I have been hunting around for the best places to invest my money for some years now. You see, I'm not an impulsive person. If anything, I am a little bit obsessive compulsive. I'm moreover a PhD. level student of mathematics. As such, I am interested in the mathematical reasons that underlie investment decisions. I'm also as interested in the mathematical basis behind stock market trends as I am with actually making money from them. Don't get me wrong, once I figure out what the best investments actually are, even if that means high risk stocks and shares, I will go out and make a killing. So it's not that I'm not that interested in making money, it is just that I have this innate desire to discover the underpinnings of the financial products that I am looking at, before I choose to invest in them. It's just the way my mind functions.
For sure, there is no one best spot to invest forever, however there are several reasonable ones. The finest place to invest your money depends on what you're aiming to do. You may perhaps invest in stocks for a variety of assorted reasons. And, if you do happen to get a hot tip, it might even be very sensible to invest in stocks. Though, I ought to point out that if you received some of those email hot tips that appear in a spam-like way in your inbox, just ignore them. The people who've sent them have only bought that stock themselves and are trying to get others to buy it too, after them, so that the share price rises and they can make a quick buck.
Anyway, what few people understand regarding the stock market is that the win-it-all or lose-it-all phenomenon is much rarer than the media makes it seem. Most people who invest in the stock market actually are fairly careful. They've usually placed a lot of cash into a stock, and are in it for the long term. They don't want to be reckless with their futures, so they make conservative investments.
My investigation of where are best places to invest demands me to come up with a definition of what "best" actually means. Since I'm a mathematician, I undertake to define it mathematically. The top spots to invest must possess a mishmash of characteristics. They must provide an investment opportunity that is money-making but, at the same time, as safe as possible. Usually, these attributes work in opposition.
For example, day trading on the stock market is extremely profitable if done right, but also really dangerous. Investing in land, on the other hand, may perhaps take a great deal longer to turn a profit however it tends to be much less risky. Hence, the overall best places to invest are a bit difficult to find. It is hard to find something that combines all of the favorable ingredients equally.
The most important thing to figure out is that the best spots to invest actually change from day to day. One week, the securities market may be in top condition. The next week, it might be the real-estate market. The finest places to invest money in the short-term change weekly, sometimes daily. And even the value of long term investments is subject to frequent change. It has to be said that if you want to invest your money wisely, you really need to do your homework.
Friday, October 31, 2008
Tuesday, October 28, 2008
Timing in Stock Market Investing
When it comes to stock market investing, timing is everything. The only option that exists for a successful stock market investor is to aim for the best timing for maximum profits and fewer losses.
Companies issue their stocks to raise capital and invest in the business. Stocks are made available to the public so they can buy and sell them. The price of stock depends on the supply and demand involved, much like the cost of any other item. The stock market takes full advantage of the concept of supply and demand.
Getting into the business of stock market trading often yields more significant profits to investors as opposed to entering into an ordinary stock enterprise. There are a wide variety of stocks to choose from when any investor embarks upon stock trading. Among thousands of registered stocks, there is also always a moving stock out there.
Those who go about carelessly proceeding into the stock market are certain to have undesirable results. Large losses may be incurred if the market trend is not properly predicted. On the other hand, small profits are frustrating to the purpose of stock market trading and earning major money. Uninformed stock traders can wind up waiting around for a decisive moment that might not ever arrive.
Timing The Market
Investors use market timing to predict when the market will change its course. By using market timing, investors seek to avoid the negative effects of poor stock market trading. When using market timing, it is automatically presumed
that the decisive point can be predicted ahead of time. By examining pertinent economic data and the price, the direction of the market is predicted to encourage more lucrative stock trading.
Having The Best Timing
The aim of those seeking to be successful at stock investing is to have the best timing. The consistency of such trend prediction is subject to a variety of factors. While market timing sounds like a certain way to make big money, it is not without serious effort. Serious exertion is required involving persistence in studying various market factors and ongoing effort to remain knowledgeable about current market trends. Mere speculation must be avoided. Speculating is a desperate move used when a stock investor has not done the proper homework.
Sometimes investors purchase stocks based on a hot tip they got from someone else. Unfortunately, the majority of these hot tips wind up being false since they are usually offered by parties with their own vested interests.
To have effective market time, investors must get actively involved in research about the company’s history so they can calculate the trend by charting the movement of the stock’s price. The value of the stock must be analyzed to make a fairly accurate prediction about the market trend. By using this method, investors develop standards for when to purchase and when to sell so they can accurately time their investments.
Other considerations as a stock investor include when to resell the stock purchased when it reaches peak value. With analytical research and knowledge, investors can realize maximum profits by taking calculated risks.
Companies issue their stocks to raise capital and invest in the business. Stocks are made available to the public so they can buy and sell them. The price of stock depends on the supply and demand involved, much like the cost of any other item. The stock market takes full advantage of the concept of supply and demand.
Getting into the business of stock market trading often yields more significant profits to investors as opposed to entering into an ordinary stock enterprise. There are a wide variety of stocks to choose from when any investor embarks upon stock trading. Among thousands of registered stocks, there is also always a moving stock out there.
Those who go about carelessly proceeding into the stock market are certain to have undesirable results. Large losses may be incurred if the market trend is not properly predicted. On the other hand, small profits are frustrating to the purpose of stock market trading and earning major money. Uninformed stock traders can wind up waiting around for a decisive moment that might not ever arrive.
