The air is full of year end stock trading tips. However, stock trading tips at any time of the year require both sound fundamental analysis and up to the minute technical analysis in order to turn a profit.
Stock Trading Tips and Technical Analysis
Day traders using technical analysis rely upon the fact that price action tends to repeat itself. Analysis solely based on technical factors is basically statistical prediction. Statistics does not predict which investor will buy which stock at which price but they do often predict that a certain percentage will buy or sell of certain types of stocks. This is the analysis of market sentiment. Here is an example of technical analysis that applies to stock trading tips. The market is very bullish on a stock. That usually means that those with money and interest have bought the stock already. With fewer buyers left over the odds begin to favor a downward movement of the stock with any flicker in the stock price. That is to say those who have made gains will often sell to take profits. The profit taking causes more profit taking and a substantial correction sets in caused by a fear-driven herd mentality. The smart day trader who is adept at technical analysis will short the stock and ride this correction down to a support zone, making profits along the way. Profitable day trading strategies also include the use of technical cues to determine when a stock has hit bottom at which time smart traders start to buy. Where do stock trading tips fall in this scheme of things? Think of stock trading tips as an alert service. Check out the tips and act upon them only if fundamental and technical analysis support the validity of the tip.
Stock Trading Tips and Fundamentals
Intrinsic value and margin of safety are terms typically reserved for long term buy and hold investors. However, there are always stocks that are grossly underpriced or overpriced. The key to making a profit on these stocks lies in seeing the future before the rest of the market. A contrarian approach to day trading can be very profitable. A trader understands the fundamentals and sees that a stock is being driven higher than its forward looking earnings support. Or a stock has been driven down far below what it margin of safety would dictate. Knowing the basics about a stock is essential to dealing with stock trading tips. An apt example was when Xerox was making a comeback in the early 80s. The stock was underpriced. The company was writing off losses from an ill-conceived foray into the insurance business. These write offs hid the fact that the company was otherwise making money hand over fist. Anyone who took the trouble to read the financials of Xerox saw this. At this time a group of raiders sought to take over the company. However, they ran out of money and got on the wrong side of a bad trade. They had to sell a substantial portion of Xerox stock to cover losses when over extended. Xerox fell from $60 a share to $30 a share in a day. The stock trading tip of the day had been to buy Xerox as the buyout effort would drive the price up another $10 share. This tip made no sense when the stock fell by half, unless one understood the combination of fundamentals and market sentiment that drove the price down. Smart traders jumped in at $30 and bought the stock which opened the next day at $60 a share!
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