Value forex trading strategy

The value strategy or value-oriented investment behaviour is a principle in which buy and sell decisions for shares are only made with regard to the real economic equivalent, the so-called intrinsic value.

Buy efficiently, sell efficiently 

In the value strategy, investors will first try to determine the intrinsic value of a share with the help of fundamental analysis. In the next step, the investor takes advantage of selective shifts in the financial markets in the pricing of shares in order to buy selectively at low prices and, if necessary, to sell again selectively when prices are too high.

The value strategy has the declared aim of avoiding losses and unreasonably low returns on the capital invested. An additional effect is the fact that this approach usually generates above-average returns.

Determining the "intrinsic" value

Balance sheet ratios are used to examine the "intrinsic" or "fair" value of a company. If the current market value of the company (stock market price multiplied by the number of shares issued) is very low in relation to the "intrinsic" value, the share is judged to be worth buying according to the value strategy.

In determining the "intrinsic" value, the so-called book value is applied. This is the net book value of the company - thus the existing assets minus all liabilities, which normally corresponds to equity.

Ratio: Price/book value ratio

The stock market value of the company is set in relation to the book value. This results in the ratio "price-to-book". The lower the ratio, the more favourable the company or security appears compared to the market/industry average. Value investors thus ask themselves what a company would be worth if it were liquidated (liquidation value).

Price-to-book ratio is not enough

However, stock selection based solely on the price-to-book ratio is too simple in Exness personal area. Other classic valuation ratios are usually used for the value approach. These are a low price-earnings ratio (P/E ratio), a low price-sales ratio (P/S ratio) and a low price-cash flow ratio (P/C ratio). Accordingly, value-oriented investors focus primarily on companies with low valuations and stable earnings and growth prospects. These are usually conservative, solid companies. These companies are listed on the stock market without a premium. Their potential for setbacks should be limited in falling markets.

Value strategy suitable for newcomers

The value strategy is more defensive than the growth strategy and is therefore more suitable for newcomers to the stock market. One important reason for this is that there is less risk potential in the value segment than in the growth segment.

Moreover, market participants assume that the rest of the stock market will sooner or later recognise the undervaluation, which means that the share price is likely to climb].

Recommended for beginners

The 200-day line strategy offers a recommended approach to share trading for share beginners. It is scientifically proven that investors are better off following the trend than trading against it. Most of the time, the existing trend will continue. The most important virtue investors should have with the 200-day line is to maintain discipline.

The 200-day line strategy offers private investors a simple tool to check whether they are not missing an important trend or trend reversal, on the one hand, and on the other hand, this instrument offers clear rules for entry and exit.

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