Sunday, March 26, 2006

Factors I look at

I use a mix of Techanical and Fundamentals to pick a good stock. Below is an explaination of some of the factors I use.

MACD - a chart that represents 3 moving average curves. Great to show how the stock price has moved in the past few days. It uses Exponential Moving Average, in simple terms an average of the closeing price. Usally calculation based on 26,12,9 days moving average. A bullish crossover occurs when MACD moves above its 9-day EMA and a bearish crossover occurs when MACD moves below its 9-day EMA.

Stochastics -factors in the price trading range for the day. In general, if the stock end near the high of the trading range, indicates a bullish trade day. Bearish for the opposite.

RSI -Relative Strength Index based on the number of up and down closing. RSI of 30 indicates an oversold or undervalued price. RSI of 70 indicates overvalued, maybe a time to sell.

I never really buy a stock based on use one techincal indicator. 2 of of 3 need to bullish or a buy signal before I buy a stock.

Growth Rate- compounded annualized rate of growth of a company's revenues. I prefer 15% growth

PE- Price divided by Earnings per Share. I like stocks with 25 or less. In some cases a high PE is good if I only plan to invest short term

debt:cash ratio- A high ratio means that they have too much debt and is leveraging to much money to finance operations.