In part one I shared how you can add short term trading to your paper income stream, no matter how busy your personal schedule. As long as you have access to the internet you can manage a trading account around your schedule. Finding the right stocks to trade is easy if you simply understand the vocabulary used in the stock market. Once you understand the vocabulary, then you can filter through all the inactive stocks to find the right ones to fit your trading strategy. Understanding the vocabulary of the stock trade should be your first step towards understanding the mechanics of fundamental analysis.
What are Your Goals?
That seems like a pretty loaded question, but if you don’t have a clearly defined goal(s) before you start trading, then that is the same as hopping into a car to just start driving. Eventually you will run out of gas, in this case it could be control of your emotions, or worse…your bankroll! So how do we know what stocks are good stocks to trade? Well, this depends on how much capital you have in your trading account, and how much risk you are comfortable taking per trade. You want the stocks you trade to be active ones. This means there are plenty of shares exchanging hands on a daily basis, so that when you are ready to trade there is someone on the other end to complete the transaction. As far as cost and risk goes, if you are starting a trading account with say five hundred to a thousand dollars, then it doesn't make much sense for you to be buying Apple stock (AAPL) at around four hundred fifty dollars a share. Your returns would be too marginal to even be worth the time. If you invest in a company that isn't a household name, that doesn't mean you are going to lose your money. Equivocally if you invest in a big name brand, that will not guarantee you profitable gains, either. You should aim for solid, cost effective trades, based on your account size and the goals you set for the account. If you have a small account you can set milestones, as trading achievements, so as your capital increases you will allow yourself to start trading those mid/high cap stocks. The company you trade is virtually irrelevant as long as the fundamental and technical analysis justifies the position taken.
Understanding the Lingo
The following is a list of terms you should know in order to help with the process of fundamental analysis, and aid you in working stock screeners:
Ticker Symbol- this is how a company is publically identified within the stock exchange. For example I mentioned the company Apple’s ticker symbol is AAPL, Google is GOOG, etc.
Share Price- the current quote of price per share of a particular company’s stock
Volume- this is the number of shares traded on the latest trading day. (Depending on what type of stock screener you use this may represent the amount of shares bought and shares sold)
Open- the opening price of stock on the latest trading day
Range- this is the price low and high spread of a stock for the latest trading day
52W Range- this is the price low and high of a stock over an entire 52 week period
Shares Outstanding- this is the total amount of shares held by investors and company insiders
Float- the float is similar to shares outstanding except it is just the amount of shares held by investors
Market Cap- this is the total value of the company in the stock market based on multiplying the total shares outstanding by the current stock price
Earnings Per Share- the net income of the company over the last four quarters divided by the shares outstanding
P/E Ratio- this figure is a calculation of the share price divided by the earnings per share
That seems like a pretty loaded question, but if you don’t have a clearly defined goal(s) before you start trading, then that is the same as hopping into a car to just start driving. Eventually you will run out of gas, in this case it could be control of your emotions, or worse…your bankroll! So how do we know what stocks are good stocks to trade? Well, this depends on how much capital you have in your trading account, and how much risk you are comfortable taking per trade. You want the stocks you trade to be active ones. This means there are plenty of shares exchanging hands on a daily basis, so that when you are ready to trade there is someone on the other end to complete the transaction. As far as cost and risk goes, if you are starting a trading account with say five hundred to a thousand dollars, then it doesn't make much sense for you to be buying Apple stock (AAPL) at around four hundred fifty dollars a share. Your returns would be too marginal to even be worth the time. If you invest in a company that isn't a household name, that doesn't mean you are going to lose your money. Equivocally if you invest in a big name brand, that will not guarantee you profitable gains, either. You should aim for solid, cost effective trades, based on your account size and the goals you set for the account. If you have a small account you can set milestones, as trading achievements, so as your capital increases you will allow yourself to start trading those mid/high cap stocks. The company you trade is virtually irrelevant as long as the fundamental and technical analysis justifies the position taken.
Understanding the Lingo
The following is a list of terms you should know in order to help with the process of fundamental analysis, and aid you in working stock screeners:
Ticker Symbol- this is how a company is publically identified within the stock exchange. For example I mentioned the company Apple’s ticker symbol is AAPL, Google is GOOG, etc.
Share Price- the current quote of price per share of a particular company’s stock
Volume- this is the number of shares traded on the latest trading day. (Depending on what type of stock screener you use this may represent the amount of shares bought and shares sold)
Open- the opening price of stock on the latest trading day
Range- this is the price low and high spread of a stock for the latest trading day
52W Range- this is the price low and high of a stock over an entire 52 week period
Shares Outstanding- this is the total amount of shares held by investors and company insiders
Float- the float is similar to shares outstanding except it is just the amount of shares held by investors
Market Cap- this is the total value of the company in the stock market based on multiplying the total shares outstanding by the current stock price
Earnings Per Share- the net income of the company over the last four quarters divided by the shares outstanding
P/E Ratio- this figure is a calculation of the share price divided by the earnings per share