Timing The Market
Investors use market timing to predict when the market will change its course. By using market timing, investors seek to avoid the negative effects of poor stock market trading. When using market timing, it is automatically presumed
that the decisive point can be predicted ahead of time. By examining pertinent economic data and the price, the direction of the market is predicted to encourage more lucrative stock trading.
Having The Best Timing
The aim of those seeking to be successful at stock investing is to have the best timing. The consistency of such trend prediction is subject to a variety of factors. While market timing sounds like a certain way to make big money, it is not without serious effort. Serious exertion is required involving persistence in studying various market factors and ongoing effort to remain knowledgeable about current market trends. Mere speculation must be avoided. Speculating is a desperate move used when a stock investor has not done the proper homework.
Sometimes investors purchase stocks based on a hot tip they got from someone else. Unfortunately, the majority of these hot tips wind up being false since they are usually offered by parties with their own vested interests.
To have effective market time, investors must get actively involved in research about the company’s history so they can calculate the trend by charting the movement of the stock’s price. The value of the stock must be analyzed to make a fairly accurate prediction about the market trend. By using this method, investors develop standards for when to purchase and when to sell so they can accurately time their investments.
Other considerations as a stock investor include when to resell the stock purchased when it reaches peak value. With analytical research and knowledge, investors can realize maximum profits by taking calculated risks.
Stock Split Essentials
Stock splits present one of the most misunderstood aspects of the stock market. Psychologically stock splits feel like you have gained value, but in reality you just own twice as much paper. Much the same as if you changed a ten-dollar bill for two five-dollar bills. Once a stock splits 2-for-1 you have twice as many pieces of paper (shares) as you did before. But your shares still represents the same percentage of the total outstanding shares of the company as it did before.
Why do companies split their stock? Investor psychology motivates the issuing company to do this. Stocks are generally sold in lots of 100. When a stock splits it’s more likely to the needs of a small investor. For instance suppose a stock is selling for $60 a share. A lot of 100 shares would cost $600. If this stock splits 3-for 1, the price of a share goes from $60 to $20; and the cost to 100 shares goes from $600 to $200. Suppose a small investor has $400 he would like to invest. A hundred shares for $600.00 is out of his reach, but 200 shares for $400.00 meets his needs exactly.
Although there are many ratios a stock could split, the most common splits are 2-for-1, 3-for-2, and 3-for-1. Also possible is a reverse split where a company reduces the outstanding shares. A reverse split results in each holder being issued less shares than before. A reverse split gives you less paper but you still own the same percentage of the company. One reason a company might decide to do a reverse split is that price per share is so small it looks like a poor investment. If the price of a share becomes too low it might
get de-listed by the stock exchange. Other reasons for a reverse split could be to push out minority stockholders, or as a way to go private.
What are the advantages of a Stock split? The biggest advantages of a stock split is greater liquidity. As mentioned before stocks are sold in lots of a hundred. So the lower the price of the stock, the more likely they will meet the criteria of a small investor’s budget. The bid/ask spread is the difference between buying and selling prices. Typically the smaller the price of a stock the smaller the bid/ask spread. A high bid/ask spread can put off larger investors.
Psychologically, a split is perceived as bullishness. The spit is seen as a sign that the company is doing well. A stock split generally sets off a short-term rally, although the market usually normalizes shortly.
One of the disadvantages is that a split raises investor expectation about the company’s performance. If these expectations are not met, there is a rebound effect and the investor’s lose confidence which may result in falling share prices.
When all is said and done a stock split doesn’t change the value or performance of a company. The investor may own twice as many shares, but the total value is unchanged. Probably the most important thing is that you now own more shares. This will, of course, benefit you if the price of the stock continues to rise.
Why do companies split their stock? Investor psychology motivates the issuing company to do this. Stocks are generally sold in lots of 100. When a stock splits it’s more likely to the needs of a small investor. For instance suppose a stock is selling for $60 a share. A lot of 100 shares would cost $600. If this stock splits 3-for 1, the price of a share goes from $60 to $20; and the cost to 100 shares goes from $600 to $200. Suppose a small investor has $400 he would like to invest. A hundred shares for $600.00 is out of his reach, but 200 shares for $400.00 meets his needs exactly.
Although there are many ratios a stock could split, the most common splits are 2-for-1, 3-for-2, and 3-for-1. Also possible is a reverse split where a company reduces the outstanding shares. A reverse split results in each holder being issued less shares than before. A reverse split gives you less paper but you still own the same percentage of the company. One reason a company might decide to do a reverse split is that price per share is so small it looks like a poor investment. If the price of a share becomes too low it might
get de-listed by the stock exchange. Other reasons for a reverse split could be to push out minority stockholders, or as a way to go private.
What are the advantages of a Stock split? The biggest advantages of a stock split is greater liquidity. As mentioned before stocks are sold in lots of a hundred. So the lower the price of the stock, the more likely they will meet the criteria of a small investor’s budget. The bid/ask spread is the difference between buying and selling prices. Typically the smaller the price of a stock the smaller the bid/ask spread. A high bid/ask spread can put off larger investors.
Psychologically, a split is perceived as bullishness. The spit is seen as a sign that the company is doing well. A stock split generally sets off a short-term rally, although the market usually normalizes shortly.
One of the disadvantages is that a split raises investor expectation about the company’s performance. If these expectations are not met, there is a rebound effect and the investor’s lose confidence which may result in falling share prices.
When all is said and done a stock split doesn’t change the value or performance of a company. The investor may own twice as many shares, but the total value is unchanged. Probably the most important thing is that you now own more shares. This will, of course, benefit you if the price of the stock continues to rise.
