Using Fundamentals in Your Trades
2015 was the worst year that Wall Street had seen since 2011. The only area where there was any real success was in the NASDAQ, and despite all of Apple’s troubles in the latter half of the year, they were the primary force that moved this index upward. But thanks to what happens each December, coupled with the Fed’s delay in raising interest rates until mid-month, there was a lot more volatility in the last month of 2015 than there has been in past years. It made trading with any degree of success much more difficult than normal, and it created nightmares for many investors’ portfolios.
Now that it’s January, investors are looking forward to the January Effect. This is a phenomenon where the stocks that were dumped at the end of one year in order to make portfolios look better are bought back up at now cheaper rates. This is a purely psychological response, but it does make sense and it can have a profound impact on how you trade. The difficulty is that it can be very tough to predict what will come back up, and what was just driven down to the price level that it should realistically sit at. The most effective way to gauge this is to look at fundamental indicators. The most important of these is to try and determine what a company’s stock is actually worth. This is actually a really easy activity, but it takes some investigation.
First, determine the company’s overall worth. You can find this on a company’s balance sheet. Next, take the number of shares that exist. If you take the number of shares and divide it by the company’s worth, you will get a price. That is the company worth per share, and the closer that the number is to the current trading price, the more efficient the markets have been. If that math gives you a number that is higher than what the company is trading at, there is a very strong chance that the share prices will go up. This is a great way to find longer term binary options trades, especially if you are looking to hedge against unpredictable short term losses by taking out more accurate long term trades. And the best part is that all of this information is available for free online at various sites like Google Finance.
Also, what happens in January can effectively predict what will happen in the markets for the rest of the year. According to the Stock Trader’s Almanac, this is a phenomenon that occurs about 75 percent of the time. This may be purely coincidental, or it might be a psychological response on the behalf of traders. Either way, it’s hard to argue with something that correlates to yearlong market behavior 75 percent of the time. Despite what your initial reactions might be, it’s at least worth looking at this in order to help yourself get a better long term trading strategy for the coming year.
The thing to remember with this is that all of these concepts are long term tools. They are a necessary part of formulating a long term strategy, but your short term trades may or may not reflect what the long term says. However, most binary options traders do believe that trading with a greater overall trend is far better than trading against one. It slightly increases your probability of success with any given trade, and in this type of an activity, even an extra 5 percent edge in your overall strategy will equal a lot of extra profits over time.
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