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What are Fibonacci Extensions?

In Fibonacci line analysis, chartists attempt to predict how far a trend will go in a single direction, despite some minor pullbacks that do not break the overall, stronger trend (behavior known as retracements). Trends can be upward or downward and still experience this phenomenon. Fibonacci extensions are estimations of the next high after an initial push and retracement, using Fibonacci sequences as guidelines. Some investors believe that, like many naturally occurring systems in nature, mark... Continue reading...

What are Fibonacci Clusters?

Fibonacci lines, retracements, and extensions are used by chartists to identify possible future support and resistance levels, as well as areas where there may be reversals. Investors can use this information to put hedges or speculative bets in place, if they believe that, like many naturally occurring systems in nature, the market behavior will exhibit some fractal-like forms that can be measured with Fibonacci sequence numbers and the Golden Ratio. Continue reading...

What are Fibonacci Numbers/Lines?

Fibonacci numbers are part of the Fibonacci sequence, where the two previous numbers are added together to calculate the next number in the sequence. The ratio of two Fibonacci numbers is the Golden Ratio, or 1.61803398875, which has been used since ancient times as the perfect proportion in architecture and other design. The Golden Ratio is also known as Phi (pronounced “fee”). Because Fibonacci numbers are found throughout the natural world, they have been integrated into some traders’ strategies for market analysis. Continue reading...

What are Fibonacci Numbers?

Fibonacci numbers are part of the Fibonacci sequence, where the two previous numbers are added together to calculate the next number in the sequence. The ratio of two Fibonacci numbers is the Golden Ratio, or 1.61803398875, which has been used since ancient times as the perfect proportion in architecture and other design. The Golden Ratio is also known as Phi (pronounced “fee”). Because Fibonacci numbers are found throughout the natural world, they have been integrated into some traders’ strategies for market analysis. Continue reading...

How to Trade Moving Averages: The Death Cross?

The Death Cross is the inverse of a Golden Cross: a chart pattern occurring when a security’s short-term moving average crosses underneath its long-term counterpart, typically followed by an increase in trading volume. A death cross, which like a golden cross most commonly uses long-term 50-day and 200-day moving averages to detect the pattern, usually signifies an incoming bear market to traders. Continue reading...

How to Trade Moving Averages: The Golden Cross?

The Golden Cross is a breakout candlestick pattern formed when the short term 50-day moving average for a security exceeds its long term 200-day average, backed by high trading volumes. Investors typically interpret this crossover as a harbinger of a bull market, and its impact can reverberate throughout index sectors. The longer time horizons tend to increase the predictive power of the Golden Cross. As seen in the chart in this example, a trader may view the moment when a 50-day moving average (blue line) crosses above a 100-day or 200-day moving average (red line) as a bullish sign for the stock or security. A trader may consider taking a long position in the security, or perhaps explore call options to take advantage of the potential upside. Continue reading...

What are Profitability Ratios?

Profitability ratios are useful analytical tools to evaluate a company’s ability to generate profits relative to all costs and expenses. A company that has high profitability ratios relative to competitors/peers, or a company that has demonstrated to improve their profitability ratios over time, is generally viewed as a healthy and attractive company from an ownership perspective. Some examples of profitability ratios are profit margin, return on assets, and return on equity. Continue reading...

What is the Current Ratio/Liquidity Ratio?

The current ratio is a measure of a company’s immediate liquidity, calculated by dividing current assets by current liabilities. The value of this ratio lies in determining whether a company's short-term assets (cash, cash equivalents, marketable securities, receivables and inventory) are sufficient enough to pay-off its short-term liabilities (notes payable, current portion of term debt, payables, accrued expenses and taxes). Generally speaking, the higher the current ratio, the better. Continue reading...

What is the Debt Ratio?

The debt ratio measures a company’s total debt to total assets. It is the simplest calculation available for determining how indebted a company is on a relative basis. The debt ratio is crucial for determining a company’s financial standing, and should be considered by potential investors. To calculate the debt ratio, one only needs to divide total liabilities (i.e. long-term and short-term liabilities) by total assets. Continue reading...

What is the Capitalization Ratio?

The capitalization ratio measures a company’s leverage, or the amount of long-term debt it holds relative to long-term debt + shareholder equity. Essentially, it is a measure of how capitalized a company is to support operations and growth. Continue reading...

What is the Price to Earnings Ratio (P/E Ratio)?

