The Price/Earnings to Growth (PEG) Value Ratio

The PEG (Price/Earnings to Growth) ratio is a tool that can help investors find undervalued stocks. It's not as well known as its "cousins," the P/E and P/B ratios, but is just as valuable.

When used in conjunction with other ratios, it provides investors a perspective of what the market thinks of a stock's growth potential relative to Earnings per Share (EPS) growth.

The PEG ratio compares a stock's Price/Earnings (P/E) ratio and its expected Earnings per Share (EPS) growth rate.

If the PEG ratio is equal to 1, it means that the market is pricing the stock to fully reflect the stock's EPS growth.

Which is "normal," in theory, because the P/E is supposed to reflect a stock's future earnings growth in a rational and efficient market.

If the PEG ratio is great than 1 it could indicate that the stock is overvalued or that the market expects future EPS growth to be greater than what is currently the consensus number.

Growth stocks typically have a PEG ratio greater than 1 because the investors are willing to pay more for a stock that is expected to grow rapidly - otherwise known as "growth at any price."

Or it could be that the earnings forecasts have been lowered but the stock price remains relatively stable for other reasons.

If the PEG ratio is less than 1 it could be a sign of an undervalued stock or that the market does not expect the company to achieve the earnings growth that is reflected in the estimates.

Value stocks usually have a PEG ratio less than 1 because the stock's earnings expectations have risen and the market has not yet recognized the growth potential. On the other hand, it could also indicate that earnings expectations have been reduced faster than the issue of new forecasts.

It is important to note that the PEG ratio cannot be used in isolation. Like all financial ratios; in order to properly use PEG ratios investors must use additional information in order to get a clear perspective of the investment potential of a company.

Investors must understand the company's operating trends, fundamentals, and what is reflected in the expected EPS growth rate.

Additionally, the P/E and PEG ratios must also be analyzed in relation to its peer group and the overall market in order to determine if the stock is overvalued or undervalued.

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No Load Mutual Funds or Exchange Traded Funds (ETFs) ?

If you are fed up with early redemption charges and ever increasing mutual fund management fees on top of bad-performing fund managers, read on.

There is a quiet revolution going on in the no-load mutual fund industry and you, the individual investor, may benefit from it greatly.

I am referring to Exchange Traded Funds (ETFs), which have been around for years, but have grown tremendously since their inception. There are currently over 100 choices with around $10 billion in assets.

In a nutshell, an ETF is a specific kind of no-load mutual fund that you might consider to be a basket of stocks. ETFs are diversified like mutual funds, only they trade like stocks. They are cheap to trade (as low as $8.00) and don't hit you with any short-term redemption fees. And they offer investing opportunities across the board.

ETFs track every index under the sun including the S&P 500, the Nasdaq 100, The Russell 2000 and many others.

Available through any stockbroker, they basically fall into one of the following three major categories:

1. Broad-Based U.S. Indexes

2. Sectors and

3. International

They have esoteric names such as iShares, StreetTracks, HOLDRs and SPYDRs. The difference is in the index they are tracking and the company marketing them. You will see big name companies offering them, like the American Stock Exchange, Barclay's Global Investors, Vanguard, and State Street Global Investors.

In addition to inexpensive trades and no short-term redemption fees, how else can ETFs save you money vs. no load mutual funds?

One way is on their annual management fees. That fee for ETFs is in the area of 0.45% vs. 1.5% on average for no load mutual funds. The fees charged by discount broker are so low they almost can be disregarded, usually less than 0.1% of the transaction.

So, if these ETFs are so great, why hasn't your broker or financial planner recommended them to you? Simple! Brokers, and those advisors working on commissions, don't make money on ETFs; no commissions up front or hidden on the back end. It's simply not in their interest to promote them!

With all the positives for the investor, there is one disadvantage, which may not be applicable to you unless you are a hot shot no load mutual fund picker.

