I am Just a novice at all this and wandering what methods do people use when buying stock.Do people use TRENd is you friend strategy.Or if share is undervalued against its competitors or do people trade purly on technical analysis.I know there is no one best method or we would all be millionares.I just want to know what method best suites individuals

This is a personal choice and depends on what you feel more at ease with. If you like to know the company is financialy sound has, good earnings, good sales, good R&D etc. etc. Like to read or enjoys P&L accounts then fundamentals analysis might suit you. If you are more happy with charts and trends and price momentum then technical is the choice. I trade purley on technical while keeping an eye on the news for updates, finals and ex dividend dates. You also need to decide what type of trader are you scalper, day, swing position or investor. As you can see this is a massive area which you need to get a feel for and make some decisions on, Best advice is to get some books and try out on paper to see what works for you.

good luck SP.

Thanks stockpick. Thats the problem getting books and reading all these different methods,i am interested to see which ones people see to have most success with curiousity more tan anything.Also when do peouple take profits what percentage must the stock rise i always seem to get greedy and miss the profit.I know begginer but you have to ask these questions to learn.

OK eddcarter I have a little time so lets see if I can help. Please remember this is only a basic intro and my thoughts. As I do not know your length of time in the market lets work on the timeframe of 1 - 4 weeks for the trade and use a basic set up which should be workable and simple.

****Always remember you can only trade price not the indicators so price must be going in the right direction ****

**** Only enter a trade which is a minimum 2:1 in your favour in other words the gain you will make if the price moves in the direction you expect will be twice the loss you have identified if it moves against you ***

1. If you do not have a charting package to identify shares then you will have to do it the hard way to find the ones you want, but a look at http://www.chartingcharlie.co.uk this may point you in the direction of ones to look at.
2. Set up your chart with a 20, 50, 200 day MA
3. Add indicators MACD 12,26 and RSI 21 with vol shown


Now for the Technical Analysis which is the art of identifying a price trend reversal at a relatively early stage, and riding on that trend until the weight of the evidence shows or proves that the trend has reversed. The process below shows you how to find that evidence!it is not a given

1 Have an overall view of the market, and trade with the overall market direction. ie If the market is bullish, look at the long trades, this will depend if you are just buying shares or using spreads or CFD's

2 Look for MACD divergence. MACD is a MOMENTUM indicator, and can PREDICT potential TREND changes.Divergence is identified by looking at double tops/bottoms in the price action, and comparing it to double tops/bottoms with the MACD indicator. Are PRICE and MACD trending in opposite directions? If yes, then there is divergence.

ie. Price is forming higher highs and higher lows, and the MACD is forming lower highs and lower lows.

If price is rising, and the MACD is falling, the momentum in the price rise is decreasing. This implies weakness. Trend about change down?

If price is falling, and the MACD is rising, the momentum in the price fall is decreasing. This is strength. Trend about change up?

4 When divergence has been identified, PRICE must confirm the divergence (trend change) by PRICE moving through the 20sma and/or trendline

5 Confirm that your trade would be with the trend by checking the REL-STR (21). Is the squiggly line above/below the REL-STR (21) 50 line.

The TREND is UP if the squiggly line is ABOVE the REL-STR 50 line
The TREND is DOWN if the squiggly line is BELOW the REL-STR 50 line

Other useful tools:

1 Use the 20/50/200 moving averages as support/resistance lines when the stock is in a confirmed trend.

If the trend is down, the 20/50/200 day moving avgs will act as resistance lines.If the trend is up, the 20/50/200 day moving avgs will act as support lines.

For getting in and out of trades, A simple method would be to wait until the MACD crosses the zero and the RSI is crossing the 50 line, both in the same direction either up or down. If up indicates price may move up if down the opposite. This may limit your trading opportuities but to learn may help. Watch for large price spikes as these may retract on you. If you have them use the Fibonacci retracements to determine retracement points, and possible reversal points. These are good for entry and exits

To Get out - Identify previous Support/resistance levels. They might be used as possible price targets.

Watch the price action/reaction at major trendlines, and support/resistance line.

