Basic Trading Tools

The basic trading tools for successful investment:-

Technical Analysis
- Looks at the price movement of a security in form of price charts, and uses this data to predict its future price movements
- Technicians believe that all the information they need about a stock can be found in its charts, and that is right
- Uses technical indicators and may require visualization skills to recognize chart patterns for interpretation for possible future price direction
- Is used for short term trades to buy and sell at the appropriate time to attain higher profits

1. Technical indicators
- Bollinger Band, moving averages(2,5), EMA 20 days, MACD, stochastic, RSI, Cross Over
- Candlestick patterns (essential tool in entry and exit decision making)

2. Trend lines and chart patterns, support and resistance
- Fibonacci Retracement and pivot points

3. Volume analysis
- Essential tool for analyzing a stock together with price movements as shown in the candlestick charts
- Supporting tool to confirm entry and exit signals from candlestick tools

4. Volume Spread Analysis (VSA)
- Tom William's book "Master the Market"
- Volume and price relationships

5. Crowd psychology and how the market makers work

Fundamental analysis
- Looks at company's financial performance to evaluate its value, as well as macroeconomics, known as fundamentals, to assess the impacts on the financial instruments.
- Determine a company's value, called valuation by looking at the balance sheet, cash flow statement and income statement
- If the price of a stock trades below its intrinsic or fair value, it's a good investment
- Is used to make a longer term investment to select the reliable and less risky stock

1. Return on Equity (ROE)
2. EPS Growth Rate (EPS GR)
3. Gearing Ratio
4. Net Profit Margin
5. Intrinsic Value & Fair Value
6. Dividend Yield & Dividend Policy
7. Good Management & Competitive Advantage

A combination of both fundamental analysis and technical analysis
- will allow an investor/trader pick the right stock and trade at the right timing for maximum gains
- Using both techniques together is likely a sure win for an investor or trader
- Fund managers and smart investors would want to learn both techniques for their investments