Unless you are able to establish a significant trading edge over the other traders, you will end up losing your money, even if you are disciplined and arranged. In this post, I go over some elements that I use in my trading edge.

Basic Analysis

Fundamental analysis is the process of examining the financial condition of a company using financial reports, price/earning ratios, incomes, market share, sales and growth, etc. This kind of analysis can be time consuming so rather of going through pages of financial reports, I simply look at IBD scores.

I like to utilize Investors Business Daily (IBD discovered at investors.com) to get a fast summary of a stock. The IBD ranking covers:

1-- Revenues Per Share (EPS) ranking: informs me a stocks typical short term (recent quarters) and long term (last three years) making development rate. The number I see is how the company compares to all other companies. The scale ranges from 1 to 99, 99 being the very best.

2-- Relative Cost Strength (RS) Ranking: Procedures a stocks relative price change in the last 12 months in comparison to all other equities. The scale runs from 1 to 99, 99 being the very best.

3-- Industry Relative Price Ranking: Compares a stocks industry price action in the last 6 months https://pbase.com/topics/gebemelvls/aproduct592 to the other 196 industries in IBDs industry list. The scale is from A to E, A being the best.

4-- Sales Earnings Margins ROE (Return on Equity) Score: Crunches a companies sales development rate during the last 3 quarters, prior to and after revenue margins and return on equity into one letter. The scale is from A to E, A being the best.

5-- Accumulation/Distribution ranking: Uses a formula of price and volume modifications in the last 13 weeks to identify if it is being accumulated or distributed. A = heavy buying, C = Neutral, E = heavy selling.

If you like the concept of including fundamental analysis into your trading strategy, think about trading just stocks that satisfy some minimum requirements-- for example A or B, > 70, etc

. I like to use essential rankings for longer term trades such as the ones I plan on weekly charts. It is not truly beneficial if you trade intraday.

Technical Analysis

Fundamental analysis is fantastic to construct a list of strong stocks, or as a method to filter out weak stocks, however thats about it. It does not provide you with a goal technique to go into and exit trades. All my trading decisions (entry, exit, and stops) are based upon technical analysis.

Technical analysis is the study of costs. The cost action draws patterns on charts and because human behavior can be recurring, the price patterns can likewise be repetitive.

You can choose from a variety of chart types. The Japanese candlestick charts are without a doubt the best and it is the only form you need. There are entire books dedicated to the study of candlestick patterns-- if you are severe about studying candlestick charts, look at books written by Steve Nison and and Gregory L. Morris.

-- Support and Resistance: The most crucial idea in technical analysis is Assistance and Resistance. It forms the structure for each trading decision and might cover lots of pages however I will restrict myself to simplified definitions and a couple examples:

Support level: A price level that a decreasing market or stock failed to penetrate

Example: the low of the previous day forms a location of assistance and is often utilized as a stop loss.

Resistance level: A price level that an increasing market or stock failed to break through

Example: a prior high in an uptrend forms an area of resistance and can be utilized as a minimum unbiased to take some revenues.

Some technical indicators may also provide some support and resistance, for example moving averages, in part perhaps because many traders expect it.

-- Oscillators

An oscillator is a technical sign that tells you at a glance whether a market or a stock currently sells an "overbought" or "oversold" condition. Some traders utilize oscillators to forecast a change of direction. Some examples consist of the RSI, Stochastic Oscillator, and MACD.

There are hundreds of oscillators and technical indications. I personally take a look at them to filter out some stocks if I have too many good ones to pick from. I never use them as a signal to open or close a trade.

-- Public Belief

I search for support and resistance on the VIX (Volatility Index) everyday chart to prepare for reversals.

I look at the Put/Call Ratio (5 MA and 10 MA) on the everyday chart to see if traders are too bearish (MAs > 0.8) or too bullish (MAs < 0.5).

( MA = Moving Average).

- Market internals to see if the market is overbought or oversold.

I look at the TRIN (5 MA and 10 MA) on the day-to-day chart - overbought (MAs < 0.8) or oversold (MAs > 1.2).

I look at the McClellan Oscillator the marketplace is overbought if it increases above 70 and oversold if drops listed below -70. A buy signal is created if it falls into the oversold location (-70 to -100) and then turns up-- a sell signal is produced if it increases into the overbought location (70 to 100) and then refuses. If it exceeds the -100/ 100 levels then it might signify continuation of the current trend.

-- Market and Industries.

I like to buy stocks from markets in a strong uptrend and short stocks from markets in a downtrend. I likewise consider the instructions of the market for the day (favorable or negative).

Putting all of it together.

This article is not about teaching you how to develop an edge however ideally it reveals you that there are many different tools that can be used to enhance your odds. It takes time to discover a combination that fits your character. It takes some time to find what works for you.