Key PointAt times, the normal cyclical swings give way to momentumtrading. This is where swing traders can ride profits for an extended period of time. But this could be prevented by unwiseuse of contingent orders.
you may be more cautious and take profits as they develop. Thedecision should be based on how much risk you are willing totake.3. Recognize both the advantages and limitations to contingent orders.All strategies involve risk, and all protective measures—includingcontingent orders—provide benefits as well asproblems. The benefits appear when contingent orders are used strictly to protect existing paper profrisk toleranceits or to avoid losses in exposed short positions.the level of risk anindividual is ableThe primary disadvantage is that these orders mayand willing tobe executed even when the swing trade patters areassume. Risk andpotential profit arenot complete. The two- to five-day window is onlydirectly relateda guideline; in fact, some trends can continue farand cannot belonger. At those times, swing traders may profitaccepted, so thoseseeking betterfrom riding the momentum, and recognize that thethan averageswing trade predictability is suspended for the moprofits also needto expand theirment. But using contingent orders, you may loserisk tolerance.the opportunity to earn more profits by leavingtransactions too soon.4. Base your use of specialized orders on your own risk tolerance. Theconcept of risk tolerance is always supposed to be a first test of anystrategy. There is no justification for swing trading if the risks are
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Key PointNo strategy works unless it is a good match for your personalrisk tolerance. This includes swing trading. Some types of swingtrade activity (like going short, for example) may be too risky,unless contingent orders are used as well.
too great—and do not depend on contingent orders to reduce oreliminate that risk. The risks are real and have to be accepted aspart of the specific strategy.
Brokerage Rules for Swing TradingEvery brokerage firm offers its clients a variety of ways to trade. Swingtraders may limit their activities to their cash assets or use margin to expand their trading activity. Margin trading involvesborrowing money from your brokerage firm to inmarginvest, using stock as collateral for the loan. This is ainvesting usingform of leverage, which also means that using marfunds borrowedgin involves much higher risks than simply limitingfrom a brokerageyour activity to available cash.firm, with securities in an accountBefore you will be allowed to open a marginused as collateral.account, you will also be required to set up theminimum margin. This requirement is spelled outin NASD Rule 2520 and in the New York StockExchange Rule 431. You are required to deposit atleveragean investing stratleast $2,000 or 100 percent of the purchase priceegy using bor(whichever is less) in your brokerage account.rowed funds toSome traders—whose activity is higher than averbroaden a portfolio beyond availage—are required to deposit far more. (This is exable cashplained later in this chapter.)resources.The advantage of investing in a margin account is that it exposes you to much greater profitopportunities. However, if a portfolio loses, you still have to repay theborrowed funds. If it takes longer than you expected to generate profits,you also have to pay the brokerage firm interest on the money borrowed.
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Key PointMargin trading provides investors with flexibility ... and withrisk. The more you borrow, the greater the risk of loss and thegreater your interest expense.
minimummarginthe deposit requirement to setup a margin account, which isthe lesser of$2,000 or 100percent of thesecurity’s purchase price.
Before deciding to swing trade on margin,recognize four specific risks:1. You can suffer losses beyond the level of yourcash investment.2. You can be required to deposit additionalfunds into your account to cover marketlosses, potentially with little advance notice.3. You could need to sell some stocks to coverfalling prices in a margin account.4. Your brokerage firm has the right to sellstock from your portfolio to repay itself,without notifying you of the decision orwhich stocks they will sell.
To open a margin account and trade on margin, your brokeragefirm will require you to sign a margin agreement in advance. Read thedocument in full. Also become familiar with the margin regulations of theSecurities and Exchange Commission (SEC), the National Association ofSecurities Dealers (NASD), and the Federal Reserve Board. The Fed governs and limits margin activity through its initial margin rule. This is a
Key PointIf you don’t keep your margin account at the required level—including loss of market value in your portfolio—your brokerage firm cansell your stocks to repay itself. This can occur without advance notice, and without your decision about which stocks to sell.