Free Stock Market Tickers
Stock market ticker is used to keep track of the share price of the companies that are listed in that particular exchange. Earlier stock market tickers were only put up in the exchanges and brokerage houses. As technology evolved, the stock market ticker started appearing on TV and soon these tickers were available on the internet provided as a service by various firms. Initially these tickers were available at a price to those who trade over the internet. Now it is a free service by various news channels and the websites of brokerages and exchanges. The power of technology has truly revolutionised the way things work.
Stock market tickers now come with other advanced features that you can use as you use the ticker. You can keep track of the prices of the shares of stocks that you have in your portfolio in real time. These tickers also give you information about the highs and lows of the share price during the day and the volume of shares traded during the day. You can keep track of the networth of your investment in the stock market. There are also portfolio management features in these stock tickers that will help manage you your portfolio so that you can make maximum returns in the stock market. There is also a stock watch feature in which you can add all the stocks whose prices you want to keep track of. As and when the stock enters
your buy range, you can buy the stock and reap the benefits of technology.
The tickers that are used these days are judged on the speed with which they relay the information to you and the ease of use. It has to be quite user friendly and the prices of any share of stock should be easily accessible by you. This has to happen quickly too as these days the stock prices move up or down in a matter of minutes.
Any service is judged on the customer service that it provides. There are a lot of tickers out there that are really easy to use and that provide good speed. But if you develop a problem with your ticker then you will be banking on the customer service of the firm to bail you out. Customer service can be gauged only by experiencing it firsthand. If you are new to the stock market and you are just learning to use the ticker, then it is better to use the ticker of your brokerage firm if it provides one or the ticker of a reputed firm. As you get used to the various terms and get used to the stock market functioning, you can try out the various free tickers that are available on the internet.
As you can see, the stock market ticker is a useful tool if you are an avid investor or trader in the stock market. Your work will definitely become easier as stock prices become easily accessible for you. This will definitely increase your efficiency which will directly increase the profits you make in the stock market.
Stock market tickers now come with other advanced features that you can use as you use the ticker. You can keep track of the prices of the shares of stocks that you have in your portfolio in real time. These tickers also give you information about the highs and lows of the share price during the day and the volume of shares traded during the day. You can keep track of the networth of your investment in the stock market. There are also portfolio management features in these stock tickers that will help manage you your portfolio so that you can make maximum returns in the stock market. There is also a stock watch feature in which you can add all the stocks whose prices you want to keep track of. As and when the stock enters
your buy range, you can buy the stock and reap the benefits of technology.
The tickers that are used these days are judged on the speed with which they relay the information to you and the ease of use. It has to be quite user friendly and the prices of any share of stock should be easily accessible by you. This has to happen quickly too as these days the stock prices move up or down in a matter of minutes.
Any service is judged on the customer service that it provides. There are a lot of tickers out there that are really easy to use and that provide good speed. But if you develop a problem with your ticker then you will be banking on the customer service of the firm to bail you out. Customer service can be gauged only by experiencing it firsthand. If you are new to the stock market and you are just learning to use the ticker, then it is better to use the ticker of your brokerage firm if it provides one or the ticker of a reputed firm. As you get used to the various terms and get used to the stock market functioning, you can try out the various free tickers that are available on the internet.
As you can see, the stock market ticker is a useful tool if you are an avid investor or trader in the stock market. Your work will definitely become easier as stock prices become easily accessible for you. This will definitely increase your efficiency which will directly increase the profits you make in the stock market.
Thursday, October 23, 2008
Stock Option Trading Millionaire Principles
Having been trading stocks and options in the capital markets professionally over the years, I have seen many ups and downs.
I have seen paupers become millionaires overnight...
And
I have seen millionaires become paupers overnight...
One story told to me by my mentor is still etched in my mind:
"Once, there were two Wall Street stock market multi-millionaires. Both were extremely successful and decided to share their insights with others by selling their stock market forecasts in newsletters. Each charged US$10,000 for their opinions. One trader was so curious to know their views that he spent all of his $20,000 savings to buy both their opinions. His friends were naturally excited about what the two masters had to say about the stock market's direction. When they asked their friend, he was fuming mad. Confused, they asked their friend about his anger. He said, ‘One said BULLISH and the other said BEARISH!'"
The point of this illustration is that it was the trader who was wrong. In today's stock and option market, people can have different opinions of future market direction and still profit. The differences lay in the stock picking or options strategy and in the mental attitude and discipline one uses in implementing that strategy.
I share here the basic stock and option trading principles I follow. By holding these principles firmly in your mind, they will guide you consistently to profitability. These principles will help you decrease your risk and allow you to assess both what you are doing right and what you may be doing wrong.
You may have read ideas similar to these before. I and others use them because they work. And if you memorize and reflect on these principles, your mind can use them to guide you in your stock and options trading.
PRINCIPLE 1
SIMPLICITY IS MASTERY
When you feel that the stock and options trading method that you are following is too complex even for simple understanding, it is probably not the best.
In all aspects of successful stock and options trading, the simplest approaches often emerge victorious. In the heat of a trade, it is easy for our brains to become emotionally overloaded. If we have a complex strategy, we cannot keep up with the action. Simpler is better.
PRINCIPLE 2
NOBODY IS OBJECTIVE ENOUGH
If you feel that you have absolute control over your emotions and can be objective in the heat of a stock or options trade, you are either a dangerous species or you are an inexperienced trader.
No trader can be absolutely objective, especially when market action is unusual or wildly erratic. Just like the perfect storm can still shake the nerves of the most seasoned sailors, the perfect stock market storm can still unnerve and sink a trader very quickly. Therefore, one must endeavor to automate as many critical aspects of your strategy as possible, especially your profit-taking and stop-loss points.
