Now, assuming having opened all the necessary accounts needed for trading, it is time to learn more about trading itself. The fundamentals, technicals and psychological aspects of trading.
(1) FUNDAMENTALS ANALYSIS
The process in which we analyze a company base on its financial informations, competition, economic environment, future prospects of the business, etc.
Fundamentals analysis usually focuses more on the financial informations, in which it is the financial statements of the company. Revenues, earnings, return on equity, profit margins, etc. are used to determine a company underlying value and potential for future growth.
Financial statements possess useful informations that might be critical in making your trading decisions and here are some examples and food for thoughts:
“It will be tough for a company with limited cash flow to have any significant growth prospects in the foreseeable future.”
“During the Thai mourning period of the late Thai king, slowdown of consumption in beverages (mainly alcohol) affecting the Thailand’s beverage industry. This would indefinitely affect the sales and revenues of the related company. In this case, the company affected was Thaibev.”
In laymen terms, it is to uncover what the company is really worth as compared to its share price traded in the market. Are the shares undervalued or overvalued?
(2) TECHNICAL ANALYSIS
Technical analysis is the forecasting of future stocks price movement based on the previous price actions in the market. It is about the candlesticks chart, support and resistance, trend lines, moving averages, etc. (too many to name)
There are multiples ways of drawing a chart with the help of various tools. However, there’s no one foolproof formula in predicting future stock price movements. I would suggest to use and apply what works best for you. It could be a tedious game of trials and errors. Study, study and study!!! Practice your trading plans on practice account and see how the market react to your plans!
A presence of mind and emotions that should not be waver by the fluctuations in the market. It is having the discipline to stick to an established trading plan. To be able to take profits or losses when targeted price is hit.
“Withstanding fear, avoiding greed”
Fear is selling out a position too soon. Reacting to bad news in the market through emotions, rushing to sell not because of targeted price being hit but rather because of fear.
Greed is hanging on to winning position for too long, when stock price had already breached your targeted price. For all we know, the market could just turn its back on you.
Therefore it is important to have a well established trading plan (tested and proven to be true to you) and stick to it when being hit by waves of emotions; greed and fear. For established plans are conceived in a rational state of mind and emotions are usually irrational in an emotional state, when standing in the face of fear and greed.
(4) WHAT YOU TRULY NEED TO KNOW
The above write up is obviously inadequate for anyone to kickstart their trading journey. Knowledge is power and one can never posses enough knowledge. Constant and consistent learning is necessary for the world is ever changing.
In my opinion, trading requires conscious efforts from individuals. Self-discipline and determination are required to teach ourselves more about trading. As most of us would agree to the the lack of, or shall I say, complete absence of such knowledge being taught in school. Despite all that, such trading knowledge are actually very much within your reach. Tens of thousands of financial/ trading materials out on the shelves and everywhere on the internet. Henceforth, the responsibility lies solely in our hands.
Nobody can deny you from consuming and gaining knowledges. Nobody, except yourself. Therefore, it is time to buck up, set some time away on a daily basis to educate yourself.
If you would like to start off with some light reading just to get the gist of what trading is and why should we trade, I would recommend ‘Rich Dad, Poor Dad’ by Robert Kiyosaki. It is nothing too financial, but it gives a rather good overview of trading.
Another financial book worthy of mention would be ‘Think and Grow Rich’ by Napoleon Hill. It will sets you right in the success mindset which in my opinion is of utmost importance.
One of my favorite quote from Napoleon Hill would be that: “Success comes to those who become success conscious. Failure comes to those who indifferently allow themselves to become failure conscious.” In which, BuiBuiFA mentioned in her previous post how important mindset is!
Work hard till you reach your lane. Study, study, study!!! Knowledge is power and the beautiful thing about learning is that nobody can take it away from you.
– Valerie Choo