It is that in any given economic environment really super performing mutual funds can outperform the indexes, but an ETF can never outperform the index it's tied to. You would need to look at your own investment record to know whether this is a downside for you.

A word of caution! Just because ETFs are cheap and easy to buy doesn't mean they will guarantee you a profit. You can lose money with them just as easily as you do with no-load mutual funds!

You still need to make sure you have a disciplined methodology in place to help you get into and out of the market ...

If you don't, you're gambling no matter what you invest in!

By Ulli Niemann

www.successful-investment.com

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The Best Investment!

"I can get no remedy against this consumption of the purse: borrowing only lingers and lingers it out, but the disease is incurable."

Shakespeare, William (1564 - 1616)

How thick is your billfold these days?

Is it full of cash or credit cards?

One of the critical keys to investing is only to use money that is free of other obligations.

The quick way to increase the power of your money is common sense:

Pay for everything in cash and don't incur any debt!

That's easily said if you have a high income. But not everyone has that luxury, and even those of you who do, find it hard to resist the temptation to borrow.

Formulate a debt reduction plan today and follow through on it!

Paying off your credit cards is your best single investment!

Where else can you get a risk free, guaranteed rate of return, of up to 20%?

It is the old story of a penny saved is a penny earned!

In looking at your financial position, until you pay off your existing debt, your investment returns will be offset by the interest you are paying on your debt service.

Credit cards are a great convenience that millions of us use all the time for dozens of reasons. Plastic money is also a great source of financial pain and suffering. People get caught up in the really low minimum payment schedules and the easy ways that they can get cards. And what has happened?

Record numbers of people find themselves in financial troubles!

So what's the answer?

Have only one card! Use it to guarantee hotel rooms, get rental cars and to make purchases when there is a really good sale on something you absolutely want or need. Pay all the balance every time you get a statement.

If you want to reduce the number of your credit cards, then you have a few options:

A. Pay them off as fast as you can!

B. Pay the one with the smallest balance, then take that payment and add it to the next one, and so on until you're done.

C. Pay more than the minimums where possible. It can take years to pay off a balance by paying minimums only.

If you still have a card with a high interest rate, and are carrying a balance, get a new card with a lower rate and transfer the balance.

D. Cut your cards up and throw them away!

Call the credit card companies and tell them you want the accounts canceled!

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The Charles Dow - Stock Market Theory

The Dow Theory is certainly the most celebrated, complicated, and least-understood interpretation of market action, probably because neither Charles Dow, who founded the Dow Jones Company, nor any of his various disciples has ever defined the theory precisely.

In essence, the Dow theorists hold that there is a primary movement in the market at all times -- a kind of basic tidal action.



Then there is a secondary movement, which might be likened to waves.

And finally, there are the ripples on the surface that represent the daily movements of the prices.

The Dow theorists contend that it is possible to tell when either the primary or secondary direction changes by comparing the actions of the various averages, such as the Dow Jones Averages.

When they move in the same direction for a given period of time, either up or down, they are supposed to indicate a significant change in the direction of the market, which will hold good until the two averages “confirm” each other again in an opposite direction.

This is what the “market experts” are talking about when the i.e. say “the rails confirmed the industrials” -- or when they worry publicly about the failure of one to confirm the other.

Dow theorists contend that by their somewhat nebulous formula, they have been able to forecast every significant movement in the market for many years. Other analysts, looking at the same set of facts, dispute the Dow Theory's record.

They say it can only be made to look good when the forecasting has become history. Nevertheless, many financial editors continue to expound the Dow Theory and various Dow disciples appear in the advertising columns from time to time, offering a letter service, usually short-lived -- to explain the market action in Dow terms.

Very often, the investors will encounter what appears to be a striking contradiction between the news and the market reaction to that news.

There is one simple explanation for such paradoxes:

Let us assume that the stock market has “discounted” the news. The big traders -- “the people supposedly in the know” -- were certain that i.e. a special dividend was coming, because the X Company’s profits had been increasing spectacularly.

