Investment in stock markets is one of the avenues to grow your money; if one manages the risk of stock markets properly, he can take advantage to secure financial position and earn money. The most important thing you need to know before investing in the stock market is, there are primarily two major ways to invest. One of them is the way of fundamental investing, and another one is analytical investing, which is specifically used for identifying the Intraday stocks. These are totally different methods, and an investor should not mix up the trading strategies of one another as this would lead in spilling disaster for the investor.
Trading based on fundamental is like old school trading, which is followed by value investors such as Warren Buffet. The fundamental analysis involves company research, deep-diving into company’s financials and evaluating the company’s performance by using extensive valuation techniques. The business model of the company must be fully understood.
The investors need to know about the incomes, growth catalysts, competitors, the political and the economic framework in which the country operates. This is a very organic way of investing and its generally recommended irrespective of the goal, i.e. whether you are a day trader or a long term investor, you must learn to read and understand income statement, Balance sheet items, and Cash flow statements.
On the flip side, analytical analysis based trading is altogether a different ball game. It is a more modern way of investing. Analytical trading can be broadly segregated into day trading and swing trading. These are essentially the same in terms of philosophy. Day trading is quick trading, refers to buying and selling of a stock on the same day. People good at it are able to make a lot of money within a very short span of time. When you buy a stock today and sell it the next day or a few days later, which means very short term trading is referred to as swing trading.
If you have ever looked at a stock market chart, you will find that it looks like a line chart with so many peaks and troughs. The analytical traders like to figure out whether the stocks are going to make peaks or valleys. If they are able to make accurate predictions, they will end up in the money. They make predictions using analysing support levels, resistance levels and candlestick patterns. The line joining the recent peaks of the stock is known as the resistance level. The line joining the recent bottoms created by the stock is known as support levels.
The reason why the stock market goes up and down is because big investors come in and they invest in a lot of companies. There are a million reasons why big investors buy a stock. Day traders and Swing traders pick these fluctuations up using screeners and are able to see when these stocks are about to make a jump. If they are able to spot these stocks in time and analyse the data, they will buy the stocks as it breaks the resistance line, after which the stock usually skyrockets. Day traders and swing traders try to ride the wave and sell out at the top. This is how they make money.
Now we must understand how screeners can be used to filter out stocks. First of all, let us understand why the FTSE 100 index is considered in our discussion for filtering stocks. FTSE 100 is the broader quity benchmark index in the UK. It consists of heavy-weight companies with a global presence. Therefore, the risk of price manipulations and other malpractices such as insider trading is mostly mitigated.
Let us understand some screeners.
Volume is the total amount of shares being traded in a given day or a given moment.
Float is the total number of stocks out in the market which you can buy as a trader. However, Float is different from the market capitalisation of the company as it does not include the shares owned by the promoters of the company.
Volatility gives a measure of the percentage by which stock would go up or down. Float is inversely proportional to volatility. Lesser Float would mean higher volatility. Higher volatility means more peaks and throughs. Higher volatilty, higher volume and lesser float in a stock is ideal for intraday traders. In simple words, Volatilty is a function of Volume and Float.
Another strategy deployed by intraday traders is that if the stock is trading near 52 weeks high, it is more likely of it to go down and vice-versa. In additon, intraday investors closely monitor the release of trading updates by the company. If good performance is expected in the results, the day on which they are published, the stock usually goes up on the basis of underlying performance and investor sentiment.
Let us discuss some FTSE 100 stocks with higher volatility.
- Carnival Plc (LON: CCL)
On 28th May 2020, at the time of writing (before market close, GMT 10:05 AM), Carnival Plc shares were slightly up by 3.47 per cent against its previous day closing price, trading at GBX 1,196. Stock's 52 weeks High and Low is GBX 4,079/GBX 581.
The stock has a traded volume of 7,306,354. The float stood at 153,883,518. The daily volatility of the stock was around 9 per cent while writing.
- Easyjet Plc (LON: EZJ)
On 28th May 2020, at the time of writing (before market close, GMT 10:13 AM), Easyjet Plc shares were up by 5.45 per cent against its previous day closing price, trading at GBX 747.20. Stock's 52 weeks High and Low is GBX 1,570.00/GBX 410.
The stock has a traded volume of 11,971,401. The float stood at 259,936,920. The daily volatility of the stock was around 6.6 per cent while writing.
- International Consolidated Airlines Group SA (LON: IAG)
On 28th May 2020, at the time of writing (before market close, GMT 10:18 AM), International Consolidated Airlines Group SA shares were down by 1.73 per cent against its previous day closing price, trading at GBX 244.40. Stock's 52 weeks High and Low is GBX 684/GBX 159.25.
The stock has a traded volume of 42,395,952. The float stood at 1,481,466,497. The daily volatility of the stock was around 6.3 per cent while writing.
The basic idea of analytical trading is to figure out the resistance and support levels of the stock. If the stock breaks the resistance line, it is called a breakout. Ideally, the day trader would buy the stock near the breakout point and would ride the line up simultaneously analysing new resistance or support lines and selling at the right time. This analysis involves a lot of techniques, and this is how they are able to make money. It might seem very simple, but it is quite complicated and takes a lot of experience to do it.
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