Trading Individual Stocks
Trading individual stocks means that you are going to not only have to understand the stocks that are traded but also have a good knowledge of other influential stock markets.
We will look at what things are essential to analyse when trading individual listed stocks.
Reading financial press
Generally, you will want to read the most recent information for clues to the day’s trading and get an idea of what stocks you may be interested in for the day ahead. Remember that the leading news is generally more important for your days trading. So, for example, a tabloid produced daily is more likely to have timely information than, say, a monthly print. It is also vital to extend what we have learnt previously. In reading press articles, we have to remember that most information is priced into the market; therefore, news in the paper is likely to comment on the news already known to the market.
Analysing Data
Look to see what the US markets did after you have gone home; it also helps see what happened in the Asian markets. The key things to look for are buying or selling pressure; it also helps if you write down the levels of the stocks you plan to trade for the following day and make a note of the support and resistance along with the previous day’s high and lows.
It makes good sense to check where the ADRs(American Deposit receipts) of the large stocks closed the night before in the US, so you can get a good idea of whether there was buying or selling pressure after you finished the day.
Before you Trade
Before you start trading, it is critical to have some idea of what stocks might be active on that day and there are various tools to help you do this; these include: –
• Reuters
• GNI European morning Report
• Dow Jones European Stock News
Before you start your day, it is also important to know if there is any equity earning being issued on that day, as it could impact what you plan to trade. Make a note of the expected earnings for release and get some information on the expected. Remember that the most important releases will be the ones that are released during your trading day because they can provide volatility, so particular importance should be given to those.
Indexes
Keeping an eye on the overall index is also good practice because any broken critical levels in the main index could affect the individual stocks within it. Reuters, Bloomberg, e-mails, the internet, and TV also provide continuous data throughout your trading day, so it is important to watch the screens!
Equity Earnings
As we mentioned before, individual stocks report their numbers, and it is important to know which ones are being released during the trading day. Reading the numbers can be tricky, so remember the following points when analysing the numbers.
• If a headline EPS or profit number beats forecasts – care needs to be taken because equity analysts at big firms may look at hidden factors which could provide bad news for the stock.
• Expectations for the quarters ahead are more important than results for the previous quarter – this means that if figures beat forecasts, they may shoot up but then head south once the results are correctly dissected. Keep in mind, “the first move is the wrong one!”
American Deposit Receipts (ADRs)
There are two types of ADRs :-
Sponsored ADR – is issued in cooperation with the underlying foreign company whose equity shares will underly the ADR shares. With the corporation’s sponsorship, the ADRs created in the issue usually afford their owners the same rights customarily given to stockholders, such as voting rights. For an ADR issue to become listed and trade on a major U.S. exchange, it must be sponsored by the underlying corporation. If not, the ADR issue is likely to be traded over the counter.
Unsponsored ADR – An American depositary receipt issued without the involvement of the foreign company whose stock underlies the ADR. Shareholder benefits, voting rights and other attached rights may not be extended to the holders of these particular securities. These securities generally trade over-the-counter rather than on the NASDAQ or NYSE.
Alternative ways to trade stocks
Many people now invest in stocks through private accounts that can be done through free software online, but the most common way is through Contract for Difference (CFD); many CFD companies offer individual stocks of the major companies globally and whilst these are not the same as trading on an exchange, investors find that trading through CFD’s provides accessibility to the marketplace without certain restrictions that other traditional methods of trading stocks may entail.
When you trade a CFD, you enter into a financial contract with a broker to exchange the difference in the price of an underlying security (such as stock) from the moment you enter the trade to the moment you exit it.
For example, if you think Apple’s share price will go up in value, you can buy a stock CFD at the current market price. If Apple’s share price rises and you sell your CFD at a higher price your broker will deposit the difference into your account.