They had already bought or sold in expectation of these developments, and when the actual news-breaks attracted public interest in the market, the professionals seized their opportunity:

They sold when others bought or bought when everybody else was selling.

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Compound Interest ... The 8th Wonder and Albert Einstein

The best long-term investor's friend is called compounding, and it can certainly make you rich!

I never cease to be amazed by the power of compounding in an investment program!

Indeed, seeing literally pocket change become millions over time is truly a remarkable thing!

Here's the story of an ancient Athenian merchant entrusted with a large sum of money to establish a trust fund to run for 2,000 years.

This Athenian pocketed all the money except a single Drachma, which he invested in Athenian government bonds paying 3 percent compounded annually.

He didn't live long enough to see the results, but after 2,000 years that Drachmae wound up being worth more than all the assets on the Earth!

When it comes to investing, compounding means that you can earn interest on your principal, as well as on any other interest you may have ccumulated.

Getting started with investing as early as possible can make a big difference in how much wealth is ultimately accumulated. The benefits of saving early in life are greatly magnified by compounding.

In this process, the growth of an investment's value is computed on the sum of the original investment, including the assumption that dividends or interest are reinvested in the same asset.

Overall, the power of compounding can make assets grow much faster.

Money goes to Money ...

Certainly!

Because compound interest is a really marvellous invention. - Albert Einstein (1879 - 1955) called it the 8th Wonder - It can work for you, or against you. When you invest it works for you. When you borrow it works against you!

You can become financially secure by winning the lottery. The surer way is to save money, invest it and ...

Let it compound!

The Rule of 72

To be able to do compound interest problems in your head, the Rule of 72 gives you a lightning fast benchmark to determine how good (or not so good) a potential investment is likely to be.

The rule of 72 says that in order to find the number of years required to double your money at a given interest rate, you can just divide the interest rate into 72.

For example, if you want to know how long it will take to double your money at eight percent interest, divide 8 into 72 and get 9 years.

The rule of 72 is remarkably accurate, as long as the interest rate is less than twenty percent.

You can also run it backwards. If you want to double your money in six years, just divide 6 into 72 to find that it will require an interest rate of about 12 percent.

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Neural Networks Learn Forex Trading Strategies

The latest buzz in the Forex world is neural networks, a term taken from the artificial intelligence community. In technical terms, neural networks are data analysis methods that consist of a large number of processing units that are linked together by weighted probabilities. In more simple terms, neural networks are a model loosely resembling the way that the human brain works and learns. For several decades now, those in the artificial intelligence community have used the neural network model in creating computers that 'think' and 'learn' based on the outcomes of their actions.

Unlike the traditional data structure, neural networks take in multiple streams of data and output one result. If there's a way to quantify the data, there's a way to add it to the factors being considered in making a prediction. They're often used in Forex market prediction software because the network can be trained to interpret data and draw a conclusion from it.

Before they can be of any use in making Forex predictions, neural networks have to be 'trained' to recognize and adjust for patterns that arise between input and output. The training and testing can be time consuming, but is what gives neural networks their ability to predict future outcomes based on past data. The basic idea is that when presented with examples of pairs of input and output data, the network can 'learn' the dependencies, and apply those dependencies when presented with new data. From there, the network can compare its own output to see how close to correct the prediction was, and go back and adjust the weight of the various dependencies until it reaches the correct answer.

This requires that the network be trained with two separate data sets — the training and the testing set. One of the strengths of neural networks is that it can continue to learn by comparing its own predictions with the data that is continually fed to it. Neural networks are also very good at combining both technical and fundamental data, thus making a best of both worlds scenario. Their very power allows them to find patterns that may not have been considered, and apply those patterns to prediction to come up with uncannily accurate results.

