Logical Investor & Trader

Friday, March 19, 2021

When should you "Buy" or "Sell" shares ?

It could be a "Buy or Sell" for "Investment purpose & it can be for Trading purpose".

In both the scenario's, I would like to First use Fundamental analysis to see if a particular company even deserves to be looked at on the charts.

Most people go about it the other way. First they look at the charts and then they look at the “Fundamentals” of a company.

I cannot help but wonder why bother doing Technical analysis on a Fundamentally weak stock, after all in the long run it is doomed.

So why even look at it further.

Now everyone has their own way of looking at Fundamental analysis but i will list a few checkpoints which i apply :

Net Cash-flows (Yes for me it comes at top of the list because I have burned my finger due to not analyzing it before).
Earnings per share.
Profit margin.
Operating profit margin.
Return on Equity/ Net-worth.
Return on Capital employed.
Reserves & Surplus.
Cash.
Current ratio.
Quick ratio.
Interest coverage.
Inventory turnover.
Book value.
PEG ratio.
Balance sheet.

You can always dig deeper.

By that I mean what business the company does and what are it's prospects going into the future say 5–7 years down the line.

The whole idea of Fundamental analysis hinges on determining “Intrinsic value” of a security.

Now about Technical analysis, don't worry I won't take long and bother you with hush hush stuff.

For Investment purpose I would use “Weekly or Monthly time-frame”.

For Swing trading I would use “Daily time-frame”.

Let's not try to become a complicated "Day Trader" for now and just focus on “What Price action is” ?

For an example, just to understand here is what I would like to do hypothetically :

I know it is a bit more complicated than that but assuming you are a beginner that is the basic idea.

Few things to keep in mind :

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Regards !!