PRINCIPLE 3
HOLD ON TO YOUR GAINS AND CUT YOUR LOSSES
This is the most important principle.
Most stock and options traders do the opposite...
They hold on to their losses way too long and watch their equity sink and sink and sink, or they get out of their gains too soon only to see the price go up and up and up. Over time, their gains never cover their losses.
This principle takes time to master properly. Reflect upon this principle and review your past stock and options trades. If you have been undisciplined, you will see its truth.
PRINCIPLE 4
BE AFRAID TO LOSE MONEY
Are you like most beginners who can't wait to jump right into the stock and options market with your money hoping to trade as soon as possible?
On this point, I have found that most unprincipled traders are more afraid of missing out on "the next big trade" than they are afraid of losing money! The key here is STICK TO YOUR STRATEGY! Take stock and options trades when your strategy signals to do so and avoid taking trades when the conditions are not met. Exit trades when your strategy says to do so and leave them alone when the exit conditions are not in place.
The point here is to be afraid to throw away your money because you traded needlessly and without following your stock and options strategy.
PRINCIPLE 5
YOUR NEXT TRADE COULD BE A LOSING TRADE
Do you absolutely believe that your next stock or options trade is going to be such a big winner that you break your own money management rules and put in everything you have? Do you remember what usually happens after that? It isn't pretty, is it?
No matter how confident you may be when entering a trade, the stock and options market has a way of doing the unexpected. Therefore, always stick to your portfolio management system. Do not compound your anticipated wins because you may end up compounding your very real losses.
PRINCIPLE 6
GAUGE YOUR EMOTIONAL CAPACITY BEFORE INCREASING CAPITAL OUTLAY
You know by now how different paper trading and real stock and options trading is, don't you?
In the very same way, after you get used to trading real money consistently, you find it extremely different when you increase your capital by ten fold, don't you?
What, then, is the difference? The difference is in the emotional burden that comes with the possibility of losing more and more real money. This happens when you cross from paper trading to real trading and also when you increase your capital after some successes.
After a while, most traders realize their maximum capacity in both dollars and emotion. Are you comfortable trading up to a few thousand or tens of thousands or hundreds of thousands? Know your capacity before committing the funds.
PRINCIPLE 7
YOU ARE A NOVICE AT EVERY TRADE
Ever felt like an expert after a few wins and then lose a lot on the next stock or options trade?
Overconfidence and the false sense of invincibility based on past wins is a recipe for disaster. All professionals respect their next trade and go through all the proper steps of their stock or options strategy before entry. Treat every trade as the first trade you have ever made in your life. Never deviate from your stock or options strategy. Never.
PRINCIPLE 8
YOU ARE YOUR FORMULA TO SUCCESS OR FAILURE
Ever followed a successful stock or options strategy only to fail badly?
You are the one who determines whether a strategy succeeds or fails. Your personality and your discipline make or break the strategy that you use not vice versa. Like Robert Kiyosaki says, "The investor is the asset or the liability, not the investment."
Understanding yourself first will lead to eventual success.
PRINCIPLE 9
CONSISTENCY
Have you ever changed your mind about how to implement a strategy? When you make changes day after day, you end up catching nothing but the wind.
Stock market fluctuations have more variables than can be mathematically formulated. By following a proven strategy, we are assured that someone successful has stacked the odds in our favour. When you review both winning and losing trades, determine whether the entry, management, and exit met every criteria in the strategy and whether you have followed it precisely before changing anything.
In conclusion...
I hope these simple guidelines that have led my ship out of the harshest of seas and into the best harvests of my life will guide you too. Good Luck.
I have seen paupers become millionaires overnight...
And
I have seen millionaires become paupers overnight...
One story told to me by my mentor is still etched in my mind:
"Once, there were two Wall Street stock market multi-millionaires. Both were extremely successful and decided to share their insights with others by selling their stock market forecasts in newsletters. Each charged US$10,000 for their opinions. One trader was so curious to know their views that he spent all of his $20,000 savings to buy both their opinions. His friends were naturally excited about what the two masters had to say about the stock market's direction. When they asked their friend, he was fuming mad. Confused, they asked their friend about his anger. He said, ‘One said BULLISH and the other said BEARISH!'"
The point of this illustration is that it was the trader who was wrong. In today's stock and option market, people can have different opinions of future market direction and still profit. The differences lay in the stock picking or options strategy and in the mental attitude and discipline one uses in implementing that strategy.
I share here the basic stock and option trading principles I follow. By holding these principles firmly in your mind, they will guide you consistently to profitability. These principles will help you decrease your risk and allow you to assess both what you are doing right and what you may be doing wrong.
You may have read ideas similar to these before. I and others use them because they work. And if you memorize and reflect on these principles, your mind can use them to guide you in your stock and options trading.
PRINCIPLE 1
SIMPLICITY IS MASTERY
When you feel that the stock and options trading method that you are following is too complex even for simple understanding, it is probably not the best.
In all aspects of successful stock and options trading, the simplest approaches often emerge victorious. In the heat of a trade, it is easy for our brains to become emotionally overloaded. If we have a complex strategy, we cannot keep up with the action. Simpler is better.
PRINCIPLE 2
NOBODY IS OBJECTIVE ENOUGH
If you feel that you have absolute control over your emotions and can be objective in the heat of a stock or options trade, you are either a dangerous species or you are an inexperienced trader.