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limit of 50 percent that you can borrow on margin,and the complete terms of the Fed’s margin rulesinitial marginare found in Regulation T.a limit on theYou are required to maintain a specificlevel of borrowingamount of cash and equity in your account wheninvestors areallowed by theusing margin to invest. This is equal to the currentFederal Reservemarket value of your securities minus the amountBoard’s Regulationyou owe on margin. You can never maintain an acT. It specifies thatyou can onlycount below 25 percent of current market value ofborrow up to 50securities, a level known as maintenance requirepercent of a security’s purchasement under margin rules. Some brokerage firmsprice.impose maintenance above 25 percent, often ashigh as 40 percent or more depending on the kindsof stocks in your portfolio. The specific amount required by your brokerage firm is called the house reRegulation Tquirement.a Federal ReserveBoard rule estabThe maintenance requirement imposed bylishing and govyour brokerage firm can make a big difference inerning rules forthe amount of cash you need in your account. Formargin borrowingin brokerageexample, if you buy $16,000 in securities withaccounts.$8,000 cash and $8,000 on margin, you are required to keep a maintenance level of no less than25 percent. So if the value of your stock falls to$12,000, your equity would fall to $4,000maintenancerequirement($12,000 minus $8,000 loss). At a maintenance rethe percentage ofquirement of 25 percent, you are required to havecurrent marketat least $3,000 in equity (25 percent of $12,000).value of securitiesthat must be keptBecause your equity is $4,000, your maintenancein a portfolio at allrequirement is met. However, if your firm requiredtimes. Minimumyou to maintain 40 percent, your equity would notfederal requirement is 25 perbe sufficient. You would need 40 percent of thecent, but some$12,000 current market value, or $4,800. The firmbrokerage firmsrequire higherwould issue a margin call demanding that you demaintenanceposit an additional $800.levels.A brokerage firm may also increase its maintenance requirement at any time and without advance notice. So if the firm believes that it is overly exposed to the risk ofmargin loss, you could be required to deposit additional funds to meetthe new rules. Of course, all of the margin activity involves the payment
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BROKERAGE RULES AND THE PATTERN DAY TRADERKey PointBe sure you know how much cash you have to keep on depositbased on maintenance levels. This may vary from one brokeragefirm to another, so you need to check in advance.
houserequirementthe maintenancerequirement setby brokeragefirms, which isequal to orgreater than theminimum 25percent requiredunder NASD andNYSE rules.
margin calla demand from abrokerage firm foradditional deposits byinvestors whosemaintenancerequirement hasnot been met dueto portfoliolosses. If themargin call is notmet, the brokerage firm will sellsecurities fromthe account.
of interest to the brokerage firm, so the longer ittakes for you to generate profits, the higher thecost. Most firms base their margin interest rate onthe broker call rate published in the Wall StreetJournal under the Money Rates section. Brokeragefirms also publish their current margin rates ontheir websites.Margin rules are going to vary by brokeragefirm. If you plan to execute swing trades using amargin account, be aware of your firm’s specificrules and requirements, and also determinewhether or not you will be considered a pattern daytrader (see the next section), for which requirements will be even stricter.To check online brokerage rules for margintrading and other rules, check brokerage firmwebsites:Accutradewww.accutrade.comAmerican Expresswww.americanexpress.com/directBank One OneInvest www.oneinvest.comBrownCowww.brownco.comCharles Schwabwww.schwab.comCititradewww.cititrade.comE-Trade Financialwww.etrade.comFidelitywww.fidelity.comFirstradewww.firstrade.comHarrisdirectwww.harrisdirect.com
Pattern Day Trader Rules
ScottradeT. Rowe PriceTD AmeritradeTD WaterhouseVanguardWallStreet*E Inc.
www.scottrade.comwww.troweprice.comwww.tdamericatrade.comwww.tdwaterhouse.comwww.vanguard.comwww.wallstreete.com
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broker call ratethe rate manybrokers chargeclients for borrowing funds onmargin; the rate afirm charges isnormally foundon the brokeragewebsite.
In February 2001, the Securities and Exchange Commission (SEC) approved a new rule proposed by the New York Stock Exchange and National Association of Securities Dealers. Under Regulation T marginrequirements, all calculations are performed only at the end of a tradingday. Thus, a day trader can execute a high volume of trades within a trading cycle using the margin account, and avoid the margin restrictions ofRegulation T. So in the event that large losses are suffered by a day trader,it is possible that brokerage firms end up absorbing those losses.The pattern day trader is anyone who buys or sells a single securitywithin the same trading day (a day trade) four or more times in any consecutive five trading periods. In addition, to qualify as a pattern daytrader, the high-volume activity has to make up 6 percent or more of total trades. (If, for example, you have a large volume of trades but less than6 percent of the total meets the four-or-more rule, you won’t be classifiedas a pattern day trader.)This rule, also known as NASD Rule 2520, comes with a very highmargin requirement. Pattern day traders have to deposit and keep minimum equity of $25,000 in their accounts; and these funds must be
Key PointThe pattern day trader rule was established to solve the problem created when day traders opened and closed transactions ina single day. Margin requirements are computed only at thetrading day’s conclusion.
