in publicly traded companies are
bought and sold at a stock market.
• Stock market are marketplaces in which
buyers and sellers come together to trade
securities.
• It is an auction system and the price of the
share is determined by supply and demand.
• The purpose of a stock market is to
facilitate the exchange of securities
between buyers and sellers, reducing the
risks of investing.
• Examples of stock market:– Bursa Malaysia and Singapore Stock Exchange
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COMMON STOCK
• A stock is not just a ticker symbol /or an electronic
blip; it is an ownership interest in an actual
business, with an underlying value that does not
depend on its share price.
• A share of stock is literally a share in the ownership
of a company.
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WHY CORPORATIONS
ISSUE COMMON STOCK?
• To raise money for start-up costs,
upgrading facilities, help to pay for
expansion and their ongoing business
activities.
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• Additional income from dividends in
the form of cash /or additional
number of stocks.
• Dollar appreciation of stock value.
• Possible increased in value from
stock splits.
HOW OWNERS GET BENEFITS?
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DIVIDEND?
• A dividend indicates the annual
payment per share of a stock
designated by the company for
stockholders.
• Dividends are not mandatory
as it subjected to company’s
net income and its declaration.
• But in return for investing in
the company, stockholders
have voting rights.
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HOW TO READ?
STOCK MARKET QUOTES
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STOCK QUOTE
• A stock quote is essentially the price of a
stock that is quoted on an exchange.
• The stock quote provides key pieces of
information to be used by traders and
brokers.
• Trader
– Prior placing an order (buy and sell), trader must
know how to interpret a stock quote.
– Understand the data and what each of the
components represents in the stock quote.
– Once components of stock quote are broken
down, they provide a valuable snapshot of a
company.
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EXAMPLE
NEWSPAPER QUOTES
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COLUMNS 1 AND 2
52-Week High and Low
• These are the highest and lowest prices at which a
stock has traded over the previous 52 weeks (one
year).
• This typically does not include the previous day's
trading.
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COLUMN 3
•
•
•
•
Company Name and Type of Stock
This column lists the name of the company.
If there are no special symbols /or letters following
the name, it is common stock.
Different symbols imply different classes of shares.
For example, "pf" means the shares are preferred
stock.
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COLUMN 4
Ticker Symbol /or Stock Code
• This is the unique alphabetic name /or number
which identifies the stock.
• If you watch financial TV (i.e. Bloomberg TV), you
have seen the ticker tape move across the screen,
quoting the latest prices alongside this symbol.
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COLUMN 5
Dividend Per Share
• This indicates the annual dividend payment per
share.
• If this space is blank, the company does not currently
pay out dividends.
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COLUMN 6
Dividend Yield
• The percentage return on the dividend.
• Calculated as annual dividends per share divided by
price per share.
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COLUMN 7
Price /Earnings Ratio
• The ratio between the price of the stock and the
company’s earnings.
• This ratio (also called the earnings multiple) is
frequently used to determine whether a stock is a
good value.
• This is calculated by dividing the current stock price
by earnings per share from the last four quarters.
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PRICE /EARNINGS RATIO
• A stock’ s P/E tells how much investors are willing to
pay per dollar of earnings.
• Example:
– For example, if an investor buys a stock with a P/E of 15,
he’s willing to pay RM15 for each ringgit of profit /or it will
take 15 years to earn back initial investment in company
profits.
• For large cap stocks, the ratio should be under 20.
• For all stocks (including growth, small cap, and
speculative issues), it shouldn't exceed 40.
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PRICE /EARNINGS RATIO
EXPLANATION
• In general, a high P/E suggests that investors are
expecting higher earnings growth in the future
compared to companies with a lower P/E.
• A low P/E can indicate either that a company may
currently be undervalued /or that the company is
doing exceptionally well relative to its past trends.
• When a company has no earnings /or is posting
losses, in both cases P/E will be expressed as “N/A.”
• Though it is possible to calculate a negative P/E, this
is not the common convention.
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COLUMN 8
Trading Volume
• This figure shows the total number of shares traded
for the day, listed in hundreds.
• To get the actual number traded, add "00" to the end
of the number listed.
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COLUMN 9 AND 10
Day High and Low
• This indicates the price range at which the stock has
traded at throughout the day.
• In other words, these are the maximum and the
minimum prices that traders /or investors have paid
for the stock.
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COLUMN 11
Close
• The close is the last trading price recorded when the
market closed on the day.
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COLUMN 12
Net Change
• This is the dollar value change in the stock price
from the previous day's closing price.
• When a stock said to being "up for the day," it means
the net change was positive.
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EXAMPLE
INTERNET QUOTES
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ESSENTIALS OF TRADING PLAN
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TRADING PLAN
• Refers to roadmap for how to trade and no trades
should be placed without a well-researched plan.
• The plan is written down and followed.
