Your 5 step guide to successful medium term stocks trading
If you would like to trade stocks in the medium term – holding positions for anything from a day to a couple of weeks – you will need to conduct slightly more in-depth analysis than that of a shorter time span.
Step 1: gather your information
To compare companies in your shortlist you will need to gather information on the following:
- Prior earnings reports
- Forward looking estimates
- Analyst estimates
Step 2: tie it all together
You should now be left with the following:
The performance of the company's shares over a 12-month period, also compared to the index it is listed on.
Information on its profit, sales, debt, price to earnings ratio and any dividends it plans to pay.
Comparisons of its most recent trading data with previous periods and with predictions for the coming year.
Forward estimates of a company's earnings per share, revenue, net income and general outlook.
Information on any upcoming key events for the company that could drive its share price.
Analyst forecasts of how well the company might perform.
You now have a moderately detailed collection of research on the stock that taken altogether will give you a rounded view of the company and its prospects.
Step 3: use historical price charts to build a roadmap
Look at a price chart of the company's stock over the past 12 months.
Look back over your collection of research on the company and pay particular attention to any times that earnings reports were published, predictions were released and announcements were made.
Compare the two, looking to see how the company's share price reacted at all these important times – for example, if the company issued results last May that beat analyst expectations, pay attention to how much the share price moved and in which direction.
Step 4: consider different scenarios
Your next step is to sit down and work out a range of different scenarios that could occur in the future. This will help you respond quickly if such outcomes do materialise.
Ask yourself the following:
What sort of expectations are priced into the company share price?
What is the most likely outcome regarding events/news?
What has the market potentially priced in?
What would be unexpected?
This will help you understand what expectations have already been priced into the company's shares.
Step 5: technical analysis
After you have completed your analysis of the companies that you wish to trade, go straight to your price charts and use technical analysis to find possible entry and exit points.
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