Profitable Profit to Earnings Ratio Trading

Profitable Profit to Earnings
Ratio Trading
By: www.ProfitableTradingTips.com

A tried and true tool for long term
investing is the profit to earnings
ratio. Buy a promising stock with a
low P/E ratio and it typically has a
high intrinsic stock value.
However, the P/E ratio can also be
a useful trading tool.
By: http://profitabletradingtips.com/profitable-trading-tips/profitable-profit-to-
earnings-ratio-trading

Profitable profit to earnings ratio
trading gets you into profitable
mid-term trades and gets you out
after the market wakes up to a
stock’s promise.

What is the difference between
profitable profit to earnings ratio
trading and the use of the P/E ratio
in investing? While investors rely
heavily on fundamental analysis of
stocks trades use technical
analysis to forecast changes in
stock value.

In order to make a profit using
technical trading skills a trader needs
to be trading a stock that is likely to
rise or fall in value. Day traders look
for moment to moment changes in
stock price and medium term traders
look for stocks that the market has
over priced or underpriced, often
based on a misreading of intrinsic
value.

Profitable profit to earnings ratio
trading happens when a trader
spots an overpriced or underpriced
stock. He buys or sells short
depending on what he believes will
happen next and waits for the
market to catch up and drive the
price higher or lower.

When Does Profit Occur?

Traders and long term investors differ
in how to make money in the stock
market. A long term investor believes
that he can pick a promising stock,
buy it, and hold it until it no longer
shows promise. He limits his expenses
by purchasing just once and, maybe,
selling just once.

A trader looks to make money in a
shorter time span. He will buy and sell
when the time is right and collect his
profit more quickly than a long term
investor. In profitable profit to
earnings ratio trading a trader uses the
same approach as a long term investor
in picking a stock.

However, he knows that when the
market catches on to the value of an
overlooked stock that it will bid up the
price in fits and starts and not in a
slow and gradual upward (or
downward) curve. Often times the
majority of profit from a stock occurs
in a few days or even in a few hours or
perhaps minutes.

Using the principle of profitable profit
to earnings ratio trading a trader buys
or sells short on a stock and waits for
the market to correct. Then he takes
his profit and goes home before the
stock corrects backwards. While the
long term investor is waiting for
eventual profits after the first move
the trade is scouting out other
profitable trades.

Return on Invested Time, Effort,
and Capital

A high return on investment in
trading stocks is the goal of any
trader. A day trader pays
commissions and fees every time
that he enters or exits a trade.

Perhaps the most important factor
in trading and in calculating return
on investment in trading stocks is
keeping track of just how much
money you make on each trade
and how much it costs.

Everyone wants to make money
trading stocks and the savvy stock
trader picks and chooses only the
best opportunities in stock trading,
commodities trading, or Forex
trading.

The point of using the P/E ratio as
a guide is that it puts you in
potentially profitable trades. Then,
using technical analysis, you can
get in and out with a nice profit
while a long term trader will still
have his capital tied up while
waiting for longer term growth.

Profitable Profit to Earnings Ratio Trading

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