No trader can be absolutely objective, especially when market action is unusual or wildly erratic. Just like the perfect storm can still shake the nerves of the most seasoned sailors, the perfect stock market storm can still unnerve and sink a trader very quickly. Therefore, one must endeavor to automate as many critical aspects of your strategy as possible, especially your profit-taking and stop-loss points.
PRINCIPLE 3
HOLD ON TO YOUR GAINS AND CUT YOUR LOSSES
This is the most important principle.
Most stock and options traders do the opposite...
They hold on to their losses way too long and watch their equity sink and sink and sink, or they get out of their gains too soon only to see the price go up and up and up. Over time, their gains never cover their losses.
This principle takes time to master properly. Reflect upon this principle and review your past stock and options trades. If you have been undisciplined, you will see its truth.
PRINCIPLE 4
BE AFRAID TO LOSE MONEY
Are you like most beginners who can't wait to jump right into the stock and options market with your money hoping to trade as soon as possible?
On this point, I have found that most unprincipled traders are more afraid of missing out on "the next big trade" than they are afraid of losing money! The key here is STICK TO YOUR STRATEGY! Take stock and options trades when your strategy signals to do so and avoid taking trades when the conditions are not met. Exit trades when your strategy says to do so and leave them alone when the exit conditions are not in place.
The point here is to be afraid to throw away your money because you traded needlessly and without following your stock and options strategy.
PRINCIPLE 5
YOUR NEXT TRADE COULD BE A LOSING TRADE
Do you absolutely believe that your next stock or options trade is going to be such a big winner that you break your own money management rules and put in everything you have? Do you remember what usually happens after that? It isn't pretty, is it?
No matter how confident you may be when entering a trade, the stock and options market has a way of doing the unexpected. Therefore, always stick to your portfolio management system. Do not compound your anticipated wins because you may end up compounding your very real losses.
PRINCIPLE 6
GAUGE YOUR EMOTIONAL CAPACITY BEFORE INCREASING CAPITAL OUTLAY
You know by now how different paper trading and real stock and options trading is, don't you?
In the very same way, after you get used to trading real money consistently, you find it extremely different when you increase your capital by ten fold, don't you?
What, then, is the difference? The difference is in the emotional burden that comes with the possibility of losing more and more real money. This happens when you cross from paper trading to real trading and also when you increase your capital after some successes.
After a while, most traders realize their maximum capacity in both dollars and emotion. Are you comfortable trading up to a few thousand or tens of thousands or hundreds of thousands? Know your capacity before committing the funds.
PRINCIPLE 7
YOU ARE A NOVICE AT EVERY TRADE
Ever felt like an expert after a few wins and then lose a lot on the next stock or options trade?
Overconfidence and the false sense of invincibility based on past wins is a recipe for disaster. All professionals respect their next trade and go through all the proper steps of their stock or options strategy before entry. Treat every trade as the first trade you have ever made in your life. Never deviate from your stock or options strategy. Never.
PRINCIPLE 8
YOU ARE YOUR FORMULA TO SUCCESS OR FAILURE
Ever followed a successful stock or options strategy only to fail badly?
You are the one who determines whether a strategy succeeds or fails. Your personality and your discipline make or break the strategy that you use not vice versa. Like Robert Kiyosaki says, "The investor is the asset or the liability, not the investment."
Understanding yourself first will lead to eventual success.
PRINCIPLE 9
CONSISTENCY
Have you ever changed your mind about how to implement a strategy? When you make changes day after day, you end up catching nothing but the wind.
Stock market fluctuations have more variables than can be mathematically formulated. By following a proven strategy, we are assured that someone successful has stacked the odds in our favour. When you review both winning and losing trades, determine whether the entry, management, and exit met every criteria in the strategy and whether you have followed it precisely before changing anything.
In conclusion...
I hope these simple guidelines that have led my ship out of the harshest of seas and into the best harvests of my life will guide you too. Good Luck.
Ultimate Stock Market Trading Survival Guide
Stock market trading is often touted as something so simple anyone can do it and do it better themselves than if they used a broker. While this is true, it's important to keep an eye out for some of the common mistakes people make.
People are always advised never to invest money they can't afford to loose in the stock market. Even with the best decision, there's still a chance that things can go wrong, especially when emotions are involved. Pay attention to all the information you can find. Choosing a stock because its symbol is your initials might be a good sign that you need to double check how rational you're prepared to be about investing.
A rational investor has a plan. Knowing when to get out is as important as when to get in for a given stock. Planning your work and then working your plan isolates you from more volatile emotions and emotional responses. You're taking an active role in the stewardship of your finances; remember the long term goals you have.
But no plan, no matter now good will work all the time. Invest your money in discrete lots and never invest all your money in one stock. Yes, you're giving up the potential for gains but you're also providing a hedge against things going tragically wrong.
Understand that you're learning in this and set up a mock portfolio first to allow you to gain experience. The more experience you have the better you'll do at trading stocks. Getting better means you can make more profitable trades, trade more stocks - but you have to earn that experience. There is no substitute for it.
When we learned how to drive we didn't start off driving a Formula One car or a drag racer. Most of us learned with something that wasn't so dangerous to us and more forgiving of mistakes. The stock market should be treated like that. While it's possible to having amazing returns and success with the stock market, handled inappositely can lead to disastrous results. Before you play with your entire budget and exercise more complex options, be careful that you know how the basics work.
Like driving, investing in the stock market can become second nature and allow you to take into consideration more factors and produce better results. While you might feel out of your depth when you first start investing, you'll build up the experience to jump onto the highway with cars traveling 70 miles an hour and feel comfortable.
