3 Stock Market Tips That Pay

These 3 Tips in the Stock Market will Pay Off

Man Getting Group Opinion
Man getting an opinion about stock. Cultura / Matelly

You will quickly improve your stock market results with these three tips. They are simple, effective, and work just as well with large and mid-sized stocks as they do with penny stocks.

1. Believe in Relative Strength

Think of stocks like a pendulum, swinging out too far one way, then over correcting as it swings back too far the other direction. The entire time, the pendulum is merely trying to come to rest at the middle neutral point.

Stocks are similar, in that buyers often push share prices higher than they should, just like the swinging pendulum arm. Likewise, when shareholders cash out, the selling can often be overdone, which puts the stock at undervalued levels.

This is where the Relative Strength Index (RSI) comes in. This is a Technical Analysis indicator which ranges from zero to 100, and implies whether shares are considered "overbought" or "oversold."

When the RSI falls to 30 or less, the selling may be overdone (thus indicating an attractive value for buyers). When the RSI rises above 70, then the stock have seen too much buying (and indicates overpriced shares). In other words, some analysts consider RSI values above 70 as a sell signal and RSI below 30 as a buy signal.

RSI can be manually calculated, but since it is displayed freely on most advanced trading charts, you will not need to do the work yourself.

In fact, it would be weird if you did.

You will benefit from RSI without having to delve into the more complicated mathematics, just like you don't need to completely understand electricity to use a light switch. Besides making for an ungainly article, it is not my purpose to delve into the calculations.

Anyone interested can take a look under the hood of RSI on various websites.

RSI should not be used alone to make trading decisions, but rather can serve as a powerful item in your toolbox to help solidify investment choices. Used in combination with other technical analysis tools, the Relative Strength indicator can be extremely helpful.

2.  Go Straight to the Balance Sheet

Simply put, a company's balance sheet shows you what they OWN and what they OWE. This is of paramount importance with penny stocks since so many of them have ugly financial positions or are near collapse.

Any publicly traded company (on the legitimate exchanges) is required to report financial results for every three month period.  That data becomes public knowledge, and as such you can view it at any financial portal, such as MarketWatch, or Yahoo! Finance.

Navigate to the Balance Sheet for the company. The default is almost certainly set to annual results, so choose quarterly (how to do this will differ for each web portal, site, or trading tool).

Take a look at Current Assets. This is the value of anything they could use within the next 12 months if required. Some examples include cash, short-term bonds, investments like stocks, receivables, certain inventory items...

Long Term Assets are items which could probably not be liquidated, sold, or used for day to day expenses, within the next year. Things like factories, long-term investments, equipment, land, and property.

Add current and long term together, and that's Total Assets. In other words, all the value (on paper at least) that the company's accountant is claiming exists. What the company OWNS.

Liabilities represent what is OWED. Current Liabilities include things like accounts payable, interest payments, approaching mortgage expenses... Long Term Liabilities involve long-term debt, pension obligations, office leases...

When a company has plenty of assets, above and beyond their liabilities, then they are in a strong financial position. On the other hand, when the amounts owed greatly outpace the value of what the company has and owns, they are in financial trouble.

3.  Ask for Opinions

There are plenty of educated, honest, approachable individuals who can give you an opinion on any stock you may be interested in. Many will provide their own outlook, and then you can decide if you will still sink your cash into the shares.

Hundreds ask me before they make their trades, and I always try to help guide them. Look to experienced relatives, co-workers, and friends who may understand the stock market well.

Asking for help is simple, and reminds me of the Chinese proverb:​ "He who asks is a fool for a minute, he who doesn't ask is a fool for life."