Stock Trading Tips


I have been involved in stock trading for quite some time now. Due to the question of one of my avid readers named dlanor from Saudi Arabia, here I am now sharing some stock trading tips that readers can use to trade stocks.

But before anything else, for the beginners in the stock market, you might want to read my article on how stock market works to familiarize yourself on the stock market.

 

Once you already got familiarized with the stock market and started doing stock trading, here are some of the useful tips that I learned from my stock trading experience:

Stock Trading Tip No. 1: First of all, I’ve seen a study conducted by ATR-Kim Eng Securities comparing the monthly stock returns on election years as against any other “normal” year. As seen from the graph, the month of August, historically is considered as the “ghost month” in stock trading since it is in this month that registered the lowest yield as against other months whether election year or not. You can also see from the graph that historically, the month of December gives the most yield and so it “may” be good to buy stocks on the month of August when stocks are low and later sell it on December when stocks prices are picking up.

Stock Trading Tip No. 2: Don’t buy in smaller volumes. If you have enough capital to spend in stocks, then try to buy huge volumes of your favorite stocks because if you buy in smaller volumes, then chances are you will incur higher stock trading fees such as broker’s commission, VAT, etc.

Stock Trading Tip No. 3: Transaction costs in buying vs. selling stocks. Each time you make a transaction, whether buying or selling stocks, you will incur transaction fees. Based on the transaction costs that I learned, it is “more expensive” for you to sell stocks than to buying it because selling stocks incurs a much higher transaction costs.

Here in the Philippines, the following transaction costs are associated with buying and selling of stocks.

Transaction Costs in Buying Stocks:

Commission – 0.25% of Gross Amount or Php 20, whichever is higher
VAT (Value Added Tax) – 12% of Commission
SCCP Fee – 0.012% of Gross Amount
Philippine Stock Exchange (PSE) Fee – 0.011% of Gross Amount

Transaction Costs in Selling Stocks:

Commission – 0.25% of Gross Amount or Php 20, whichever is higher
VAT (Value Added Tax) – 12% of Commission
SCCP Fee – 0.012% of Gross Amount
Philippine Stock Exchange (PSE) Fee – 0.011% of Gross Amount
Sales Tax – 0.5% of Gross Amount

In applying these fees, let’s use the following sample: Suppose Tyrone bought 100 shares of Ayala Corp. (AC) at 290 per share. He then sold it at 295 per share. How much did he gain NET?

Computing for the following transaction costs written above:

In buying 100 shares of Ayala Corp. stock at 290 per share, you will pay a total of 29,087.87 broken down as follows:
Gross Amount: 29,000
Commission: 72.50
VAT: 8.70
SCCP Fee: 3.48
PSE Fee: 3.19

Suppose, the stock went up by 5 and the price now became 295 and you intend to sell it, you will just collect your NET GAIN of 29,263.12 broken down as follows:
Gross Amount: 29,500
Commission: 73.75
VAT: 8.85
SCCP Fee: 3.54
PSE Fee: 3.25
Sales Tax: 147.50

In effect, the total gain that you had from buying 100 shares of Ayala Corp. at 290 per share and selling the same 100 shares at 295 is:

Total Net Income from Selling less Total Net Cost in Buying = 29,263.12 – 29,087.87 = 175.25

For the convenience of my readers, I prepared an excel sheet of transaction costs in buying and selling stocks. Just input your gross amount and it will automatically compute its net income from selling and net costs in buying stocks. You can download it here.

Stock Trading Tip No. 4: Don’t post too many orders at the start of the trading. If you have time to monitor your stock trading, then you should not post too many orders at the start of the trading. You should watch the trend of the trading day. Buy when you see a trend that the stock price is going down and sell when you see a trend that the stock is going up. Generally, you should post orders in the middle of the trading like around 10am to 11:30am to have a good view of the stock price that you intend to buy or sell. Stock trading is from 9:30 to 12:10 noon.

Stock Trading Tip No. 5: Look for the P/E ratio. Price-Earnings Ratio of the stock ‘may’ tell the profitability of the said company. This is the ratio between the stock price over its earnings. The higher the P/E Ratio, the higher the profitability of the company. BUT do not solely rely on this ratio. It may indicate that a high P/E ratio means that the stock is overpriced because of some manipulations.

