Market Trends - Online Trading
Keeping track of market trends
Fully understanding market trends is undoubtedly the most important preparation you can do with regard to online trading. Before you even contemplate buying or selling anything, you need to extensively research both the shares you are considering investing in and the performance of the markets they are being traded in.
There are various approaches to researching market trends, the most predominant of these being the fundamental approach and the technical approach. While some traders are adamant about sticking to one research method only, the majority are in agreement that using as many methods as possible will give you the most accurate picture of the markets. The following are a few guidelines to observe when investigating market trends and the performance of a specific company:
Familiarize yourself with market, financial and technical terms :
If you are just starting out, the first thing you will need to do is familiarize yourself with as many market and trading terms as possible. Work through trading books and online tutorials, read through financial and internet glossaries and learn how to interpret and use financial and market terms correctly. Only once you are completely familiar with market terms should you consider conducting any kind of market analysis.
Observe the fundamentals:
The fundamentals are always a good place to start initially. As a general rule, a company that has good fundamentals is likely to perform steadily in the market and therefore shares in such a company are likely to be a good investment in the long run. In relation to market trends, a company with good fundamentals will usually have good return on capital employed (ROCE) and good profit margins. Earnings per share (EPS), turnover and profit should all increase steadily and cash flow per share should be more than earnings per share. Capital expenditure per share should also be less than cash flow per share.
Track selected shares:
Once you have established that a company is fundamentally sound, track the performance of shares for a while. Look for obvious trends such as rises or drops in share price, or steady overall performance. Check share performance in relation to different types of shares traded by the same company, shares traded by competitor companies and the FTSE-100.
Chart market trends, review data and plot historical performance
Day traders and futures traders in particular believe in using graphs and charts to plot the historical performance of markets. The idea is that by identifying the market trends of the past, traders will be able to plot future patterns and therefore determine when the best moments would be to buy and sell. Most trading software packages and systems include technical market analysis in the form of graphs and charts.
Combine and interpret
The final step in researching market trends and deciding where to invest your money is to bring together all the data you have gathered and make a decision based on your own experience. Relying on the opinions of those who have succeeded in the past will only get you so far. Eventually you will need to make decisions based on your own interpretation of market trends. On occasion, your decisions will be wrong and you might lose money. In the long run however this will just help you to make a better choice the next time round.
Top five sites for research, information and market trends: