How To Trade Stocks Like A Pro

If you want to trade stocks like a pro, you need to make fast decisions and understand statistics, data analysis, and how the market moves.

You might adopt thousands of strategies, and the obvious move isn’t always the right one.

For example, if you’re looking at stocks in a firm with reducing margins, your knee jerk reaction might be that it’s performing poorly.

However, if those lower margins are due to an expansion, or the business investing in a market-leading new product, you could miss out on a golden opportunity.

In this guide, we’ll share a few tips and tricks to help you navigate the world of stock trading like a pro – whether you’re a brand new trader or not. Of course, some tips also translate to trading NFTs and cryptocurrency.

Key Numbers To Consult Before Making A Stock Trade

The world of stock trades is fast and furious, so you’ll rarely have the time to sit back and relax while you digest management reports or get into any deep-dive research.

Knowing what information to look for and interpreting it is the first step to making intelligent trading decisions in record time.

Here are some of the crucial metrics to prioritise:

  • Sales figures: increasing revenue and sustainable, scalable growth are good signs. Sustainability is key, as a one-off sales boom may not have a tangible impact on the stock value.
  • Benchmark performance: smaller businesses turning over under £1 billion normally grow their sales by around 10 per cent year-on-year. Larger corporations often grow by a smaller three per cent – look for those ongoing growth indicators over the last few years, not just this year’s profits.
  • Margins: businesses can enhance revenue through increasing demand or competitiveness but might also be slashing their sales prices to gain market share. Margins are just as crucial as turnover because if sales are climbing but costs are increasing faster, it could be a sign of trouble (or might indicate an internal investment project).

Amazon is an excellent example of why profits and sales alone aren’t enough to make astute observations or predictions.

The mega-retailer spent several years investing in nationwide warehouse facilities, with minimal gains to show investors.

Eventually, the unrivalled infrastructure made shares skyrocket in value and set the framework for impressive returns sustained over the years to come.

You can look at the stock price history of the shares over the last ten years at MacroTrends.

Relying On Stock Trading Guidance

There are countless publications and advisory services offering guidance about potential future earnings.

While current stock trade pricing information is provided by the London Stock Exchange and other trading exchanges, analysis and predictions carry weight because they steer trading demand and expectations.

Listed companies also publish earnings guidance, including analytical data to inform stockholders of anticipated performance and forecasts.

Generally, stock traders need to look at longer-term overviews of past performance rather than immediate reports.

If a company publishes guidance for this quarter but doesn’t emphasise plans for the next, traders will likely sell their stocks.

However, if the company guidance has a positive full-year outlook, balanced against modest performance in the current quarter, their stocks will develop higher demand.

Ongoing upwards trends are more appealing than a one-time peak, so it’s best to keep your eye on how the markets react to earnings guidance rather than relying solely on that document alone.

Understanding Buybacks In Stock Trading

A buyback means that the organisation invests cash in purchasing back stocks from traders, which is normally a positive indication that the management team considers their stocks undervalued.

You’ll find information about buybacks (or repurchases) in corporate press releases.

There may be other drivers, such as:

  • Influencing traders to believe that stocks are worth more than their current market value.
  • Reducing shares in public trades to improve their financial ratios.

Generally, though, a buyback is a good sign that the company expects growth and improving margins or profits in the months ahead.

In essence, if the business buys back shares, then earnings are shared between fewer stockholders, and the available gains are higher. If shares increase, it dilutes ownership and means that potential profits decline.

Stock Report Terminology

Much of the complication for new investors is that press releases and earnings guidance can be subtle, and it isn’t easy to interpret the language used and get into the true meaning.

Press releases aren’t published in haste, so the wording used is deliberate and will pass through countless PR managers and legal teams before it makes its way into the wider world.

If a report is calm but muted, it normally means there have been issues or underperformance against the forecast.

Upbeat guidance can be positive but may also be an attempt to mitigate the fallout of previous poor performance or failure to deliver.

Hence, traders will make their decisions based on facts and figures rather than the tone of a press release.

Technical Analysis to Make Stock Trading Decisions

One of the best ways to make a solid decision about the value of a stock is to look at figures for the last five years compared to the current trading year.

This comparison will show you regular seasonal fluctuations, the norm in many sectors. You can also look at things like:

  • 200-day and 50-day averages to see whether the stock is trading above or below this marker.
  • How many shares are traded daily.
  • Whether share volumes have gone up or down recently.

The 10,000-foot view concept refers to the idea that, as a stock trader, you need to take a step back and look at the company from a distance before you make any decisions.

External factors, including macro trends, interest rates, tax bands and consumer movements, may impact the stock value alongside broader economic conditions that might negatively affect the trading environment.

Making a speedy analysis and making quick-fire judgement isn’t straightforward.

Still, if you focus on these key areas and know which figures to rely on, you’ll be in an excellent position to make sound judgments, factoring in all the crucial metrics.

How To Trade Stocks Like A Pro FAQ

What is the top tip to help beginners trade stocks like a pro?

The top piece of advice is to ensure you take all the emotion out of your decision-making. While there’s much to be said about investing in brands you love, you need to have a passive, unbiased approach and make calls with a level head.

How can I master stock trading?

There isn’t a catchall process to becoming a successful trader from scratch, but the key is to comprehend as much as possible and learn from your (inevitable) mistakes as you go. You can take online courses to learn about the share market, follow a mentor, seek expert advice or undertake your market analysis to see how well your predictions pan out.

If you’re new to trading, it’s wise to start with smaller positions to ensure you don’t expose yourself to massive losses without the opportunity to practise and test out a few different trading strategies until you find what works.

What is the best way to pick a stock?

Often, new traders find that the information available is overwhelming, and they become drawn into ticker symbols on the bottom of the exchange announcements.

The right way to select stocks is to find out how a company operates, where it stands within the sector, who it is competing against, and what the long-term prospects look like.

It is, nevertheless, perfectly possible to make a bad call armed with all the right information, and there are always unexpected disasters to factor in. Still, if you do as much research as you can or follow a select number of stocks before picking one that you’re confident in, you’ll be in good standing.

What does overactive trading mean in the stock market?

Trading moves much faster than long-term investing, but you might hold a position over a few months, or perhaps a quarter.

Checking the stock price continually and making decisions based on share sale values rather than your calculated company value can mean making bad decisions where no action is required.

For example, a sudden price movement could prompt a quick sale, but if there has been a blip that won’t make any difference long-term, you may be far better advised to hold your position as planned.

How can I develop a trading plan?

A trading plan is a great idea for new traders because you can write down your goals, risk exposure level and define what you’re hoping to achieve – in terms of the kind of stocks you buy and the expected returns you’re after.

This process is also useful to analyse how well you understand the market, determine how much capital you’re willing to invest, and give you a framework to revisit if you’re stuck in a decision and need to review your objectives to help you reach a conclusion.

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