The Road to Successful Trading

on investment, or ROI for short. ROI is a broad concept that applies to almost any sort of 
investment of capital. The owners’ investment in a business is the total of the owners’ equity 
accounts in the company’s balance sheet. 
Dividing annual net income by stockholders’ equity gives the return on equity ratio (ROE). ROE 
should be compared with industry-wide averages and with investment alternatives. 
Quarterly and Annual Reports
We find most historical data in the annual and 
quarterly reports
 released by a 
company’s management. These can be found over the internet or in physical form.
Financial statements are required by law and must include a 
balance sheet
, an 
income statement
, a 
statement of cash flows
, an 
auditor’s report
and a relatively detailed description of the company’s 
operations and prospects for the upcoming year.
The annual report is sometimes also referred to as the 
10-K
, but don’t be fooled. The 10-K contains 
the same information but in much more detail than many annual reports.
The following information is presented in most financial reports. Please note that the order in which 
these are presented might vary: 
• Summary of the previous year
• Information about the company in general - its history, products and line of business
• Letter to shareholders from the president or the CEO
• Auditor’s report detailing the accuracy of the results Where to find company reports 
Thanks to the Internet, finding financial reports is easier than ever. Nowadays, every reputable 
company has an investor relations section on its website that is a wealth of information.
How to Design and Construct An Effective Trading Plan 
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If you want to dig deeper and go beyond the slick marketing version of the annual report found on 
corporate websites, you’ll have to search through filings made to the 
Securities and Exchange 
Commission 
(SEC). All publicly-traded companies in the U.S. must file regular financial reports 
with the SEC. These filings include the annual report (known as the 
10-K
), quarterly report (10-Q) 
and a myriad of other forms containing all types of financial data.

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Reports are filed through a system known as 
EDGAR
(Electronic Data Gathering, Analysis and 
Retrieval system). EDGAR performs automated collection, validation, indexing, acceptance and 
forwarding of submissions by companies and others required by law to file forms with the SEC. 
Information on EDGAR can be found on the 
SEC’s website
, where you can search through forms as 
well as familiarize yourself with the system using its 
EDGAR tutorial
.
Fundamental analysis boils down to: if the company has good ratios and a good story the price of 
the stock will most probably go up over time if the underlying market is also moving up. On the flip 
side, anyone looking for a stock to “short” would turn the good ratios and good story upside down: 
a company with ratios below standards and with a gloomy story will probably have declining stock 
price over time particularly in a declining market.
But fundamental analysis does little to address the problem of when an anticipated price movement 
might happen. This fact tends to make fundamentalists investors and not traders. Traders normally 
find technical analysis more appropriate to their objectives of determining what direction and when 
a stock price might move.