Keep in mind that it's a learning experience and don't be afraid to make mistakes. Also remember that it is game and the stakes are very real. When you do something, know why you're doing it.Rright down a log of your activities and your decisions and read and understand your environment. Darwin said that it's not the strongest species that survives, but the most adaptable. Survive and overcome the initial learning curve and you can succeed.
People are always advised never to invest money they can't afford to loose in the stock market. Even with the best decision, there's still a chance that things can go wrong, especially when emotions are involved. Pay attention to all the information you can find. Choosing a stock because its symbol is your initials might be a good sign that you need to double check how rational you're prepared to be about investing.
A rational investor has a plan. Knowing when to get out is as important as when to get in for a given stock. Planning your work and then working your plan isolates you from more volatile emotions and emotional responses. You're taking an active role in the stewardship of your finances; remember the long term goals you have.
But no plan, no matter now good will work all the time. Invest your money in discrete lots and never invest all your money in one stock. Yes, you're giving up the potential for gains but you're also providing a hedge against things going tragically wrong.
Understand that you're learning in this and set up a mock portfolio first to allow you to gain experience. The more experience you have the better you'll do at trading stocks. Getting better means you can make more profitable trades, trade more stocks - but you have to earn that experience. There is no substitute for it.
When we learned how to drive we didn't start off driving a Formula One car or a drag racer. Most of us learned with something that wasn't so dangerous to us and more forgiving of mistakes. The stock market should be treated like that. While it's possible to having amazing returns and success with the stock market, handled inappositely can lead to disastrous results. Before you play with your entire budget and exercise more complex options, be careful that you know how the basics work.
Like driving, investing in the stock market can become second nature and allow you to take into consideration more factors and produce better results. While you might feel out of your depth when you first start investing, you'll build up the experience to jump onto the highway with cars traveling 70 miles an hour and feel comfortable.
Keep in mind that it's a learning experience and don't be afraid to make mistakes. Also remember that it is game and the stakes are very real. When you do something, know why you're doing it.Rright down a log of your activities and your decisions and read and understand your environment. Darwin said that it's not the strongest species that survives, but the most adaptable. Survive and overcome the initial learning curve and you can succeed.
Stock Market Trading Tutorial
There's nothing more exciting than playing the stock market. Playing is the key word here. When you can invest $1000 and within 24 hours make it become $1500, then you develop a hunger for the game. If you dream of doing this, but are afraid to take your first step into the world of stock trading, don't worry. Here's a little stock market trading tutorial that should whet your appetite enough to open a brokerage account.
Every stock market trading tutorial needs to begin with the language of the trade. Of course, you know what the stock symbol is; it's the letters that represent the company. You should know what stock shares are. If you don't, it's actually part ownership in a company.
When you make a trade, there are two types. The first type is the market trade; you buy or sell the stocks for the going rate, whatever it is at the moment. The second is a limit trade and one of the most important types in the stock market trading tutorial. Here you set the price to you'll buy or sell the shares. When you trade penny stock, you ALWAYS use a limit order. If you remember nothing else from this share market education, remember that. If you want to buy shares for .001 per share and have $1000 to do that, plus the cost of the trade, and order 1,000,000 shares but use the market price you find out very quickly that you don't always get what you think you'll get. Market makers, the men that control the shares of specific companies, can decide that they really want .01 a share and suddenly you owe $10,000. Even if there is no foul play, the market moves swiftly and a tenth of a penny can make the difference between a profit and a loss. So, lesson one of the stock trading tutorial is use the limit order and decide ahead of time how much you want to pay and what price you want from the stock.
Lesson two of the stock market tutorial goes with the limit order. You don't need to be a slave to the market. Look for stocks with trends. Some prices go up and down in regular intervals. They volley between two prices. If you find one that does, pick a number close to its bottom price and put in a limit order. You can then go about your business and when it hits that price, you automatically bought it. If the price is lower, you got it for the lower price. The share trading education doesn't end there. As soon as you find you bought the stock, put in a sell limit order for the upper end of the cycle, and go watch television or eat lunch. The transaction takes place when it hits that price. Do you always make as much as you can? Absolutely not, but you didn't have expend all the effort either. This stock market trading tutorial gives some share trading education that doesn't require a lot of effort.
Lesson three of the stock market trading tutorial involves knowing how much you want to make on the trade. "What a silly lesson for a stock market trading tutorial." You say. "I want to make as much as possible." Sorry, wrong answer. You need to find a comfortable profit and not get greedy. Remember, much of the money you make is in just a few days if you're a short-term investor. If you made $50 the first day and then added it to you investment and made $60 on that the second day and kept adding and increasing your return, the numbers grow geometrically and just like the penny doubled every day for one year, you soon make a huge sum. If you try to guess at exactly when to trade, you often end up losing all profit. Investing shares for beginners quote, "A profit, like cash, makes no enemies." Keep that in mind from this stock market trading tutorial.
A quick review of the three lessons from the stock market trading tutorial:
1. Use a limit order particularly with penny stocks.
2. Look for trends and set buy and sell limits with them and don't be a slave to the market.
3. Know how much profit is comfortable and sell when you reach it.
Every stock market trading tutorial needs to begin with the language of the trade. Of course, you know what the stock symbol is; it's the letters that represent the company. You should know what stock shares are. If you don't, it's actually part ownership in a company.