Stock Trading Tip No. 6: Buy back of shares or major acquisition. Companies also disclose to the stock exchange when will they buy-back their shares. Usually, this happens towards the end of their fiscal year because they want their ‘books’ to look good. This is called window dressing. Look for companies that disclose a buy-back of their shares. As the date of the buy-back approaches, there’s a high probability that their stock price will climb. Also, some companies buy-back their shares to take advantage of its depreciated value in the market especially if they think that the current price of their stock in a bearish market does not reflect the true value of the company’s shares.

Additionally, there are also disclosures about a company acquiring a significant percentage of stocks of another company. These instances will probably increase the stock price of the company being acquired as the date of the acquisition approaches.

Stock Trading Tip No. 7: Look for the 52-week range. I’m not good in technical analysis with in stock trading. But one way of gauging to know if the current stock price is high or low is to look for their 52-week high and 52-week low. The 52-week range is the highest and the lowest the stock price of the company closed in any given trading day in one year. It’s a gauge of how much the stock price has appreciated over a one-year period time frame. For example, the 52-week low is 250 and 52-week high is 400. Definitely, to increase probability of profits in stock trading, don’t buy at a price too close at 400.

Stock Trading Tip No. 8: Look for stocks that declare dividends. Dividends are passive income that companies give to their stockholders. Look for the companies that declare these dividends whether a cash dividend or stock dividend. Generally, when the ex-date of the dividend declaration approaches, the higher the price of stock will be.

Stock Trading Tip No. 9: Look for actively traded stocks. These are stocks that are in the “hot seat” where there are a lot of buyers and sellers. Surely, the law of supply and demand will apply here. If there are a lot of buyers than sellers, then stock price will tend to go up. However, if there are a lot of sellers than buyers, then stock price will tend to go down.

Stock Trading Tip No. 10: Watch the Federal Rate (FED) Rate Cuts. Generally, if the FED declared a rate cut on its Federal Open Market Commitee Meetings, stock prices will tend to go up and rally. To know why, you can view my article on how federal rate affects investors.

Stock Trading Tip No. 11: Watch for economic indicators such as consumer confidence index, inflation rates, unemployment rates, gross domestic product, gross national product, etc.

Watch for any inflation news. There’s an inverse relationship between inflation rate and stock prices. Definitely, the tamer or the lower the inflation, the higher the probability that the stock market will rise. In contrast, a high inflation rate will give the possibility of stock prices to go down. This is evident when the oil reached its peak of almost $150 per barrel last July 2008 when investors dumped their stocks! Why? Because a high inflation rate causes the raw materials costs of companies to go up. And with higher costs and less revenues, definitely companies will post losses. Added to this, a high inflation encourages consumers to reduce spending on non-basic items. In turn, corporate profits either drop or post slower growth, leading to lower valuation of stocks.

Watch for indices such as consumer confidence index, housing prices and housing sales, employment rate, Gross Domestic Product or GDP, Gross National Product or GNP, etc. The higher the value of these indices show that the economy is doing well. And when the economy is doing well, then companies may post huge profits and therefore stock prices will tend to go up.

Watch for writedowns or net losses of companies. This is no doubt. If there’s any news of big writedowns from any of the largest banks caused by the credit crunch which stemmed from the subprime mortgage crisis, then definitely investors will dump their stocks. Why? Because writedowns mean huge losses to these companies hence stock prices will go down.

Watch for Credit Ratings. Credit rating agencies such as Fitch Ratings, Moody’s Investors, and Standard & Poor’s are some credit rating agencies that rate company’s credit. They either rate the company’s bonds, credit default swaps or CDS, and credit facilities. Any downgrade will push the stock prices of these companies to go down.

So there you are my stock trading tips that I learned in my stock trading experience. I don’t claim I’m a good stock analyst but I’m trying to learn these things as part of my financial education.

With these stock trading tips, definitely you can trade stocks even you’re not an expert in technical analysis like me.

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Tyrone is a passionate financial literacy advocate. He started this blog on November 2008 when he watched The Secret which talked about Law of Attraction because he wanted to become a millionaire and wanted to know how a millionaire acts. At the age of 26, he achieved his first million. To find out more about him, click here or follow him at Instagram

51 responses on “Stock Trading Tips

  1. Hey, thanks for posting this based on my query. It will help me a lots and I know it would be more beneficial to your readers. I’ll send you my another comments and questions once I am free (as in free from my boss), hehehe..

