Let Bygones be Bygones
Let Bygones be Bygones
In trading industry, you are only as good as your last winning trade. This means that whether you have experienced losing or winning, you shouldn’t dwell on your past—let bygones be bygones and look at the present condition of the market. This doesn’t mean that you shouldn’t learn from the past, instead, learn from this but never let it determine your future. The common mistake of some traders who hit it big-time think that they are invincible, being over-confident until they found themselves hitting rock-bottom.
In order not to look at your past losses with a heavy-heart, here is a guideline you must follow to save yourself from financial risk involved in trading:
- The best way to reduce the risk of losing is by scrutinizing the company you are planning to buy a stock. Analyze its annual earning, common stock dividends, preferred stock dividends divided by the total number of shares outstanding, net income with tax reduction, and earnings-per-share (EPS) which is the most important figure in evaluating a company since this will reveal if there is a growth or not.
- One of the most important things you have to consider is the company’s growth rate which can be evaluated using the formula price / earning = N / estimated earning growth rate.
- It is also very important to evaluate the company’s equity return which can be determined by this formula: company’s income / equity of shareholder = N. The answer in this equation would reveal how the company is using its capital.
- Always consider the volatility of a certain stock. This means that you should know the Beta which is a statistical measurement of stock market that can influence the stock price.
- After doing the stated above, the next step you should do is to determine the total return of the stock. This can be measure using this formula: total returns = dividends + or – stock price / a trader purchase price.
- Know the company’s book- value related to the price. This is equal to asset minus liability. When you divided the stock price by its book-value-per-share, you can come up with a precise figure of price-to-book value.
- You should scrutinize the debt of the company which can be determined by dividing outstanding debt from shareholders’ equity. When the company has high debt level, this is a sign of its vulnerability to volatile market conditions.
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