• Subject to reevaluation and can be adjusted along
with changing market conditions.
• A basic trading plan includes entry and exit rules, as
well as risk management and position sizing rules.
• The trader may add additional rules at their
discretion to control when and how they trade.
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THE PERFECT MASTER PLAN OF YOUR OWN
BUILDING THE PLAN
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KNOW YOURSELF!
ACTIVE DAY TRADERS
Day Trader?
Swing Trader?
Position Trader?
Scalper?
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SKILL ASSESSMENT
• Are you ready to trade?
• Using paper trading to execute your plan /or test
your system – trade exactly as you intend to trade
when you go live with a real account.
• Can you follow your plans without hesitation?
• Remember!
– Trading the markets is a battle of give and take.
– The real pros are prepared and take profits from the rest of
the crowd who lacking in plan, generally give money away
after costly mistakes.
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MENTAL PREPARATION
• If you are not emotionally and psychologically ready
to do battle in the market, take the day off –
otherwise, you risk losing your shirt.
• This is almost guaranteed to happen if you are angry,
preoccupied /or otherwise distracted from the task
at hand.
• Makesure your trading room should be free of
distractions as this means business and distractions
can be costly.
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– If you set risk /reward ratio to 3:1.
Stop /Loss
SET TRADING GOALS
• Not simple statement! It should be
SMART! Set realistic profit targets and
risk /reward ratios.
• Assess your risk tolerance: Are you
aggressive? Conservative type of
trader?
• What is the minimum risk /reward you
willing to tolerate?
• Example:
Profit
Exit at RM1.00 Exit at RM3.00
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SET ENTRY /EXIT
RULES
• Before you enter a trade, you
should know where to enter and
exit the market.
• Write down the rules (based on a
chart pattern, the price reaching a
certain level, a technical indicators
signal, a statistical bias /or others)
that have to meet for your target,
stay disciplined and remember that
exits are far more important than
entries!
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TRADING DIARY
•
•
•
•
Have a proper record keeping.
If you win, you have to know how and when.
The same picture with losses.
Note the following details:
– the time spent on each trade, targets, entries and exits,
support and resistance levels, time and also the rationale
behind your trading decisions and emotions.
• Gain experience and learn from your mistakes.
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ANALYZE PERFORMANCE
• Successful traders all have one habit in common –
scheduling time to regularly review past trades.
• Committing to this intentional practice is also great
for your psychology, as this is a evidence that you are
conducting yourself the way a professional and
disciplined trader would.
• This reveal information such as mistakes you may
not have otherwise realized you were repeating,
patterns in your trading you were not aware you
had (both good and bad), and whether you made
decisions based on emotion /or logic.
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TRADING IN THE WYCKOFF WAY
WYCKOFF MARKET CYLCE
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THE WYCKOFF METHOD
• A technical analysis approach that can help investors
decide what stocks to buy and when to buy them.
• The Wyckoff market cycle reflects Wyckoff’s theory
of what drives a stock’s price movement.
• According to Wyckoff’s rules, a price trend never
repeats itself exactly and trends must be studied in
context with past behavior.
• The Wyckoff Method can help investors make less
emotional, better-informed decisions about when
to buy and sell stocks.
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WYCKOFF RULES
Rule 1
The market and individual securities never
behave in the same way twice.
Rule 2
The significance of price movements
reveals itself only when compared to past
price behavior.
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WYCKOFF MARKET CYLCE
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4 PHASES
WYCKOFF TRADING CYCLE
Accumulation Phase
Markup Phase
Distribution Phase
Markdown Phase
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ACCUMULATION PHASE
• A sideways range in which institutional traders /or
big guys buy carefully and skillfully, without letting
the prices move too much to the upside.
• The retail players and uninformed traders will be
unaware of what’s happening in this phase; the
stock is out of the public focus.
• On the price chart it looks like a sideways trading
range, bounded by rough areas of support and
resistance.
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MARKUP PHASE
• At this point, the retail players and
uninformed traders started to notice the
price making higher highs and active buying
activity pushes the prices even higher.
• Institutional traders and big guys who bought
in the accumulation phase might sell some
of their positions in the uptrend /or they
might just hold and wait for higher prices.
• As the trend moves higher, the early
aggressive short sellers will be forced to
cover their positions which in turn in pushes
the stock to new highs.
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DISTRIBUTION PHASE
• Eventually the uptrend loses its
momentum.
• In this phase, institutional traders and
big guys started to sell rest of their
holdings and uninformed traders who
are still anticipating higher prices, keep
buying the stock.
• On the price chart it looks like uptrend
reversing into sideways trading range.
• The markdown phase is a time of greater
selling.
• Once this fourth and final phase of the
Wyckoff market cycle finishes, the entire cycle
will repeat itself.
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Q&A SESSION
THE END
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