I'm a technical analyzer by trade. It's my job to analyze the Currency Markets Trends using graphs. I used to be obstinate, and not let anything else find their way into those "sacred" graphs. Now, I'm much more open to different things, especially when it comes to making money. There are plenty of investors that produce money using technical analysis complimented by Fundamental Analysis. I decided to do some research on the subject, and input it down on (virtual) paper to help me understand the terms and process better.
As i said above, there are many investors that use both fundamental and technical analysis for analyzing currency markets trends in order to make sound and profitable investments. Notice that I used the word "investments", and not trades. The difference between technical analysis and fundamental analysis is that both can be used to pick stocks, but only technical analysis can be used to time the entry and exit of the trade. Therefore, if your time horizon is shorter than six months, and preferably longer, fundamental analysis may not be the right tool for you to navigate the currency markets trends.
Investors using fundamental analysis will evaluate the price of an investment to determine its actual value compared to its Fairness market value. If the fairness market value is missing, it means a potential profit for the investor. Investors using technical analysis uses charting software to find patterns in stocks based on previous activity. On the other hand, fundamental analysis looks into the future in order to determine a company's true value.
Here are some terms that you will need to understand in order to do some basic fundamental analysis in your currency markets trends analysis. Combine these with some graphs and you'll find some outstanding opportunities that may don’t you have been present in just the chart alone.
Debt to Fairness Relation
A company's debt to fairness Relation indicates its financial leverage in the company. The debt to fairness relation is calculated by taking you’re able to send debts and splitting them by stockholders' fairness. A company with a high debt to fairness relation may indicate that the company has been accruing debt to finance its growth. This could mean that the company has more chance of a higher earning potential. Alternatively, this could indicate that the earnings may be volatile and a potential for bankruptcy looms. The shareholders would benefit if the shareholders area of the wages would increase. To add even more variables in, the debt to fairness relation may also rely on the in discussion.
An example of debt to fairness relation may be in relationship to mortgages or Purchase Capital. For instance, a home loan of $750, 000 may have an fairness value of $250, 000. The debt to fairness relation is 3: 1. This is also equivalent to 75%.
Price/Earnings Relation
The price to earnings relation helps investors determine the potential value of a company's stock. The price to earnings relation is calculated by splitting the price per share by the annual earnings per share (EPS). A low price to earnings relation means that the stock is undervalued on the market. The relation may vary depending on the time period.
For example, a stock may trade at $30 per share. Experts may predict that the stock may earn $6 per share. The P/E relation will be calculated by splitting the stock price by the prediction. This results in a P/E relation of 5. Investors pay $5 for every one dollar earned. The smaller the number becomes, the more profitable the company.
PEG Relation
The price to earning to growth relation is slightly not the same as the P/E relation. This represents you’re able to send expected growth. The number is calculated by taking the P/E relation and splitting that number by the annual EPS growth.
The PEG relation is more of an approximation. A company that is valued fairly high has a PEG relation equivalent to one, according to Peter Lynch, an investment expert. The P/E relation alone could make a high growth company appear overvalued instead of showing its true relative value. While the value typically falls between zero and one, the value may also be negative. For example, Company X is said to have a P/E relation of 30 and an annual growth of 30% a year. This would cause a PEG of one.
Cash Flows
There are two types of Cash Flows available: Non-operating cash flows and cash flows. Cash flows indicate a stream of revenue or expenses that flows via an account in a given period. The say of cash usually occurs from financing, operations or investing. The outflow of cash is usually a consequence of expenses or investments. Businesses usually keep track of this via an accounting statement. This number may be calculated by adding non-cash charges to a net income after taxes. This number is an indicator of the effectiveness of the company.
Non-operating cash flows typically include asset sale, dividend payments, stock purchases, loans and other investments. Both investment cash flows and financing cash flows are non-operating cash flows. Investors will review these statements when researching the viability of a prospective company. This is also helpful in determining how much capital a company needs to raise.
For instance, if a company gets $100, 000 in one year and experiences an A/R increase of $25, 000. Then, the money flows from operating activities would comparable to $75, 000. This number is valid if all the other assets and debts remain the same over the year.
Earnings Trends
Earnings trends signify the movement of the market or a company as you thing. Experts use actual data to determine the value of a particular security. For instance, economic factors may be assessed to determine the value of a security. This determination may be based upon nys of the economy, interest rates and other indicators. Earnings, potential growth, return on fairness yet others are also other factors of determining earnings trends.
Past earnings can be calculated by evaluating past earnings to view a trend in the company's profits. Companies with an upward earning trend may be known as a good investment.
In conclusion
It's not as hard as it may seem at first to run fundamental analysis on a company, it just takes some practice. If you are looking for long run candidates to add to your collection, it's worth the effort. Coupled with technical analysis, fundamental analysis is a great way to capture some of the best currency markets trends.