  2. as a simple and very good tip, I think that a good trader should always watch the news pertaining to the stock he intends to work on. no matter what analysis you take, it will be immaterial to the most current news about the stock. it is the traders sentiment which will influence the value of the stock. so always watch out for this. Yes, there are patters and methods of assessing the direction of the stock, but and this will become more visible once a newbie starts to get the hang of trading, but the most important part in trading is watching the local news (where you trade) and the global news (DJ being one of the most important local influence).

  3. Hi Ric, I definitely agree with you. It is the investors’ sentiments that drive the stock up or down. Tips No. 11 and 12 are I think the most important tips as it refers to these current news globally and locally.

  4. I lost more than 50% of the original invested principal already. Good thing I was able to dispose one of my stock at a higher price than acquisition just days ago when its price went up after a company made a major acquisition that enabled them to have one board seat.

  5. Nice info for a noob like me. Anyway, I really want to learn about stock market investing but I do have a question. Is it possible that if I’m going to invest 10K USD, will it grow up to 100K USD in 1 year base on the economic situation right now..

    hihi..just asking

  6. Hi Synapse, in every type of investment, there comes a risk. And that means, there is no guarantee for the return of your money – even the safest investments such as deposit accounts. Banks can also go bankrupt.

    I would advice to be more prudent in investing. Possibly buy stocks of companies which you will hold in the long-term.

  7. ic…perhaps i might go for a contest. who ever is gonna make my 10KUSD to 200K USD will be given a reward of 20KUSD..hihihihi!

  8. That kind of contest would be great Synapse. But I do doubt if there will be participants. 😀

    What if instead of growing it, they’ve lost some of the principal? They themselves would have a hard time growing your money from 10KUSD to 200KUSD especially in this global economic downturn.

  9. That’s what im thinking too. Financial cruch definitely hits the stocks. But growing it up to 100K will do 😀

    Are you into Forex trading too?

  10. No, I’m not into Forex Trading right now. But I’m thinking of studying it if I have enough time. For your next question, according to the average historical yield of stocks in “normal years”; that means no recession and no bull market, stocks tend to yield at least 10% per annum.

    I had a friend who trades forex online thru finexo.com. He easily gave up because according to him, it’s “too stressful”.

    • hi jonha, just be careful with forex trading. It’s a really high risk. you could loose everything there. Even experienced brokers get doomed with forex trading.

  11. I think your tip number 5 is not quite accurate when you said “the higher the P/E ratio, the higher the profitability of the company.” On the contrary, the opposite of what you said is true. The lower the P/E ratio of a stock, the more attractive the price gets. A low P/E ratio means the price is low compared to the earnings of the company. You were right in saying though that one should not rely on the P/E ratio alone in the buying decision because there may be reasons why the P/E ratio is low (i.e. not enough interest among buyers) driving the price low, hence the P/E ratio goes with it.

  12. “who ever is gonna make my 10KUSD to 200K USD will be given a reward of 20KUSD..hihihihi!” Sounds interesting. The question is, what’s the time table for this ?

    Also take note that if you invested $1,000 (Which is about $7,000+ in vale in 2008) with Warren Buffett for the past 56 years, your $1,000 would now be worth $30.6 Million (U.S).

    That’s almost 30 % interest compounded per annum !!!!

    So is it possible ? Of course it is and its no secret 🙂

  13. Hi Tyrone,

    So magandang mag start nalang ako by August then trade them by December, sa dinami dami ng itinuro mo hindi naman lahat yun magsisink it at yun lang yung purposely inalala ko. haha

    Kaya nga sa recession yung mga mayayaman lalong yumayaman kasi they buy stocks na talaga namang mababa at just like Warren Buffet, they would patiently wait till it goes up. Sabi pa nga ng isang kakilala ko, “don’t panic” kasi when you do, it’s the worst decision at move ng isang trader. I’ve heard na meron naman daw na long term na pag invest, sa iyo mas ok ba yun kesa sa short-term lang?

    • Yeah you can try that strategy to buy stocks in August and sell them in December. However, it would still be best to get yourself equipped with the latest news such as majority acquisition just like what happened to Meralco shares before. When Manny Pangilinan of PLDT bought huge chunk of Meralco enabling him to earn a board seat, Meralco stocks shoot up suddenly.

      Regarding long term and short term strategy investing in the stock market, it is of course advisable to be long -term. However, to better get advantage, you should monitor it constantly. Sell when it’s high and buy when low.

