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Fundamental Analysis
Fundamental Analysis is a technique that investors like yourself can use to determine a share’s value by focusing on underlying factors that affect the company’s business and prospects. Investors and traders can perform fundamental analysis not only on individual shares but on sectors and economies.
Fundamental analysis can be split into two categories, quantitative and qualitative. Quantitative fundamentals are measurable characteristics about a business such as its revenue, debts and Price/Earnings ratio. Qualitative fundamentals are less tangible factors such as the quality of the company’s executives or brand recognition. Neither is inherently better than the other and an analyst should use both when making an informed decision on the stock.
WHAT ARE KEY RATIOS FOR TRADING?
Price/Earnings (P/E)
This is the price per share/earnings per share. Effectively the price you pay to receive $1 of earnings. Low P/E means a stock is cheap, typical of stable mature industries that have low growth potential. High P/E means a stock is expensive, typical of young industries with high future potential.
Price/Book (P/B)
This is the price per share/book value per share. Book value is defined as the company’s total assets minus the company’s intangible assets and liabilities. Low price to book could mean the company is cheap or there is something inherently wrong with it.
Dividend Yield: Dividend per share/Price per share
A dividend is the main way companies distribute earnings to shareholders. This ratio shows the ratio between share price and dividend size.
Return on Equity (ROE): Net income/ Shareholder's equity
This ratio is the amount of net income returned as a percentage of shareholder equity. ROE measures a company’s ability to generate profit with the money shareholders have invested. Higher is better.
Profit Margin – Net income/Sales
Profit margin calculates how much of a company’s total sales flow through to the bottom line. A higher figure shows the company is performing well. The net profit margin ratio can be expressed in percentage form or in the form of decimal points.
Debt Equity Ratio: Total Liabilities / Shareholders equity
Used to measure a company's financial leverage. The higher the ratio the more aggressive the company is with its financing.
Technical Analysis
Technical analysis looks at historical price movements and volumes to forecast future price movements. Technical analysts believe that everything affecting the market is already reflected in the price. It suggests that price movements follow patterns and trends rather than being random. By studying these patterns, traders aim to make predictions about future market moves.
Price Charts
Charts are the foundation of technical analysis. Traders use various types of charts, such as line charts, bar charts, and candlestick charts, to visualize price movements over time. Patterns and trends on these charts can provide valuable insights into market sentiment.
Trend Analysis
Identifying trends is crucial in technical analysis. Trends can be upward (bullish), downward (bearish), or sideways (neutral). Analysts use trendlines and moving averages to recognize and confirm trends, helping them make decisions based on the market's prevailing direction.
Support and Resistance
Support and resistance levels are key price points at which a financial instrument often experiences a pause or reversal. Support is where buying interest is significantly strong, preventing the price from falling further. Resistance is where selling interest is substantial, hindering upward movements.
Technical Indicators
These are mathematical calculations based on historical price and volume data. Popular technical indicators include Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), and Bollinger Bands. Traders use these indicators to spot potential reversals, overbought or oversold conditions, and other market signals.
Chart Patterns
Chart patterns are formations that appear on price charts, signalling potential trend reversals or continuations. Examples include head and shoulders, double tops and bottoms, triangles, and flags. Recognizing these patterns aids traders in making informed decisions.
Candlestick Patterns
Candlestick charts provide detailed information about the open, high, low, and close prices for a specific time period. Candlestick patterns, such as doji, hammer, and engulfing patterns, are used to identify potential shifts in market sentiment.
Volume Analysis
Volume is a crucial aspect of technical analysis, indicating the level of market activity. Volume analysis helps confirm the strength of a price movement. For example, an increase in volume during an uptrend suggests strong buying interest.
News Trading
Many traders look at news to guide their trades. This news can come in a variety of formats including economic releases and corporate actions. News can have a profound impact on prices and its effect can be seen for hours and even days after release.
One of the most popular times at Spreadex for trading is the first Friday of every month when non-farm payrolls are released in the US. This is a major indicator of economic health and has an impact on everything from the value of the dollar, stock market and the price of gold.
Latest Market News
On our platform you can access a news feed for specific instruments you’d like to trade. For example, if we wanted to access the latest news on Barclays, we just type in Barclays in the search bar to bring up the instruments available for trading.
Then we navigate over to the ‘N’ button in between the alerts and watchlists buttons. Click this ‘N’ which will bring up the latest news relevant to the instrument.
Daily Market Update
On our website we post a market update in the morning and afternoon. This update summaries macroeconomic news from across the globe, providing you with a general overview of the current economic state of the world.
ECONOMIC DIARY
Traders can access a comprehensive Economic Diary which includes major economic news and historical data.
Risk Management
Our comprehensive guide to risk management covers everything from the different types of trading risks to the strategies to minimize them, such as diversification, hedging, and position sizing.
