Options Trading System

Stock Research

There are two main types of stocks (shares) and before going into any research it is important to know the difference.

Preferred Stocks

Preferred stocks (also called as preferred shares) are less traded on the stock market and they are less attracted by speculators. These stocks are more like a fixed investment in a company/corporation, rather than an equity interest. The preferred stocks have a started rate of dividend, which is payable only in the case when the corporation's finances allow to do so.

If you own preferred shares you are entitled to receive a fixed dividend which is not always guaranteed. Owner of preferred shares does not have voting rights at annual meetings or on company matters. In the even when the company/corporation receives a claim (up to a fixed amount) over assets from preferred shareholders this claim goes after all creditors (including holders of bonds) have been paid, yet, this claim has priority over those of common shareholders.

Most of the traded preferred shares are cumulative in their nature. As a rule, when the dividends are not paid they are accumulated and they must be paid in full before payment of dividends to the common shares holders. In case when preferred shares are non-cumulative, omitted dividend do not have to be necessary paid. You he to remember that dividend payments are not guaranteed.

There are other types of preferred shares:

• Participating Shares
• Retractable Shares
• Variable Rates Shares
• Convertible Shares
• Redeemable Shares

Common Stocks (Common Shares)

Common stocks the same as proffered stocks represent a degree of ownership in the corporation/company. Common shareholders may vote on questions affecting the company in proportion to the percentage of the ownership (number of shares held). Owners of common shares have the rights to elect the directors of the corporation. Yet, some types of common shares have limited voting rights, or even some may have no voting rights at all.

It does no matter which type of common shares you own, you may may still profit from an increase in stock prices or through dividends as well as you may lose from decline in stock prices. Most stock market investors expect that the price of the purchased common shares will rise with time, and the main  profit be the difference between price paid for the stock and price sold..

Stock Market Research

Why is Stock Market Research Important?

When it comes to the market analysis whether it is fundamental or technical analysis, stock research would be the first and we could say one of the most important part preceding any analysis. The research depends on the market, type of analysis you going to use in the future, your expectation from the investments, your risk tolerance and etc. Based on how stock research is done your market timing trading system may fail or be quite successful.

Market Stock Research General:

As was already mentioned above, depending on the type of analysis you are going to perform in the future, your stock research may differ greatly. As an example if you are going to se fundamental analysis and you are going to invest in a longer-term you stock research would include gathering all the possible information about public companies you are interesting it. Some basic information could be received from Securities and Exchange Commission (SEC). Annual and quarterly reports and balance sheets could be obtain from different sources as well. All of the gathered information should be processed and analyzed. As a result of this stock research you should end up with the list of stocks that satisfy your fundamental criteria and the stocks you feel comfortable to invest in. In general when performing fundamental stock research, the following points are recommended to be considered:

• The company ranking in its industry
• Does the company have earnings?
• Price to Earnings Ratio
• Increasing revenues and profits yearly?
• Is the company paying dividends?
• Past and Current news on the company?
• Future plans of the company
• Stock split history?
• Company graph of price and volume over time

On the other hand, if you are planning to use technical analysis and invest into a short-term, your stock research could be less involved into fundamentals. For building a market timing trading system based on the aspects of technical analysis you world be looking for stocks that satisfy your technical criteria, such as trading price range, average trading volume, average volatility, how stocks are correlated with general market trend, whether stocks generated stable results in the past with technical indicators you plan using and etc.

Steps of Stock Research

Your Stock Market Research can be split into several steps:

• Before doing anything it is recommended to become familiar with the basics of stock market trading which would include the knowledge of a trading tool you plan using - whether it stocks or ETFs or options or futures... Most of the new traders already have basic knowledge, however it is still recommended to re-confirm your it and even dig deeper, so you will not get surprised by commissions, margin requirements and margin calls, interest rate fees, exchange fees and etc.
• In the next step of your research you have to define subject and target. You have to find out what type of trader you are, what are your expectation. Just do not tell to yourself that you are coming to the market to make money it is not as simple - everybody are in the market for the money - starting from an average trader and by finishing big investments banks, mutual funds. Even FED comes to the market to make money. You have to know what amount of funds you are going to invest, how much you are not afraid to loose, are you short-, mid- or long-term trader, are you going to use fundamental or technical analysis and etc. Your further stock research depends on your answers.
• Further step would be to define whether you are going to focus on one particular industry (market sector) or you want to diversify between market sectors. Here you have to know whether stocks or ETFs (Exchange Traded Funds) would be your main investment vehicle. When it comes to the trading on the market, it is not only stocks and ETFs you have research and analyze. Indexes that covers your stocks market sectors or indexes that are tracked by your ETFs, they all should be analyzed together as they all move together on the stock market.
• In the next step you collect the information. Depending on the analysis you will perform in the future you collect either fundamental of technical data. In both cases it is recommended to collect historical prices (trends) and volume.
• In the last step you analyze the collected information and filter. At the end, from the thousands of stocks on the market,  you have to select one, ten, hundred (or whatever your goal is) number of stocks that you will use in your investments.