Unfortunately, this strength can also be a weakness in the use of neural networks for trading predictions. Ultimately, the output is only as good as the input. They are very good at correlating data even when you feed them enormous amounts of it. They are very good at extracting patterns from widely disparate types of information — even when no pattern or relationship exists. Its other major strength — the ability to apply intelligence without emotion — after all, a computer doesn't have an ego — can also become a weakness when dealing with a volatile market. When an unknown factor is introduced, the artificial neural network has no way of assigning an emotional weight to that factor.

There are currently dozens of Forex trading platforms on the market that incorporate neural network theory and technology to 'teach' the network your system and let it make predictions and generate buy/sell orders based on it. The important thing to keep in mind is that the most basic rule of Forex trading applies when you set out to build your neural network — educate yourself and know what you're doing. Whether you're dealing with technical analysis, fundamentals, neural networks or your own emotions, the single most important thing you can do to ensure your success in Forex trading is to learn all you can.

by Duncan McQueen

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Forex and Some Important Facts about Bollinger Bands

Forex trading is nowadays one of the most looked after occupation for many persons of all ages around the world. This is due to its great advantages over other capital markets and its high profitability potential; among these advantages you will find that is extremely easy to access a trading platform from the best forex broker firms thanks to the internet; and also you will notice that Forex has a high liquidity along with a high leverage.

But having a good broker firm and great trading platform is only one part of what you need in order to make your forex trading career a winning and profitable one. You need to have the right knowledge and techniques in order to forecast with the best accuracy what the market will do next. One of the techniques used to predict the Forex market behavior is that based on Bollinger Bands.

These Bollinger Bands are what is called a technical trading tool and they are widely used in the capital markets (including Forex) and were created by John Bollinger in the early 1980s. These bands technique was formulated based on the need for adaptive trading bands and the discovery that the volatility of the markets was a dynamic phenomena, not a static one as was widely believed at the time.

Bollinger Bands consist of a chart of three curves drawn in relation to currency pairs prices. The band situated in the middle is a measure of the intermediate-term trend and is usually a simple moving average, that serves as the base for the upper and lower bands. The interval between the upper, lower and the middle bands is determined by the volatility of the market, typically the standard deviation of the same data that were used for the moving average. The default parameter is 20 periods and two standard deviations above and below the middle band; of course this may be adjusted to suit your needs.

In short, the purpose of Bollinger Bands is to provide a relative definition of high and low price. By definition prices are considered high when touching the upper band and low when they touch the lower band. This relative definition can be used by the Forex trader to compare price actions and as a very useful indicator when the purpose of the trader is to arrive at rigorous buy and sell decisions.

by Adrian Pablo

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Trading Forex With Pivot Points

Pivot Point Trading are used today by Forex Traders and are calculated on the previous days move and trades are entered when the market hits a support or resistance line of the pivot point providing your OB/OS indicator is in agreement. All the support and resist lines are put in place 1st thing in the morning. then you wait for the market to hit those entry Points.

Contrary to what some might believe, trading Forex with Pivot Points are probably the most popular method used in trading the financial markets today. Long before the invention of computers this was the method used by the traders in the pits to determine hidden support and resistance levels.

The Pivot Point is still used by experienced floor traders and technical analysts alike. The major advantage now is that we now have computers and can calculate our points well in advance. Many charting packages can calculate them for you automatically, thus enhancing the use of Pivot Points.

Whilst there is a lot more to Pivot Point Trading in Forex Trading than we will be mentioned in this article, the purpose of this exercise is to introduce you to the concept of trading Forex with Pivot Points.

Remember the market can only go up, down, or sideways. It is like an elastic band that has been stretched, sooner or later it will rebound to an equilibrium point where the market is in balance, and then stretch the opposite way only to rebound and reach another balance point. Then some fundamental announcement or happening will drive the market in a new direction and so on day after day. Pivot Points can aid us in determining how far that elastic can stretch before it rebounds.

Whilst there are many time frames that can be used for calculating Pivots, for the purpose of this exercise lets concentrate on the daily time frame (i.e.: 24hr) Pivot Points are calculated using the previous days, Open, High, Low, and Close figures. There are many Pivot Point calculators available on the web so you don't have to waste your time doing the calculations manually. Also bear in mind the longer the time frame you are using the longer you must be prepared to stay in the market or wait for the next entry point.

