Trading Library

Breakouts are useful strategies in a volatile market. Traders can make great returns with limited risk, that is if the trading strategy is executed properly. More importantly, you can apply it any style of trading - including intraday and swing trading – regardless of the time frame. However, breakout trading can take a lot of patience which may cause you to jump in to early and end up exiting at a loss. So how do you plan for an objective trade?

Finding the Right Stock

Breakout trading is utilised by active traders who prefer to take a position in the early stages of a trend. This strategy can provide limited downside risk if done properly. They can be the starting point for major movements in price and expansion of volatility.

Companies have the option in when they are going to pay their dividends. This is important for shareholders who have a stake in the company, but as a trader what does this mean to you?

Market rules are there for the same reason highway rules exist: to avoid roadkill. In share trading jargon, you may have heard of company so-and-so slapped with a "speeding ticket." Speed is generally good, but not when it means that your shares suddenly warped to an astronomical value seemingly without any explanation.

Perhaps one overgenerous investor spread top secret advice and caused a buying storm, causing share price to skyrocket. Dodgy company ABC, however, is keeping mum about it.

Both DRP and BSP are company offerings that increase your investment value. The two are subject to different tax methods under the Australian capital gains tax rules.

Dividend Reinvestment Plan (DRIP or DRP)

DRIP is a company plan offer allowing investors to reinvest cash dividends by buying additional or fractional shares. Majority of DRIPs allow you to buy shares without commission (or at a big discount).

DRP issued shares are treated as cash dividends. For income tax purposes, the shares are subject to franking credits if the dividends are franked.

It is often said that you can't predict what will happen in the market, the best you can do is ride it and get out when needed. As a newbie you may have heard experienced traders something about ''riding the trend''. Identifying and interpreting trends is one of the basic concepts in technical analysis, so its no wonder that its often used by traders when they establish general rules when trading. Even though a trend can be easily illustrated through a line graph, it has different parts that have different implications in an going trade. However what is really important in looking at a trend?

A lot of traders talk about strategies and pitfalls of trading, but all of that isn't possible when you miss a key component. Budgeting is the very core of all financing ventures. Saving up two grand will let you trade, but it won't earn you money in the long run when you don't know how to organise and maintain your cash flow. More importantly, even before you save up, you must have budget plan in hand so that you won't go flat broke when you jump into share trading.

The moving average is another component associated with Technical Analysis. It is a common tool known by most investors and traders. In simple terms it is the average of the closing prices for the last 'n' days. The 'n' equals the number of periods. Therefore if you have a 30 day moving average, it represents the average of the of all closing prices in the last 30 days, which are then rolled forward one day a time.

You know you are wading into stock market deep waters when you wish to know what fundamental analysis means. Perhaps your goal in life is to become a hotshot stock analyst, or maybe you just want a basic understanding of securities. In the simplest terms, fundamental analysis is the study of factors that affect a company's earnings.

In addition to company financials as contained within the annual report, an additional resource for the investor is the share appraisal form. This form serves as indicator of the company's health and provides a method to help you in decision making.

Points in Summary

  • When buying shares, you invest capital and you become part owner of a company. Evaluating the company beforehand thus becomes necessary. Fundamental analysis is the study of factors that affect a company's profits.

Earnings Per Share

Earnings per share (EPS) is a part of the company profit allocated to each outstanding share and indicates a company's profitability. The EPS value is used to calculate price to earnings ratio. The formula for EPS is net profit after tax (NPAT) divided by number of shares on issue, with the results expressed as cents per share.

EPS (cents per share) = Net profit after tax ÷ Number of shares on issue.

Analyst reports are created by professionals who interpret annual reports. Analysts use annual report data to create forecast and calculate financial ratios. Financial ratios are used to compare a company's performance for a specific period to its previous results, competitor results and market averages.

Although there are disadvantages to using ratio analysis (imperfect data or too much data), reviewing analyst reports will add objectivity to your interpretation. An objective approach avoids knee jerk reactions and takes out the emotion from the equation.

Per Share Data