When you make a trade, there are two types. The first type is the market trade; you buy or sell the stocks for the going rate, whatever it is at the moment. The second is a limit trade and one of the most important types in the stock market trading tutorial. Here you set the price to you'll buy or sell the shares. When you trade penny stock, you ALWAYS use a limit order. If you remember nothing else from this share market education, remember that. If you want to buy shares for .001 per share and have $1000 to do that, plus the cost of the trade, and order 1,000,000 shares but use the market price you find out very quickly that you don't always get what you think you'll get. Market makers, the men that control the shares of specific companies, can decide that they really want .01 a share and suddenly you owe $10,000. Even if there is no foul play, the market moves swiftly and a tenth of a penny can make the difference between a profit and a loss. So, lesson one of the stock trading tutorial is use the limit order and decide ahead of time how much you want to pay and what price you want from the stock.
Lesson two of the stock market tutorial goes with the limit order. You don't need to be a slave to the market. Look for stocks with trends. Some prices go up and down in regular intervals. They volley between two prices. If you find one that does, pick a number close to its bottom price and put in a limit order. You can then go about your business and when it hits that price, you automatically bought it. If the price is lower, you got it for the lower price. The share trading education doesn't end there. As soon as you find you bought the stock, put in a sell limit order for the upper end of the cycle, and go watch television or eat lunch. The transaction takes place when it hits that price. Do you always make as much as you can? Absolutely not, but you didn't have expend all the effort either. This stock market trading tutorial gives some share trading education that doesn't require a lot of effort.
Lesson three of the stock market trading tutorial involves knowing how much you want to make on the trade. "What a silly lesson for a stock market trading tutorial." You say. "I want to make as much as possible." Sorry, wrong answer. You need to find a comfortable profit and not get greedy. Remember, much of the money you make is in just a few days if you're a short-term investor. If you made $50 the first day and then added it to you investment and made $60 on that the second day and kept adding and increasing your return, the numbers grow geometrically and just like the penny doubled every day for one year, you soon make a huge sum. If you try to guess at exactly when to trade, you often end up losing all profit. Investing shares for beginners quote, "A profit, like cash, makes no enemies." Keep that in mind from this stock market trading tutorial.
A quick review of the three lessons from the stock market trading tutorial:
1. Use a limit order particularly with penny stocks.
2. Look for trends and set buy and sell limits with them and don't be a slave to the market.
3. Know how much profit is comfortable and sell when you reach it.
Saturday, October 18, 2008
Stocks on Margin
Buying on margin means that you are buying your stocks with borrowed money.
If you are buying stocks outright, you pay $5,000 for 100 shares of a stock that costs $50 a share. They are yours. You've paid for them free and clear.
But when you buy on margin, you are borrowing the money to purchase the stock. For example, you don't have $5,000 for those 100 shares. A brokerage firm could lend you up to 50% of that in order to purchase the stock. All you need is $2,500 to buy the 100 shares of stock.
Most brokerage firms set a minimum amount of equity at $2,000. This means that you have to put in at least $2,000 for the purchase of stocks.
In return for the loan, you pay interest. The brokerage is making money on your loan. They will also hold your stock as the collateral against the loan. If you default, they will take the stock. They have very little risk in the deal.
One way to think of buying on margin is that it is often comparable to buying a home with a mortgage. You are taking out the loan in the hopes that the value will go up and you will make money. You are in control of twice the amount of shares. All you have to see is the additional profit exceed the interest you have paid the brokerage.
However, there are risks to buying stock on margin. The price of your stock could always go down. By law, the brokerage will not be allowed to let the value of the collateral (the price of your stock) go down below a certain percentage of the loan value. If the stock drops below that set amount, the brokerage will issue a margin call on your stock.
The margin call means that you will have to pay the brokerage the amount of money necessary to bring the brokerage firms risk down to the allowed level. If you don't have the money, your stock will be sold to pay off the loan. If there is any money left, you will be sent it. In most cases, there is little of your original investment remaining after the stock is sold.
Buying on margin could mean a huge return. But there is the risk that you could lose your original investment. As with any stock purchase there are risks, but when you are using borrowed money, the risk is increased.
Buying on margin is usually not a good idea for the beginner or normal, every day investor. It is something that sophisticated investors even have issues with. The risk can be high. Make sure that you understand all of the possible scenarios that could happen, good and bad.
If you are buying stocks outright, you pay $5,000 for 100 shares of a stock that costs $50 a share. They are yours. You've paid for them free and clear.
But when you buy on margin, you are borrowing the money to purchase the stock. For example, you don't have $5,000 for those 100 shares. A brokerage firm could lend you up to 50% of that in order to purchase the stock. All you need is $2,500 to buy the 100 shares of stock.
Most brokerage firms set a minimum amount of equity at $2,000. This means that you have to put in at least $2,000 for the purchase of stocks.
In return for the loan, you pay interest. The brokerage is making money on your loan. They will also hold your stock as the collateral against the loan. If you default, they will take the stock. They have very little risk in the deal.
One way to think of buying on margin is that it is often comparable to buying a home with a mortgage. You are taking out the loan in the hopes that the value will go up and you will make money. You are in control of twice the amount of shares. All you have to see is the additional profit exceed the interest you have paid the brokerage.
However, there are risks to buying stock on margin. The price of your stock could always go down. By law, the brokerage will not be allowed to let the value of the collateral (the price of your stock) go down below a certain percentage of the loan value. If the stock drops below that set amount, the brokerage will issue a margin call on your stock.
The margin call means that you will have to pay the brokerage the amount of money necessary to bring the brokerage firms risk down to the allowed level. If you don't have the money, your stock will be sold to pay off the loan. If there is any money left, you will be sent it. In most cases, there is little of your original investment remaining after the stock is sold.