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BROKERAGE RULES AND THE PATTERN DAY TRADER
deposited before the high volume trading can go forward. If an investordoes not meet this deposit rule, the brokerage firm can impose tradingrestrictions. For example, your firm can restrict your trading for 90 daysto a cash-only basis, thus suspending all margin trading.If your account violates the pattern day trading requirement, you have five days to satisfy theday trade callmargin call. This provision, also called the daya requirement thattrade call, may also be subject to a holding periodinvestors depositbefore it can be used for subsequent trading.funds to satisfypattern day tradSwing trading is an ideal device for avoidinging deposit retherestrictivepattern day trading rule, assumingquirements basedthat you adhere to the normal timing curve. Setupon the volume oftrades (four orfor transactions normally involves at least threemore trades in thetrading days to develop. The swing trading uptrendsame securitywithin five trading(made up of three or more days of higher closingsdays).and with a series of higher highs offset by higherlows) or downtrend (three consecutive days oflower closings and a series of lower lows offset by lower highs) are theopening side of a swing trade. But because the usual closing setup also requires three or more periods in most cases, you have a programmed sixday minimum for a complete buy-and-sell or sell-and-buy transaction.Because pattern day trading is defined as involving the same security, in theory a swing trader will never be classified as a pattern daytrader. Of course, if you do execute trades more often than the typicalswing trade pattern dictates, it is easy to fall into a pattern where youwould be classified under this rule. If you have $25,000 in cash and equity in your account, this is not a problem. But if your portfolio value islower than $25,000, you need to avoid falling into this definition. Lacking funds to continue high-volume trading, your activity—includingswing trades—would be restricted by your brokerage firm.
Key PointDay trading, with its two- to five-day window, is the perfectstrategy for avoiding the pattern day trading rule. By definition,the completion of a trade on both sides requires at least sixtrading days.
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Key PointA day trade includes not only trades during the hours the market is open, but also premarket and post-market transactions onthe same day.
Under the rule, a “day trade” is defined as a buy and sell of the samesecurity on the same day. This includes pre-market trading, transactionsduring market hours, and aftermarket trades. If you open a position today and close it tomorrow, that is not a day trade and activity in this pattern can be executed without risking being classified as a pattern daytrader. The scope of the rule includes all U.S. brokers who are also members of the NASD, and covers both stock and option trades. No patternday trading rules apply to futures trading. The rule is especially applicable to options traders who may execute a large volume of trades within asingle day on the same security.While many investors consider being classified as a pattern day trader as a penalty, there is apositive side as well. The day trade buying power isbuying powercalculated by the brokerage firm as a multiple of anthe margin alaccount’s equity, and this may be greater than thelowance a brokerage firm providesallowance for the typical non-pattern day trader’sto a pattern dayaccount. For example, some brokers allow up totrader, which is amultiple of availfour times a day’s closing equity. So if your equityable equity balin a trading account is $25,000 and you are a patance in thetern day trader, your buying power would beportfolio.$100,000 (assuming your broker applies the fourtimes formula).The pattern day trading rule was designed to prevent investors fromavoiding margin requirements based on Regulation T. Before the rulewent into effect, buying power for day traders was virtually unlimited. Aslong as margin-based transactions were closed by the end of the day, nomargin calls were generated. So day traders were able to use extremeleverage to control large positions in securities. The risk was shifted tobrokerage firms because if prices moved suddenly (as they have done insingle days periodically in the past) there was no way for brokerage firmsto enforce margin calls. With $25,000 on deposit, the brokerage firms
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BROKERAGE RULES AND THE PATTERN DAY TRADERKey PointCheck the rules imposed by brokerage firms for pattern daytrading and margin requirements. If you expect to execute alarge volume of transactions, this could be an important decision point.
have some security and many would-be day traders with little or no realequity were eliminated from this kind of trading activity.Knowing how the trading rules work is useful in picking a brokerand in identifying levels of risk. However, swing traders also need to determine how they will select stocks for swing trading use. This applieswhether you apply the traditional long position (buying stock and holding it, to eventually close the position through a sale) or a riskier shortposition (selling stock, holding it, and then closing the position with apurchase). The next chapter provides suggestions for picking stocks appropriate for your swing trading strategy.