Watch for volume spikes. High volumes indicate possible trend changes.

These should be able to identify the opportunities to enter and exit the trades.

You can look for the MACD lines crossing to indicate possible price change using RSI to help confirm.

Hope that is of some help, try using this on some charts and see how it works, if you already know all this the sorry for trying to teach you to suck eggs.

One last thing do not use to many indicators to try and confirm or you will never make a trade. LOL

rg SP

Edd

i think the first question you need to answer before you can start is are you trading or investing? This can only be determined by how long you intend to keep a share after you buy it. IMHO if its day weeks or a few months then you are trading.

My personal style is mainly long term investing. I look to buy shares which I then hold for anything between 6 months and several years, though if the situation changes in the short term I will sell my position quickly.

on this basis my style is as follows:

I invest purely on the fundamental strength of the company, mainly growth, value and recovery stocks. The type of companys I look for are; shares in companies which I believe will show exceptional growth in the coming years but whose share price has not already included this, recovery situations where a company has been through tough times and the share price fall has been overdone, or good solid companies who I believe are purely undervalued.

When assessing a company I will read the last 3 years accounts of the company in detail and make up my own mind about the financial strength of the company, as well as any press releases articles. I will look at analyst projections and also make my own forward projections for the next two years.

I have a portfolio of no more than 6 stocks at any one time as this number enables me to be fully aware of everything going on with these companies and I like my portfolio to be focussed. This is more risky and most like to have more stocks to spread the risk (though i also see this as limiting the gain as i find it hard to find 6 stocks that meet my criteria sometimes).

the key factors I look at are (in no particular order):

Profit Before Tax (re-evaluate any exceptional adjustments)
Profit after Tax (treating tax @30%)
Margin %
EPS
PE Ratio
PEG Ratio
Dividend Yield and Cover
Turnover Growth
Margin Growth
Cash vs Debt
Gearing
ROCE
Market Share
Competitors
Management track record and my view of their competency


From all of this I construct what I expect a fair value for the company to be now and in 1 yr and 2 yrs time.

I am slowly learning some technical analysis, but I use this purely to time my entry and exit positions from stocks, alongside my own target price.

This is a system I have used for a while and has been successful for me. As an accountant it is quite easy for me to read and understand a companys accounts (especially the strength of the balance sheet).

Once I decide to invest, it is my decision and mine only. I do use the BBs a lot but only to gather/exchange ideas and news (as well as for the social side as there are quite a few characters on this site lol). At the end of the day I make the decision and will blame no one bar myself if I make the wrong decision.

you need to ascertain your own style depending on your own abilities, timescales and risk preferences and then stick to it, slowly improving your style over time as you learn from your mistakes (we all make them). you should also only be investing money that you do not need to access in the forseeable future.

Hope this is of some help to you.

What excellent summaries.

Its down to risk and reward, and how long you have to wait for payback.
Payback time is important since the key to getting rich is compound interest.
Everybody talks about risk and reward, and payback time seems to be the forgotten element.

I think I just got reasonable odds on Jenson Button and the payback time is pretty short.

The expected return could be quite low, since many bets might be lost and so you wouldn't bet your house on Jenson Button beating Schumacher. When you consider losing bets and the amount that has to stay in cash to allow you to continue through a losing streak, the expected return could be quite low.

But since the payback time is so short, annual percentage return could be quite good. One percent per day is better than 100% per year. In fact its about 36 times your money each year, if you could get 1% every day!

Very good. I have just printed this thread out to have a closer look.

Suggest check the spread of the share and the movement you need from buy to sell. Check the normal market size in case you wish to escape from it.

I would also suggest you place initial stop loss in case you make a mistake in you evaluation the share when you buy. IE Below the price movement you expect or will tolerate. And when into a profit use a trailing stop loss. (What you put this at is the difficult decision.) But I think it is necessary for mid and small companies.

The only problems with ideas and theory is reality hasn't nobody seems to have read the same books as me and you have to be disciplined and stick to your strategies. (I wish I was, but I am improving due to some of the pain I have had.

Fundamentalist.