  14. Sir Tyrone thank you for sharing this very educational and unselfish article of yours… just one more inquiry can you also please illustrate or detailed the transaction cost in investing in Mutual funds (see below)….again thank you very much i will keep on visiting this site…..mabuhay ka generous man….

    Transaction Costs in Buying Stocks:

    Commission – 0.25% of Gross Amount or Php 20, whichever is higher
    VAT (Value Added Tax) – 12% of Commission
    SCCP Fee – 0.012% of Gross Amount
    Philippine Stock Exchange (PSE) Fee – 0.011% of Gross Amount

    Transaction Costs in Selling Stocks:

    Commission – 0.25% of Gross Amount or Php 20, whichever is higher
    VAT (Value Added Tax) – 12% of Commission
    SCCP Fee – 0.012% of Gross Amount
    Philippine Stock Exchange (PSE) Fee – 0.011% of Gross Amount
    Sales Tax – 0.5% of Gross Amount

  15. hi tyrone, bpi trade pa rin ba gamit mo? hows the performance naman? nag-open kasi ako ng account sa bpitrade. bibili sana ako ng stocks kahapon but down site nila eh. bigyan mo naman kami ng tip about good brokers…..

  16. Such an informative topic in here on this blog you will become more aware and broaden your inquiries by the reactions of everybodies point of view.How about investing in citisec online with eip program have you encounter this already tyrone?just want to know your comment on this…thanks and mabuhay kabayan!!!

    • Hi Jaybee, I’m sorry but I don’t know about Citiseconline since I am using BPI Trade in my online stock trading. Perhaps a visitor here who uses that stock trading platform can advise you.

  17. Some of your tips make sense. But if you really want to make money in the market you dont only need to buy low and sell at high. What you need is buy at LOW – wait VERY PATIENTLY – then sell at HIGH.

    And please, people, if you only have Php 25,000 to play in the market, I urged you to stop and just put your money somewhere else. You’ll definitely loose not in the market but in your brokers commission and other market fees.

    • @Patrick…what’s wrong with investing your money even if it’s Php25,000? Have you ever heard of Peso Cost Averaging Method? Don’t think that stock market investing is only for the rich…even an average person can invest at Php 5000 per month, consistently for 5 years…compounded interest rate of 10% average can earn him a decent 500,000…don’t act like you know everything about investing…i would even encourage a tricycle driver to save and invest in MF with Php1000 additional only.

    • @Cor…the best advise i can give you is to look at the Blue Chip companies and use the cost averaging method, wherein you buy stocks at the same price regardless if it’s high or low…when it’s low, you buy more shares,and the reverse when it’s high…this is advisable for minimum of 6 months…

    • Hi Lupin, I don’t have an excel file for UITF because fees differ per type of fund. In addition, most fees are already imputed or incorporated in the Net Asset Value Per Unit (NAVPU).

    • Hi Jay, it’s possible but with that amount, I guess, just invest it in the equity funds of mutual funds and Unit Investment Trust Funds (UITFs). In that way, you are “indirectly” investing in the stock market.

  18. You are a Godsend! Thank you for sharing your wisdom to us who are new to stock trading.

    About two years ago I invested only P5000 in an online trading company called citiseconline, under their Easy Investment Plan.

  19. Try asking around in Philippine Stock Exchange Customer Service. They helped me out a lot when looking for a broker. They were the ones who pointed out all options possible. The next thing i did was to research on all of the options they gave and I chose one that’s most convenient. CITISECONLINE’s Easy Investment Plan worked for me. I’m sure there are a lot more broker companies that might be more effective and affordable.

  20. Hey guys, if you would like to know more about stock investing you could visit the PSE academy website. It is a smart start to investing.

    http://pseacademy.com.ph/

    PSE Academy, the official market education website of the Philippine Stock Exchange, Inc. (PSE) created in partnership with the PSE Foundation, Inc. It is designed to provide a comprehensive investor web-based education for market participants, would-be equity investors, and the public in general.

  21. Just want to ask how come you can save from trading costs if you acquired higher volume of stocks as compared to lesser volume? It seems that all charges are based from total cost of stocks an there is no way you will get a discount when you acquire more volume of stocks. Please give example thanks,

  22. Hi, I just want to ask for your advice. I have 5,000 right now but currently, I do not have any source of income since I am a fresh graduate and still looking for a job. Should I invest my 5,000 now by buying a blue chip company? Or find a job first so I can invest regularly? Thanks

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