6Chapter
Picking Stocksfor Swing Trading
nvestors and traders face a problem in deciding what stocks or indexes onwhich to swing trade. So how do you decide on one stock over another?With thousands of stocks to choose from, you need to identify the selection attributes to help pick a set of stocks to use. This set needs to be finite,and the actual number of stocks should depend on several factors, including:
I
1. Available capital for trading. Any program is going to be limited bythe capital available to trade. Your trading capital may be separatefrom a long-term portfolio. Some investors put aside a small portion of available capital for short-term trading, while the majorityis left to accumulate in long-term investment stocks, mutual funds,real estate and the money market.2. Risk tolerance level in effect. Your personal risk tolerance level alsorestricts and defines the kinds of stocks you will use for swing trading. Companies with decades of experience, billions in capital, anddomination in their field are relatively safe investments—yet maynot be appropriate for swing trading. Relatively young companiesare more likely to produce the kinds of price volatility desirable forswing trading. They can, however, be excessively risky. Most peoplewill define their risk tolerance in such a way that their stock selections will fall in between these extremes.103
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PICKING STOCKS FOR SWING TRADINGKey PointAny trading strategy—including swing trading—is limited by thecapital you have available to trade. This means it is also necessary to figure out a way to limit the number of stocks you willuse for trading.
Key PointPicking appropriate stocks is a function of defining your risk tolerance level. Once you decide how much risk is appropriate, thelist of potential stocks is naturally reduced as well.
3. Degree of price swing and current trend. Swing trading works in amiddle zone of price volatility. If a stock’s trading range is narrowand not at all volatile, swing trading opportunities will be limited.If a stock is on the other end of the spectrum—with wildly swinging prices and no established trading range, you face a differentproblem: The price may not conform to the usual “rules” of swingtrading setup, candlestick chart formations, and other technicaltools for predicting price movement. Highly volatile stocks do notalways conform, so the predictability simply is not there.4. Personal preferences. Everyone has their favorite stocks. You maydecide to swing trade in stocks you own, or in stocks you havetracked over a period of time. You may also decide to specialize ina limited number of industries, and move between sectors basedon cyclical patterns. It is important to recognize the limiting
Key PointStocks whose price is so volatile that no trading range can beeasily established, are too high risk for most people—and alsoless viable for swing trading.
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Key PointPersonal preference is part of your selection process along withother price and financially based criteria.
Key PointFundamental and technical analysis help you not only to pickstocks matching your risk profile, but also to eliminate companies that do not represent a good fit.
factors in following personal preferences rather than technicalsignals. You might tend to ignore important signals because youprefer a stock or, equally problematical, ignore a broad range ofpossible stocks because your personal preferences are limited.5. Technical and fundamental tests. Finally, you select either fundamental or technical tests to (1) select or (2) eliminate stocks fromthe list of swing trading candidates. Using only one selection criterion is a mistake; you can combine numerous fundamental andtechnical tests to narrow your list, identify appropriate risk levelsand stocks fitting those levels, and coordinate price-related trendswith sound fundamental principles.
Rules of Thumb for Stock SelectionTo pick stocks for swing trading, it makes sense to start by finding arange of potential companies meeting fundamental criteria. Even tradersfocused on the purely technical indicators of price and volume will recognize the fundamentals as an important test of (1) stock price risk, (2)capital strength or weakness, and (3) long-term price growth potential.The fundamentals are backward-looking in the sense that actual financialreporting is historical; but fundamental trends and tests of capitalstrength also reveal a lot about future potential on a technical level.
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PICKING STOCKS FOR SWING TRADINGKey PointIt is inherently impossible to judge a company based on fundamental principles if the company has never reported a profit.The lack of success in the market may be even more profound,however; why would you buy stock in a company that has lostmoney every year?
Some very basic questions you will want to ask about companies before including them in a list of swing trade possibilities include issues beyond the details of revenue and earnings or current capitalization. Askthese questions as a method for narrowing your swing trading list:1. Has the company ever reported a net profit? At a minimum requirement, a listed company should report profitable operations. Somecorporations have loss years, and that may be part of a normal cycle in operations. Some companies have never reported a profit.This means that current value is all based on potential for futuregrowth, and this is where a lot of trouble may come into the priceequation. The dot.com years make this lesson well; a companyshould have reported profits at some point in the recent past before it should be seriously considered for swing trading.2. Has corporate management been scandal-free? Recent history hasshown that many prestigious corporations may be led poorly. Itmakes no sense to trade in the stock of a company with questionable accounting or whose management is under investigation.Such problems distort price and may also distort the normalcyclical trends, making it impossible to time and predict howprice is going to behave in the short term.
