Investing Education Stories

When you look at a chart, you simply see candles or a line chart that gives you data points on price of the stock for your chosen time frame. The information alone is very limited in what it can tell the viewer. People see stock go up, down, and sideways, but they are limited as what the behind the scenes are stating. Momentum is a data point that can really put some perspective on a chart and allow you to get a better painted picture of what the equity can do. Momentum simply tells you how much buying or selling pressures are behind a move and how much volume is there.

When people evaluate stocks, they look to the upside and determine how far it can go. Using data they hear from reports or looking at a stock chart, they are trying to figure out what will propel the company further. However, there is the flip side to the equation that the average investor may not know, and that is the ability to short a stock. Shorting a stock is when you borrow the shares from your broker, sell them to the market, hoping to buy back at a lower price and return them to the broker, keeping the difference. Shares that are being shorted could indicate people are seeing indications the company stock could be pulling back.

If there were ever a more varying number out there, Target Price would certainly rival it. First, a target price is a determined price that is usually unique to the creator, of where they believe the stock is going to end up. Having a target of where you believe the stock could go is key, but with target pricing, it varies differently between people because there is not one set way on how to calculate a target price. You can use pure fundamentals, a mix of fundamentals and technical analysis, or strictly technical analysis.

The Money Flow Index is a tool that takes into account volume and the flow of money in either direction, and plots it as an indicator on your chart. This is great tool because it can give you an indication of where money is going and if the stock is over bought or over sold. If you have ever looked at a chart by itself and wondered how much higher or lower it could go, this indicator would give you an idea of when the price may reverse.

The Stochastic Oscillator is one of many different momentum indicators out there. This one specifically compares the closing price of an equity over a predetermined range of time. If you plot the tool, you will see that it operates on a 0 to 100 scale, with anything nearing 100 becoming overbought and anything nearing 0 being oversold. As with any indicator, these are not 100% accurate, but certainly get you in the ballpark when searching for buying and selling opportunities. This particular tool was developed by a person by the name of George Lane in the late 1950’s.

Return on equity is one of the most important measures of the profitability of a firm. Higher ROE are generally favorable to investors because it may imply that the company is more efficient in generating profits. Investors should always check the trend in ROE over time because relying solely on ROE for investment decisions is not always safe. For example it can be artificially influenced by the management or corporate insiders to increase ROE even if revenues and profits remain constant.