Pivot points unlike many other indicators are an objective tool. Because they are mathematically calculated, there can only be one answer for a specific time period.

Many subjective indicators like Fibonacci retracements, (and I am a great fib fan) Elliot waves etc. can have different people trading in different directions at the same time due to individual interpretation..

The PP's can help you to predict the next day's highs and lows in advance. PP's can give you anything from 4 to 8 support and resistance levels. However you still have to be able to identify the trend to be a successful PP trader. Pivot Points also work best in a trending market.

Entry and exit points

Pivot Points can give you exact entry and exit points, rather than enter markets that are in the middle of a run, or about to turn the other way. Here is where we use other indicators to assist on the entry or exit. If the market stalls at a Pivot Point level, and you have an overbought or oversold indicator that will be a good time to get in or out. Or if a Fibonacci level coincides with a Pivot Point level it can make a strong case to enter or exit a trade. If the market is bullish and your favourite indicator is not near overbought, when it hits the first resistance level then you probably have a good case to stay in the market and make your profit target the next Pivot Point resistance line. The breakout above the 1st resistance level can then become your new stop or stop reverse.

Obviously the reverse is true of the support level as well. By combining the Pivot Points with your favourite indicator you can develop your own trading system that no one else uses.

Trading for the day will probably remain between the 1st support (S1) and resistance (R1) levels as the floor traders make their markets. Once one of these levels is penetrated other traders will be attracted to the market, and should the second level be breached, the longer term traders are attracted to the market.

Knowledge of where the floor traders are expecting support or resistance can be a distinct advantage especially when there is no outside influence in the market. Provided no significant market news has occurred between yesterdays close and today's opening, the local floor traders and market makers tend to move the market between the Pivot Point (P) and the first support line (S1) and resistance (R1) If one of these levels is breached then expect the market to test the next levels (S2) and ( S3) or (R2) and (R3)

Whilst there are many other aspects to Pivot Point trading why not try this simple method first and see if you can develop your own strategy by using your existing trading technique's in conjunction with the Pivot Points.

by Eddie Sieberhagen

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How To Read Forex Charts: 5 Things You Must Know

Learning the basic skills in forex, such as how to read forex charts, is really important.

This is because once you have this vital skill under your belt, it will be a lot easier and quicker when the time comes for you to learn and practice an actual forex trading system.

By the time you finish this article, you'll learn how to read forex charts, as well as know the pitfalls that can occur when reading them, especially if you haven't traded forex before.

Firstly, let's revise the basics of a forex trading as this relates directly to how to reade forex charts.

Each currency pair is always quoted in the same way. For example, the EURUSD currency pair is always as EURUSD, with the EUR being the base currency, and the USD being the terms currency, not the other way round with the USD first. Therefore if the chart of the EURUSD shows that the current price is fluctuating around 1.2155, this means that 1 EURO will buy around 1.2155 US dollars.

And your trade size (face value) is the amount of base currency that you're trading. In this example, if you want to buy 100 000 EURUSD, you're buying 100 000 EUROs.

Now let's have a look at the 5 important steps on how to read a forex chart:

1. If you buy the currency pair, that is, you're long the position, realise that you're looking for the chart of that currency pair to go up, to make a profit on the trade. That is, you want the base currency to strengthen against the terms currency.

On the other hand if you sell the currency pair to short the position, then you're looking for the chart of that currency pair to go down, to make a profit. That is, you want the base currency to weaken against the terms currency.

Pretty simple so far.

2. Always check the time frame displayed. Many trading systems will use multiple time frames to determine the entry of a trade. For example, a system may use a 4 hour and a 30 minute chart to determine the overall trend of the currency pair by using indicators such as MACD, momentum, or support and resistance lines, and then a 5 minute chart to look for a rise from a temporary dip to determine the actual entry.