I was interested in your strategies for investment and to a certain degree moving in the same direction. One of my weaknesses (amongst the many I have, some of which have given me great pleasures) is an inability to make, or think I am making a reasonable assessment of Company accounts (although I do try!! to evaluate them). Therefore, I am thrown back to making use of assessments of Margins EPS PEG ROCE ROE etc. from various packages I use (Sharescope with its data mining facility) Comdirect, Barclays, Moneyam and IC. Plus a few from other Internet sites occasionally.

In your experience, how accurately do the figures reported in their conclusions correspond to your findings? In other words are these packages reasonably reliable and can be use to form buy and sell opinions.

Another point I would like to raise, is in the past I think I am made most money from investing in smaller companies and Aim and more specifically on companies specialising in Biotechs, Tech and Support Services.

Many of them purely in the development stages, of hopefully, their long careers. Now to certain degree I am bidding blind, going on the limited information of the ideas or technologies they may be developing. In the early stages the only concrete information I have is, of cash, cash burn and possibly unreliable information of directors of the companies. Sometimes, I have burnt my fingers, but on other occasionally have been well rewarded.


What are your ideas about evaluating these companies, or are you wiser and leave them to others.

Fred

With regards to company accounts compared to fundamentals on sites I tend to find two problems with the info you get on the packages:

1) The info can well be out of date
2) The info takes the company accounts at face value (and as an accountant I dont trust the accountants who prepare them lol). That is, I will look through the accounts and make my own judgement on whether to include some items (especially exceptionals). i will also look at the balance sheet and see if their are any items held there which i believe should be reported through the P&L (ie capitalised costs, provisions) and adjust the profit figure accordingly. Also, with PAT, they will always give the reported figure. If a company has rolled over losses it may be paying a reduced or even no tax charge which to my mind distorts the future profitability so I will normally adjust this to a 30% tax charge. there are several good books on how to read and adjust company accounts


On your second point regarding the type of companies, I do invest in smaller companies but I try to apply the same philosophy. That is that I can put a fair value on the company now and in the future. That may be based on earnings stream or asset value. I tend to avoid what I call the "hope" shares, where they are currently loss making and have little asset value but have a world beating product (Torotrak spring to mind as one I was told to buy - they went from 30p to 120p back to 60p on hype - they will not make a profit for at least 3 years and then only if they sign a deal with a large manufacturer - how do you value this - is 30p fair or is 300p fair - I honestly dont know so I avoid). I cannot value these and hence feel you are investing purely on market sentiment and hope that the deal comes through/the technology works and is profitable! To me - the horses are a purer form of gambling than this type of share.

Saying that, I do occasionally break these rules: for example I hold Skyepharma shares (I bought them based on the fact I thought they would be consistently in profit by now) and PTG which is loss making, but here I believe the price I bought at seriously undervalued the assets. I do tend to avoid AIM unless the company is even more compelling than normal (I traded in and out of MXC earlier this year and will look at it again) partly through lack of faith in that market and partly because NMS can cause problems.

hope this is of some help (all my opinion of course)

Fundamentalist

Thank you. I do agree with your processing. I wish I could read or make sense of accounts, as you obviously do, a little more easily. Sometimes I think they are set up to confuse rather than enlighten. When I had an accountant for my books I use to use a simple spread-sheet setup with monthly and yearly running totals with income and costs etc. separated. Until I handed the discs with all the information (bills etc.) indexed over to the accountant I knew roughly where I stood financially, other than for tax to pay. When my accountant (a good friend) presented the figures back to me I didnt have a clue what they meant, other than the bottom line. (Probably I was disinterested.)

I have tried mugging this aspect of my ignorance up and will continue to do so. But doing this will probably need extending my lifes expectancy or make it feel longer.

Fred

how else do you think us`accountants would make our money if it was that simple anyone could do it lol!!!

the simple things to look for are:

Are they capitalising nearly all their costs
Have they got a heft level of provisions on their balance sheet
Is the tax charge 30% ish (ie is PAT 70% of PBT)

feel free to ask if you ever want clarification

I buy the Financial Times and a pin lol

I wonder what are the chances of getting winners by sticking a pin in randomly
in the FTSE 100 ?