The Price to Earnings ratio is a company’s stock price relative to its net income per share. A low P/E indicates that a stock is trading at a low premium to earnings, which may indicate that the market thinks low relative growth rates are ahead for the company. A company with a high P/E means investors are willing to pay a premium for growth, perhaps anticipating high future growth rates for the company. The P/E ratio is calculated by dividing the market value per share of a company by its earnings per share. Continue reading...

What is the Price to Book Ratio (P/B Ratio)?

The price to book ratio compares a company’s current stock market price to its book value (which is generally speaking a company’s net assets). To calculate, an analyst need only divide a company’s latest market price by it book value, which is calculated by taking ‘Total Assets minus Intangible Assets and Liabilities.’ The P/B ratio gives some idea of what premium an investor is paying if the company went bankrupt immediately. Continue reading...

What is the Price/Earnings to Growth Ratio (PEG Ratio)?

The Price/Earnings to Growth Ratio (PEG Ratio) is used to determine a company’s value relative to its expected growth. The PEG ratio can be calculated by dividing a company’s P/E by its annual earnings per share growth. A lower PEG ratio may indicate that a company is undervalued relative to its expected growth, and a general rule of thumb is that a PEG ratio below 1 is favorable. Continue reading...

What is the Operating Cash Flow Ratio?

The operating cash flow ratio, or OCF ratio, is used to measure whether a company’s cash flows are sufficient to cover current liabilities. It essentially measures how many times a company can use cash flow from operations to cover debt expenses. It can be measured by dividing a company’s cash flow from operations by its current liabilities. Companies with high (relative to their peers or other companies in the sector OCF ratios are generally in good financial health, meaning they can adequately cover ongoing liabilities with cash flow from operations. Continue reading...

What is the Price to Sales Ratio (P/S Ratio)?

The Price to Sales Ratio, also known as the PSR, is a valuation metric that looks at a stock’s market price versus its per share revenue. Alternatively, you can calculate it by dividing a company’s total market capitalization by its total revenue in the most recent fiscal year. The ratio indicates how much value (how much investors are willing to pay) is placed on each dollar of revenue generated by the company. Continue reading...

What is a Quick Ratio?

The quick ratio (also known as an “acid test”) is a financial ratio used to measure how well equipped a company is to meet its short-term liquidity needs. It basically measures how much cash (or assets easily and quickly converted to cash) a company has available to meet its short-term liquidity obligations. Since inventories are assets but are not necessarily liquid, they are excluded from the calculation. Continue reading...

What are Solvency Ratios?

Solvency ratios come in several flavors, but they all seek to shed light on a company’s ability to pay its long-term debt obligations. There are several types of what is known as solvency ratios. Some examples of solvency ratios include debt-to-equity, debt-to-assets, interest-coverage ratio, the quick ratio, the current ratio, and so forth. These are meant to be metrics for a company’s ability to meet its debt obligations through various market conditions. The quick ratio, for instance, can reveal whether the current-year liabilities (payables) of a company are covered by the current year cash and receivables, or whether the company will depend on other sources such as inventory liquidation to meet this need. Continue reading...

What is a Liquidity Ratio?

A liquidity ratio is also known as a current ratio, and it generally measures the amount of cash or readily available cash relative to current liabilities. Liquidity ratios are important measures to test a company’s solvency, in addition to its potential ability to handle economic shocks. Continue reading...

What are Debt Ratios?

Debt ratios give a relative picture of a company’s ability to repay debts, make interest payments, and meet other financial obligations. They generally compare the level of debt in a company to the level of assets. Debt ratios are key for investors and particularly creditors, to determine the overall level of financial risk faced by a company. Debt ratios that increasingly turn unattractive can serve as “canaries in a coal mine” that a company is in danger of bankruptcy or default. There are several types of debt ratios, such as debt-to-equity, debt-to-capital, cash flow to debt, and so on. Continue reading...

What is Turnover Ratio?

Turnover ratio is a term that can be used in reference to the rate at which a company goes through its physical inventory, or that a mutual fund sells and replaces its investment holdings. In the context of a company’s inventory of goods, a high turnover ratio is a positive sign. It means that a company is selling plenty of its products and is not wasting money on more warehousing space than it needs. This kind of turnover ratio is calculated as the cost of goods sold in a period divided by the average inventory during that time. In the context of mutual funds and ETFs, turnover ratio is a negative thing if it is high. Continue reading...

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