Key PointCorporate scandals are not only in the past. Any evasiveness orquestionable activity should be a red flag for anyone thinkingabout investing in a company.
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Key PointA well-managed company should be able to manage its rate ofgrowth; this means that revenue and earnings should be consistent and not highly volatile from year to year.
3. Have earnings been fairly consistent, or irregular? A sound test of a company’s stabilityis consistency. Have revenues and earningsbeen steady and regular? Or are annualresults erratic and inconsistent? A lot ofemphasis is placed on price volatility butfundamental volatility is also an importanttest. Erratic reported earnings are a sign ofpoor management, questionable accounting change, or turmoil within the company.Any of these may affect the dependability ofprice trends as well.Also check core earnings to determine a corporation’s reporting consistency. These earnings, calculatedby Standard & Poor’s, are reported as part of the S&Pstock report summaries offered free of charge on somediscount brokerage websites, such as Charles Schwab& Company (http://www.schwab.com). The consistency in core earnings is equally as important as fullyreported earnings.
fundamentalvolatilitythe degree ofconsistency orchange in reportedrevenues andearnings from oneyear to the next.
core earningsthe earnings asreported by acompany, adjusted to removeall reported earnings that are notpart of a corporation’s “core” business, includingnonrecurringrevenues and netearnings.
4. Is the company a leader in its industry? Does it offer a product that isnot becoming obsolete? Competition often defines profitability. Soa corporation that leads its industry has many attributes thatmanifest in the stock price. As the industry leader’s price rises orfalls, the rest of the competitors in the same industry tend to follow suit. A company does not have to be number one in the industry to justify swing trading; but the leader often sets the toneof trading for many other companies.
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PICKING STOCKS FOR SWING TRADINGKey PointIt makes sense to concentrate on sector leaders for swing trading. There is a tendency for nonleaders in the sector to followand track the leading company’s stock.
Over time, some products suffer from obsolescence. This is unavoidable. However, if a company is not able to change with thetimes, its entire product line is at risk. For example, a few yearsago Polaroid filed bankruptcy. It had created a revolution withthe instant photo industry but did not keep pace with the emerging digital technology. And Kodak, historically dominant in thefilm sales business, has in recent years also fallen behind as manycompetitors have passed the company in development of digitaltechnology—meaning that to some degree, Kodak was so dependent on its film lines that it failed to recognize how significantlythe whole business was changing. These types of emergingchanges in technology provide a glimpse of how corporationsevolve over time or, in some cases, fall behind their more aggressive competitors. This affects value in the long time as well asprice trends in the short term. Even though swing trading is ashort-term trading strategy, it makes sense to limit this activity tocorporations that are competitive and well managed, and that aremost likely to have stock price behavior in line with “typical” or“average” short-term trends.5. Is the company diversified? Is it vulnerable to cyclical problems?There are many forms of diversification. Most people think aboutplacing capital in several different products as the most obviousform of diversification. But this may also refer to investing in dissimilar markets or products; avoiding stocks vulnerable to thesame cycles; or allocating money to entirely different markets.Within the corporation itself, diversification refers to dissimilarproduct or service lines of business. For example, Altria Corporation (MO) is best-known for its Phillip Morris line of business,but it also owns Kraft Foods, which diversifies its overall holdingsinto an entirely dissimilar market. So, in terms of how you pickstocks, the question of internal diversification is as important asthe portfolio-related forms most investors understand well.
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Key PointDiversification comes in many forms. From the corporate perspective, diversification by product lines is a good way to offsetcyclical change and to expand outside of a primary industry.