Buying on margin could mean a huge return. But there is the risk that you could lose your original investment. As with any stock purchase there are risks, but when you are using borrowed money, the risk is increased.
Buying on margin is usually not a good idea for the beginner or normal, every day investor. It is something that sophisticated investors even have issues with. The risk can be high. Make sure that you understand all of the possible scenarios that could happen, good and bad.
High Growth Stock Purchase
As a highly rated stock both in terms of fundamentals and technicals, True Religion (TRLG), the high end denim jeans retailer, recently surfaced as a top buy candidate in my database of high growth stocks.
As I do with all stocks that appear at the top of my database screens, I pulled up the chart of TRLG in order to get a better read on the health of the stock and to see if there may be a better buy point than what could be had by purchasing at the formal break out (.10 above the high of the handle formation). In this case, the chart looked good with a surge in price and volume in the right side of the base followed by healthy consolidation. The stock consolidated into a bullish triangle continuation pattern where prices converge to a point (forming a triangle) in conjunction with a dry up in trading volume. It's called a continuation pattern because typically the end of the convergence leads to a continuation in the direction of the previous movement (in this case up!!). Of course these patterns aren't ALWAYS successful, but more often than not they are. In the chart of TRLG below (link to image in about author section) you can see today's "continuation" out of this bullish pattern, offering a better buy point then the formal pivot of 17.70.
Once I've located the stock in the SelfInvestors.com database, looked over the chart and determined where an entry point might be, I'll set a real time alert around 1% below the potential buy price. In this case I figured the stock would initially break out of this pattern around 16, so this is where I set my alert. Once I'm alerted to the price, I know the stock may be on the verge of the move I've been waiting for, so I'll begin to watch it closely in real time and have the order information entered, so that all I have to do is click submit once the price is met.
I make buy and sell decisions by looking at a real time intraday 5 minute chart. Below you'll see today's intraday chart of TRLG and the buy point around 16.30 (link to image in about author section).
Yes, bases work on the intraday charts too! See the breakout from the cup base with handle today at around 2:30PM EST? I never make a purchase if a stock has run up in the first half hour to hour of trading and will often wait for the stock to clear the high of the first hour of trading. What the run up early this morning did was trigger my alert at 16, indicating this was one to watch closely throughout the day. Since I now had my high of the day I could set another alert just below that so that I'm not watching it all day (usually I have much better things to do!). I set another alert at 16.20, which it triggered at 1:30PM EST.. and at that point it was time to watch closely for a breakout above the high of the day, which it finally did. I had the order ready and pulled the trigger on the buy.
Hopefully I haven't made this sound more complicated than it is! Do yourself a favor and subscribe to a real time charting service with real time alerts (your broker or trading platform may include this), but a separate program may be best. Esignal and TCNet are popular real time charting systems. I'd also recommend investing in another monitor so you don't have to minimize windows left and right. You can just throw in another video card into your existing computer and pick up a very good CRT monitor for cheap these days. The more computers and monitors, the better! Good Luck!
Make An Intelligent Stock Investment
There's a big difference between buying a stock for a quick trade, and making a true stock investment. With so many friends and neighbors focused on the quick profits of day trading, people have forgotten that making a stock investment makes them part-owners of real, live businesses.
If you view stock investments from this perspective, you need to be concerned about things beyond MACD, support and resistance, and other technical indicators. You have to be certain that the business is one you can entrust with your hard-earned money, for the long term.
Review the Company's Income Statement Before Making a Stock Investment
Day traders almost never bother with financial data, but true investors should always review both the income statement and balance sheet of a company before making a stock investment.
Start by looking at the past three to five years of income sheet data. Is the company's income growing? If so, is the growth accelerating or decelerating?
Always look at the company's gross margins before making a stock investment. Gross profit is the company's total sales minus its cost of goods sold. Gross profit as a percentage of sales is gross margin - is this number going up or down? Once you evaluate all of this information, you will be better prepared to make a stock investment.
If a company's income statement is erratic, income growth is decelerating, and its gross margins are being cramped, it can still be a good stock investment.
This is because other investors have probably abandoned the company, pushing the price of the stock down. Generally, companies that have consistently accelerating growth and improving gross margins are pricier stock investments. You have to evaluate all of the data and determine what you think the stock is really worth.
Don't Forget the Balance Sheet When Making Stock Investments
Reviewing the income statement is never enough when making a new stock investment. The balance sheet is always at least equally important, and in the case of companies with weak income statements, the balance sheet is even more important.
Consider the liquidation value of a company before making a stock investment. This is most important for companies under distress. What would happen in the worst case scenario and the company went bankrupt?
Look at the balance sheet and subtract intangible assets and total liabilities from total assets. What's left are the items that could be sold if the company ceased operations. If the liquidation value per share is close to the trading value of the stock, then you have downside protection on your stock investment.
If you think the company has a chance to turn things around, then it could be a great buy.
Should You Only Look For Damaged Companies When Making a Stock Investment?
No! While the balance sheet is most important when considering a stock investment in companies under distress, the income statement is paramount when making a stock investment in growing firms. Growth stocks aren't just for traders, they can be for investors too!
Consider Hansen Natural (HANS). This stock quadrupled from $7 a share in April of 2004, to $28 per share a year later. This would have been great for a trade, but traders would have really missed out if they sold for $28.
Over the next 15 months, the stock went all the way to $200 per share! Investors who took a look at the company's financial statements and carefully considered its tremendous growth prospects, could have turned a $10,000 stock investment in 2004 into more than $285,000 today.
It pays to buy and hold when you do the homework and you're confident that you're right.
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