So ensure that the chart you're looking at has the correct time frame for your analysis. The best way to do this is to set up your charts with the correct time frames and indicators on them for the system you're trading, and to save and reuse this layout.

3. On most forex charts, it is the BID price rather than the ask price that's displayed on the chart. Remember that a price is always quoted with a bid and an ask (or offer). For example, the current price of EURUSD may be 1.2055 bid and 1.2058 ask (or offer). When you buy, you buy at the ask, which is the higher of the 2 prices in the spread, and when you sell, you sell at the bid, which is the lower of the two prices.

If you use the chart price to determine an entry or exit, realise that when you place an order to sell when the chart price is say 1.330, then this is the price that you'll sell at assuming no slippage.

If on the other hand, you place an order to buy when the chart price is the same price, then you'll actually buy at 1.3333. A forex system will often determine whether your orders will be placed simply according to the chart price or whether you need to add a buffer when buying or selling.

Also note that on many platforms, when you're placing stop orders (to buy if the price rises above a certain price, or sell when the price falls below a certain price) you can select either "stop if bid" or "stop if offered".

4. Realise that the times shown on the bottom of forex charts are set to the particular time zone that the forex provider's charts are set to, be it GMT, New York time, or other time zones.

It's handy to have a world clock available on your computer desktop in order to convert the different time zones. This is important when you're trading major economic announcements.

You'll need to convert the time of an announcement to your local time, and the chart time, so you'll know when the announcement is going to happen, and therefore when you need to trade.

5. Finally, check whether the times on your forex charts corresponds to when the candle opens or when the candle closes. Your charting software may be different to someone else's in this way.

The reason I mention this, is that if you need to trade major economic announcements, either by entering a trade based on the movements that happen after the announcement, or to exit a trade before the announcement in avoid getting stopped out during it, then you need to be precise (to the minute!) as these trades are performed according to what happens at the 1 minute immediately after the announcement, not the candle afterwards!

So there you have it.

You now have the 5 essential keys to how to properly read forex charts, which will help you to avoid the common mistakes which many forex beginners make when looking at charts, and which will speed up your progress when you're looking at forex charting packages, and forex trading systems that you want to trade!

Now that you know this, practice looking at forex charts with each of these 5 points in mind.

So get to it!

by Mark Hamburg

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What's the .382 Fibonacci Ratio in Forex Trading?

It was mentioned in a past article that Fibonacci forex trading is the basis of many forex trading systems used around the world by profitable forex traders. These systems are all based on the famous Fibonacci ratios (.236, .50, .382, .618, etc.) and each of them can specialize in a particular ratio along with other minor indicators in order to make the pinpointing of the entry and exit levels as accurate and profitable as possible.

One of the widely used Fibonacci ratios is the 0.382 ratio. As it can be easily seen on any forex chart, currency prices are continually changing and they follow an oscillatory pattern with peaks and valleys. The limit of the peak is usually called a resistance level while the valley is usually called a support.

In order to find the 0.382 ratio level what you do is, first; measure the size of the drop or rise over your time of interest. Once you have that value you multiply this by 0.382. Now depending on what you are looking at, a rise or a drop on the price of the particular "currency pair" you are trading, you will add the last value you calculated to the total drop or subtract the value from the total rise.

These operations will give you the 0.382 Fibonacci ratio level, either for a rise or a drop on the chart you are analyzing. Once you have the value you can then start planning the strategy you will follow in order to make a high probability profit from this valuable information. For the 0.382 ratio level calculated for a recent rise in the "currency pair" exchange price, your calculated level will be a highly probable support and for the case of a level calculated for a recent drop of the prices your level will be a highly probable resistance.

Knowing this ahead of the market and having the proper secondary indicators, will give you a huge advantage over most forex traders, and that's something any trader would like they could count on. That's why Fibonacci trading is so widely accepted over the world, and of course, why it's so profitable and successful.

by Adrian Pablo

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