I simply try and go with the medium term trend - if it's up I look for opportunies to get long in a shorter timeframe

Fundamentalist

I thought it was because I always paid my accountants bills. He never paid mine.

I thought I was supporting hime in the lifestyle he had become accustomed to.








I never invoiced him.

Sounds like a great arrangement Fred!

Fundamentalist

Do you use Sharescope.

If so, do you use its data mining facility?

If so, what are your are your basic filters?

I do find this feature of Sharescope fascinating I am not certain if I have the confidence yet to make decisions on it. I sometimes think it is easier for a fool to make decisions on little knowledge that a wise man on a lot of information. But being a fool perhaps I am biased.


If you wish E-mail me via Moneyam.

Today is a good day more blue than red. At the moment with this market I am sweating a little. I think if I was in cash I would leave it there. Bring back Clinton or a Clinton.

Fred

you have mail

If I'm trading, I take my signals from the charts and tend to ignore the fundies. I maintain that the only friend that anybody needs is the trend. For longer term positions, I believe that fundies are more important, particularly so for smaller companies.

Croc used to have some analyser software which picked out the 1-2-3 trend, but I guess that, now he's sadly departed, this would no longer be supported. I use Sharescope eod to export ohlc values into a spreadsheet/database and then manipulate the data and identify trending targets which look to have completed a pullback. It gives me a list of 50 or 60 fresh targets across the LSE each night. Some of the small cap/seaq traders on the Traders Thread on the pay-per-view use SS filters to get their signals. Have you tried asking them?

My strategies are evolving. Some say I am still evolving and got a long way to go.

I think eventually I am going to divide my pot into long term trend followers based on hopefully good fundamentals and follow the charts like you until the trend changes. If I am lucky and have winners I will be more careful and place trailing stop losses. "I have difficulty in Selling". (Bloody conceit that I can't be wrong -------------------again.) If I out a reasonable chunk into a share generally it has to be profit making, good PEG, pays a covered dividend and a capitalisation at least above 15,000,000. But also have a reasonable NMS and smallish spread. etc.

Also I use the charts Trend lines to tell me the rate of growth and move on if I think the share's trending overall rate is poor and prospects remain poor I will move on.


The second portion will again base on Fundamentals but less demanding and linked to changes in trends. I use Sharescope more and more and have set up different filters to pick out trends over 2,1,.5,years periods and 1month periods. All changeable with mood and availabillity. Also acting as a filter I use MAverages and Price. This I hope guides me to a group of shares I can have a guess at using charts and indicators to and hopefully ride the trend when I see one. Short or Long Term.

Small spread, large volumes and large MS. egs Lloyds


Another portion which I am already using as punts, smaller amounts but on small companies in Support services . Software, Techs and Biotechs where I like the ideas they are R+D on. Again trying to time buys and sells aided by graphs. I have been lucky and unlucky partially due to the speed of price movement and small market sizes. But rewards are good as a whole.


As you can see I am still playing about, but I am slowly getting there and will probably end up with more money in group 1 than 2 or 3. But I have been thinking of reducing the number of companies held and if I see the market moving sideways of getting out for a period and waiting. I wish I could control my sense of "urgency" I often buy when if I waited a little longer I would have got a better price or share.




Now where is the toilet.

Some good points in the posts above, useful to many of us!
Company reports are hard going if you're not an accountant (I'm not)
I was told the following - I make no claim as to whether it is accurate
of not, I'm simply passing on what I was told some time ago and that I have found useful to bear in mind. However if it is inaccurate please put me right
I wont mind and as I said I'm no accountant!!!

For short term 'health' of a company - EG: if it could go bust in the
next year, I was told ages ago to check the line in the accounts titled
"total assets less current liabilities" this shows if they have assets that
could be used to keep them afloat if needs be when balanced against the creditors that are known to fall due in the next year and could demand payment. So if you're looking at a tiny firm and to invest in the short term, this may be useful to check, along with obviously whether they are actually making any money etc. However please note you need to look generally under this line in the report to find those creditors that have a longer term arrangement with them.