There are a number of strategies propounded by different investors and traders. In order to find the right one, you must test it yourself to find out whether it suits you. To test it, you don't do live trading. Just paper trade over a period of time. After 1 to 2 months of paper trading review all the results. This is to check yourself whether the strategy is able to help you to win the market. The following article talks about an approach called the ABC Formula written by John Efetobor. Ignore the market that he is writing from but take note of the principles behind his strategy. To me some of it made sense and it does relate to fundamentals.
Article: Stock Analysis Skills - Basic ABC Formula By John Efetobor
The basic ABC formula is a strategy I consider very vital and fundamental to stocks analysis, this is because without it, you can't have a full grasp of what the capital market is all about. Stocks trading can be such an interesting endeavor if you can apply yourself to practical and common sense thinking.
As I write this article, there are about 265 companies listed on the floor of the Nigerian Stocks Exchange. These companies are further sub-listed into 33 sub sectors. Companies are sub-listed according to the services and products they offer. All this information's are very important when it comes to stocks analysis.
The first thing you have to take into consideration is to take a close look at all the 265 companies one after the other, seven vital research you must carry out includes 1. Find out what each company is doing. 2. Find out what period of the year each company will be most favored to do more business. 3. Find out sector leaders amongst the companies in every sector. 4. Find out what each sector is all about. 5. Find out which company commands the highest trade volume in each sector per time and why? 6. Find out the job descriptions of each sector. 7. Find out for instance if Government pumps money into a sector, which company will profit more. Let's take a closer look at these points:
1. Find out what each company is doing: Is it not surprising that people invest into a company without having a clue to what such a company is involved in terms of company location, what business they are involved in. In stocks analysis, this knowledge is very critical.
2. Find out what period of the year each company will be most favored to do more business. Most companies in the Nigerian Stocks Exchange do more business during specific periods of the year or are affected by certain seasonal events e.g. a sub sector like Building materials and construction will be most impacted during a period a heavy construction project like when the National Stadium was constructed in Abuja a few years ago.
3. Find out sector leaders amongst the companies in every sector. Do you know that in every sub sector, there are companies that enjoy more patronage in terms of business because of their leadership position e.g. in Agriculture sub sector Okomu Oil and Presco.
4. Find out what each sector is all about. The Nigerian Stock Exchange is sub listed into 33 sub sectors for clarity purpose, otherwise there will be conflict of business. You must understand what each sector is involved in, in terms of their business description, why? As you keep tabs on economic, social, religious, cultural and sporting events as to when they come up, you will easily decipher which sub sector and of course which particular company will benefit more from such events so that you can take position way ahead of others for you to maximize profits.
5. Find out which company commands the highest trade volume in each sector per time and why? If you take a close look at the daily trading patterns of the Nigerian Stock Exchange, you will observe that there are some companies that command superior volume of trade consistently over others. As an analyst, it is your duty to closely monitor these companies.
6. Find out the job descriptions of each sector. It is the responsibility of any stocks analyst to find out the production description of every company that is quoted on the exchange, in other words, it will be to your advantage talking about making millions from trading in stocks if you can take time to dig into the nature and scope of companies, especially the ones you have taking particular interest in. Why do you need to do that? When an opportunity that you'd ordinarily ignore knocks, you can easily apply it to the companies that it concerns because of the timeless knowledge of the job description understanding you already have.
7. Find out for instance if Government pumps money into a sector, which company will profit more. From time to time Government releases funds to different sectors, from experience I know that there're some companies that profit more; find them out.
STOCKS ANALYSIS SKILLS- INTRODUCTION
Every stock trader in the marketplace globally that I know, they all have just one objective- to make money. However, very few people are able to successfully make money in the long run. When the market is rallying up, almost every dick and harry makes money trading stocks. However when push comes to shove during the bearish season; they take along with them almost all the profits of unsuspecting investors.
Stock analysis is an art that requires skills . If a stock trader is not watching his emotional attachment to certain stocks, he'll definitely get his fingers, if not his life burnt. To avoid such mishaps, it is important that he imbibes every analyzing tools that are vitally necessary for his success. well in the art of analyzing and picking profitable stocks, one does not need a Harvard or Cambridge ability or knowledge to do well, all you need is four simple tools, what'll be extensively explained in other parts of subsequent articles of this series, What the average prospective stock investor needs are.
1. Common sense
2. A good sense of history
3. A good sense of arithmetic (arithmetic is the branch of mathematics that deals with subtraction and addition).
4. Sound trading skills.
How can one know which stocks will make profits in the stock market? How can you be sure that the stocks you are investing your money into will not burn your fingers? Such questions are tough to answer if you don't know your way through the uncertain road of stock's investment. To be at home with analyzing hot stocks that can crank fortunes into your bank account, you must be able to cultivate the ability to think straight; you must be disciplined when it comes to controlling your emotions, as a stock analyst of almost ten years standing, I've seen men destroyed because they couldn't separate their feelings from the reality that was starring them in the face.
Stocks analyzing discipline can be achieved with strict money management discipline. Every investor must be able to acquaint himself with basic stock analyzing tools like common sense, which enables you to be able to think rationally. This is intended to open the eyes of the investor to objective analysis to show him how to identify stocks for trading. How to subtract falsehood in terms of companies that don't have strong fundamentals and add up sound facts based on sound technical and fundamental realities, When an investor is not familiar with the performance of companies in the previous years, he can fall into the trap of repeating a sad history of loses. A good sense of past performance can save a stock trader from basing their investment on guesswork or flimsy rumours that holds no water.
Stocks' trading is believed to be risky by certain category of investors and such people are intimidated to go into trading, Risk no matter how risky it is, can be reduced to the barest minimum by knowledge, a sound knowledge of the dynamics of equity investment will be of life help to you ultimately.
You must understand that it is investor's sentiment that drives the prices of stocks. Your ability to know what is responsible for these sentiments, why investors respond to certain stocks the way they do is very critical to your analyzing skills.
Parting words from Tompreneuer: As in all strategies look for the one that you feel comfortable with. Modify it to your style and stick to it. If you wish only to trial the strategy, don't put actual trades, do paper trading till you are more confident. For more trading and investment guidance tips, visit Quick and Easy Guide On Investment.
Article Author's Background: John Efetobor is an Investment Communicator, Analyst, Motivational Speaker, Coach, Trainer, Human Developer, Investor and Businessman. He has a Stock Trading Revolution Blog where he writes informative articles on Stocks, stock trading and other Vital aspect of stock investment Visit: http://stocktradingrevolution.blogspot.com for more information.
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