In order to get started with Revelator Trading, you will need a subscription to TradingView. Our indicators currently only run on the TradingView platform. If you are just getting started and aren’t sure about stepping too deep into trading, the free TradingView plan combined with our free plan is a good way to get started. As you progress, paid plans offer some real benefits. Paid TradingView plans offer more calculation time, more back testing data, chart replays, and access to more alerts. The Pro Revelator plan provides advanced algorithms and data analysis tools to make strategy development and execution much easier for the serious trader. Check out this video for some more information:
Let’s dive deeper into some topics I either skipped or glossed over in the video:
Dividends
Some companies will return a portion of profits to their shareholders from time to time. These distributions are called dividends and the do affect price action. Look for the circled “D” along the bottom of a chart and click them for relevant historic and upcoming dividend information. Dividend distributions can affect price action and the dividends themselves can form another source of trading profits for the savvy trader.
Reverse splits
A mistake many new traders make is failing to understand reverse splits and other forms of share dilution. A stock usually reverse splits when its price is too low for too long, leading to it getting delisted. A reverse split can sometimes, but not always, help a struggling company stay listed on the stock exchanges.
The above illustration shows what happens to your capital when you hold through multiple reverse splits – it pretty much goes to zero! What does it mean for a stock to reverse split. Let’s say a penny stock you shouldn’t be holding has a 1 for 10 split. Right before the split, it is trading for 25 cents. This means for every 10 shares you currently hold, you’ll receive one share. Instead of that share trading for 25 cents, it will now resume trading at $2.50. In many cases, this is just a bump in the road leading to poverty. As you get started with Revelator Trading, we want to make sure you are aware of these pitfalls so you hopefully won’t have to learn things the hard way.
Share dilution
Another thing many new traders don’t realize is that shares often get diluted over time. There are many legitimate reasons for a company to issue shares, such as issuing shares to employees or raising capital. In a healthy company, some issuance of new shares isn’t necessarily a bad thing. In a failing company that isn’t already producing value and is incapable of producing new value from the issuance of new shares, it simply dilutes the value of existing shares. As you progress in reading through our knowledge base, you’ll find information on how to find quality companies, making share dilution less of a concern.
Another form of share dilution occurs when large shareholders offload their positions for various reasons. Perhaps it is the CEO needing to raise capital to pay taxes. This creates massive selling pressure, driving the price down if the demand isn’t sufficient to keep it propped up. As a result, the remaining shareholders are holding the same number of shares, just at a much lower value.
Forward splits
If there is such a thing as a reverse split, it would logically follow that there must be a forward split. There certainly is, and it is essentially the exact opposite of a reverse split. A very successful company will often see a massive rise in stock price, sometimes leading to share valuations in the thousand dollar plus range. In order to bring things down, a company can issue more shares, dropping the price by that factor, thus keeping the market cap the same. Market cap is the share price * the outstanding shares. For example, NVDA is undergoing a 10 for 1 forward split as I write this. For sake of general discussion, let’s say it closed at $1200. If you owned one share prior to the split, you will own 10 shares, each worth $120. The lower share price puts the stock on the table for a lot more people (less an issue these days with fractional shares) and also makes option trading more feasible (something that isn’t done in fractional shares).
Strategic forward splits are often a beneficial thing for both the company and investor.
Conclusion
For the active, short term trader, company value and fundamentals are often of little concern. What is more important is liquidity and the spread between the bid and ask. For the trader looking for big moves, company value and fundamentals are extremely important. Many beginning traders are attracted to the low price and on the surface high potential of penny stocks. The news often makes this worse by only telling the success stories that were built on a mountain of people that are left holding the bag. To learn more about finding stocks with value, be sure to check out our post on how we find stocks to trade. I hope the above video and post have been helpful in learning how to get started with Revelator Trading!