A company not well diversified is vulnerable to cyclical changes. For example, a retailcorporation is going to suffer when consumer buying trends are in a down cycle, soone way to offset this cyclical problem isthrough diversification into lines otherthan the primary retail line.6. What current problems does the company face?Other than the current and historical financial reports, what else do you need to knowwhen picking companies? Is there any ongoing legal problem or potential labor uniondisputes? Companies dependent on largeunionized labor forces are vulnerable tostrikes, for example. And extensive litigationalso adversely affects profitability. Merck(MRK) had thousands of outstanding lawsuits as of 2006 due to the widely advertisedill effects of its drug Vioxx. And the tobaccoindustry has faced thousands of lawsuits overmany years. These issues may adversely affecta company’s value or, if the company prevailsor suffers less than expected in judgments ofthese lawsuits, stock prices could also rise. Sothe existence of thousands of lawsuits is not,by itself, reason to avoid a company or anindustry. However, it is one of the extrafinancial factors to be considered. Besideslawsuits, any other form of contingent liability may affect value and perceived value of acompany, and should be reviewed as part ofyour judgment to buy or not.
diversificationone of severalmethods ofspreading risk,involving exposure to differentproducts, markets,or stocks. Forcorporations,diversification alsorefers to investment in dissimilarlines of business.
internaldiversificationa form of corporate diversification of capital intodissimilar productor service lines ofbusiness.
contingentliabilitya liability thatmight or might notmaterialize, andwhose dollar valuemay not be known.Typically, outstanding lawsuits thathave not beensettled or decidedare the best-knownform of suchcontingencies.
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PICKING STOCKS FOR SWING TRADINGKey PointLook beyond the numbers. Read the footnotes in the annual report and track financial news to discover any special circumstances that could affect a company’s stock price.
Key PointThere is much to be said for a track record. For swing trading,the ability to view a company’s price history may be an important determining factor in picking one stock over another.
7. Has the company been in business long enough to have a track record?In selecting one stock over another, it is impossible to make asound judgment without a track record. How long has the company been in business? Can you tell whether there has beengrowth in net worth, or a reduction? What is the reputation ofmanagement? Does the company pay dividends, and what is thecurrent dividend yield? Have dividend payments been consistent,or have some been missed? These questions define corporationsand provide you with a means for comparison and selection.
Fundamental and Technical IndicatorsA combination of some basic fundamental and technical indicators canbe useful in narrowing down the list of swing trading stocks. If your selection criteria are too broad, there will be too many stocks to choosefrom. Ideally, a group of between 10 and 25 stocks meeting all of yourcriteria is a fair range, especially if they represent a diversified cross-sectionof market sectors.If you are able to check a stock’s fundamental strength using onlyfour or five indicators, it is a sound number. Too many indicators canmake it difficult to pick stocks, if only because you will have to spend toomuch time running and monitoring your tests. Suggested fundamentalindicators include:
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Key PointLimit the number of indicators you use for picking stocks. If youpick too many, your analytical task will be more daunting andexclusionary.
1. Revenue and earnings. A sound, basic starting point is revenue and earnings, or thetop and bottom lines of the operating statement. This is a financial statement summarizing of all activity for a specific period oftime (year, quarter, or month). If you checkrevenue and earnings over a period of time,you can identify whether a company isgrowing consistently; reporting erratic results; or flatlining in its results.For example, revenue and earnings for LucentTechnologies (LU) was erratic for the five years between 2001 and 2005, as shown in Figure 6.1.
operatingstatementa financial statement summarizingall activity—revenue, costs andexpenses, andprofits—for aspecified period oftime, most often afull year or a fiscalquarter.
financialstatement
Note the wide swings from year to year ina report publishedby a corporationboth revenue and earnings. Lucent’s fivereporting activityyear history has been quite volatile, notover a period oftime, such as a fullonly with drastic reductions in reportedyear (the operatrevenue, but also with large changes in neting statement) orlosses and profits.balances of asset,liability and netIn comparison, Wal-Mart (WMT) has reworth accounts atported revenue and earnings with remarkablethe end of a period (the balanceconsistency, as shown in Figure 6.2. In thissheet).example, both revenue and earnings have increased steadily over a period of years, making Wal-Mart’s financial results far more predictable than Lucent’s.2. Dividend yield. The overall profit you earn from, buying stocks isnot limited to the capital gains from buying and selling shares ofstock. If you hold stock for any length of time, you also need tocompare dividend yield on the stock. This form of profit, alsocalled current yield, can represent a major portion of overall yield.
PICKING STOCKS FOR SWING TRADING
$22
$3
21
2
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1
19
0
18
–1
17
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15
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Net Profit in Billions
Revenue in Billions
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14131211
–5–6–7–8
10
–9
9
–10
8
–11
7
–12
6
–13
5
–14
4
–152001
2002
200