Trading Critic: Forex, Stocks - FAQ

What Does Hawkish Mean?

Sat, 09 Dec 2006 19:50:39 -0800

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What does Hawkish mean? We've heard it a lot lately in the financial news. "RBA maintaining a hawkish stance", "Yen gains as BOJ keeps up hawkish rhetoric", "Paris shares close higher, supported by less hawkish ECB comments", " Euro gains brief boost from hawkish Trichet comments" and "RNBZ Gets Hawkish, And Does Nothing". We all know that a hawk (noun) is a, "relatively small diurnal bird of prey with short rounded wings and very good eyesight which hunts by pouncing on small birds and mammals." To go hawking (verb) is to hunt with a hawk. To be hawkish – the adjective form of the word is simply described as "like a hawk". So in financial terms, what is the definition for hawkish?

The definition of hawkish is this: it is an aggressive stance. Just as a hawk is aggressive in hunting its prey, being hawkish relates to the aggressive stance taken with regard to the topic. For example, if there is a threat of high inflation, to describe the reserve bank of a country being hawkish in any official statement may mean they are leaning towards a stronger action such as favouring an increase in interest rates to dampen high inflation. The antonym (opposite) to hawkish is dovish. Good luck in your trading!

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What does Hawkish mean? We've heard it a lot lately in the financial news. Here is the definition for Hawkish.

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About Price to Earnings (P/E) Ratio

Tue, 21 Nov 2006 18:40:58 -0800

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The Price to Earnings (P/E) Ratio is the most commonly used valuation metric used by investors to help determine is individual stocks are reasonably priced. It is a simple ratio to calculate but can be confusing to interpret. The ratio can be useful in some cases yet useless in others. The ratio was popularized by Benjamin Graham - author of "The Intelligent Investor" (a must read for all serious investors). Graham used this financial ratio as a quick way to determine if the company stock was trading on an investment or speculative basis.

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

The Price to Earnings (P/E) Ratio is rather simple to calculate. You simply take the net earnings and divide by its average outstanding shares and then divide it with its Earnings Per Share or EPS.

P/E Ratio = [ Net Income - Dividends on Preferred Stock ] / [ Average Outstanding Shares on Issue ]

So if the stock is at $50 and the company pays out a dividend of 10 percent or $5 a year then the P/E ratio is 10. Most brokers would have some facility to automatically display the Price to Earnings (P/E) Ratio for a stock. If you are hard pressed to find it you can even look up a company's P/E ratio on Yahoo! Finance. There are two ways to calculate EPS which result in either a trailing P/E or a leading P/E (projected P/E). A trailing P/E takes historic data using the EPS from the last four quarters. A leading P/E takes estimated EPS figures expected over the next four quarters (which is just the analyst's best guess).

Now that I've calculated the P/E Ratio, What does it Mean?

Most investors would nominate the P/E ratio to be "the" financial ratio to use to determine if a stock was cheap (if the company had recently fallen out of favour) or overpriced (could be the stock was the latest "hot-pick"). To give the number some meaning, or a little bit of context you'll have to research the typical Price to Earnings Ratios of other companies of the same type and industry - you could calculate comparable company P/E's as an average. This will determine what P/E ratios are "normal" for that type of company in that certain industry and this benchmark number can give context to the P/E ratio you calculated and hence allow you to compare the two numbers. Usually similar types of companies or companies in the same industry are classified in industry sectors like infrastructure, retail, biotech, pharmaceuticals, telecommunications and utilities.

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The Price to Earnings (P/E) Ratio is the most commonly used valuation metric used by investors

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What does the term "go short" mean?

Fri, 07 Jul 2006 17:51:54 -0700

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To go short in a trade in simple terms means that you have a bearish view on the stock, contract or currency you are trading. So as a trader, are looking to profit from a decreasing equity price.

What does the term "go long" mean?

Fri, 07 Jul 2006 17:50:30 -0700

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To go long in a trade in simple terms means that you have a bullish view on the stock, contract or currency you are trading. So as a trader, are looking to profit from an increasing equity price.

What is a stop loss?

Fri, 07 Jul 2006 17:48:44 -0700

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A stop loss is a defined level at which a trader would exit their short or long position. A stop loss can take a mental or a physical form. A mental stop loss is when a trader takes note of the price at which the stop loss resides, and only executes the exit order if they so wish. A physical stop loss is when an actual stop loss order is placed with the broker to exit the relevant trade at the predetermined level.