How to determine stock value
You may have heard of undervalued and overvalued stock, but how is the value arrived at? Supply and demand help determine stock value. If the demand is high, the stock will fetch a high price. Does this mean that expensive stock is overvalued and cheap stock is undervalued? Not necessarily. Different methods can be used to determine stock value.
Determining the value
In order to determine the value of a given stock, you have to make use of strategies such as technical analysis or fundamental analysis. It is prudent to utilize both strategies to get the best result. Different factors play into the value of the stock. Factors may include cyclical fluctuations, news, misjudged results, or market dynamics.
To stand a chance at making a profit, you need to take time to research on quality stocks. You may find quality stocks that have been priced below their fair value or those that have been priced above their fair value. When trading, you should always hold the assumption that given time, the market prices will correct and give you the true value of the stock. When this happens, you stand a chance to make a decent profit.
To take a position on stocks, you need to make use of one of two ways. You need to make use of trading derivatives or investing. To invest, you need to buy stocks. You need to open a dealing account. You need to have a good understanding of the stock you intend to buy on the word go. For you to enjoy any profits, the share prices have to go up.
If you are not very confident at the start, you could make use of a Demo account and practice your strategy. In this case, you don’t need to know the value of the stock at the start.
How to choose stock
To find the right stock, there are a few things to consider. First off, you need to create a trading plan and put in place the strategies you will be using. You should have in place attainable goals as you create your plan. The goals should be time-bound, relevant, and measurable.
Different traders utilize different trading styles to come up with an ideal trading plan. As such, it pays to find one that suits your needs, level of experience, skills, and personality.
You could make use of any of the four styles below:
- Day trading which as the name suggests is trading that ends at the close of business. It is short term and requires plenty of trading activity.
- Position trading which is long-term and is low activity-wise. With it, you will be investing. This means buying and holding onto the stock.
- Swing trading is medium-term trading and which utilizes average activity.
- Scalping which utilizes very high trading activity and which is very short-term.
Regardless of the strategy or style you choose to utilize, you need to do your research, be patient, and practice good discipline if you are to enjoy trading in stocks.