StockSide

Taking a Long-Term Look at the Market

2006-12-02T07:54:00.000-08:00

by Martin Lukac

If you can stick with your investment strategy for the long term, chances are that you will make a profit. To do this you will need to invest without liquidating your investment, without panicking and without losing sight of the benefits of investing for the long term.

That sounds easier than it really is. Investment results cannot be predicted. When you look at the market in the short term, it can often look appealing to just sell and invest elsewhere. But you can't focus on next week, next month or next year when looking at your investments and their profitability. You have to look a little further into the future.

No one can accurately predict where the market will be next year or in ten years. What you have to look at is a broader picture. When you look at the history of the stock market, there are ups and downs. However, the market has generally moved higher and higher. Keep this in mind when the market takes a downturn. The stock market is volatile in the short run, but is fairly rewarding in the long run. You simply have to keep in mind that you are investing for the long run.

Look at your IRA. This is a long-term investment tool. For those who have 10 to 40 years until their retirement, the IRA has an enormous potential to build wealth. But it does this over the long term. When you have 30 years to invest, you have a good chance of coming out further ahead through the stock market than by investing in bonds or CDs. Even if you only have 10 years to invest, chances pretty good that in 10 years, the S&P 500 will be much higher than it is today.

In the end, the value of your IRA depends on how you choose your investments today. The key to successfully building your wealth through long-term investing in the stock market is found in having a plan. You take that plan, stick with it and remember to look at the big picture when looking at your stock investments.

Set guidelines for your investments and follow them. Don't invest or liquidate based on a hunch, gut-feeling or impulse. Ask yourself what you want out of your investments. What kind of lifestyle will you want during your retirement? How much will your child's college education cost? What are your financial hopes and dreams? Are you looking to retire early or work as long as possible?

Create a plan that includes setting aside a regular amount of money for investing. That is the key to reaching your goals, no matter how little you have. You don't have to invest a lot of money at once if you are investing for the long run. It will build and grow more than you can imagine. Even small investments can grow quite large over time.

Investing for the long term doesn't necessarily mean that you invest and forget. Yes, you can do this if you choose extremely safe stocks, but it probably still isn't a good idea. Things change over time, especially when it comes to finances and the stock market. You have to review your investments to make sure that they are still performing in a way that will get you to your goals. It is a good idea to know ahead of time how much loss you are willing to take from a stock before you sell it. Most people follow the 10% rule. Know what your out point is before you invest. Watch your stocks to make sure that they perform according to your standards.

Investing for the long run is a good investment strategy. It reduces your risk considerably. The longer you have to invest, the less your risk.

About author:
Martin Lukac http://www.MartinLukac.com, represents http://www.RateEmpire.com, an Internet consumer banking marketplace. RateEmpire.com is a destination site of personal finance, investing, taxes and mortgage rates. RateEmpire.com provides mortgage guides and financial rates and information. RateEmpire.com also operates a financial portal #1 American Financial, found at http://www.1AmericanFinancial.com

Published under category : Stock Trading Strategy

Easily Avoidable Stock Market and Investing Mistakes

2006-11-28T19:52:00.000-08:00

by Chris Ryerson

If you are like many millions of Americans investing in the stock market sounds scary and comes with a lot of reservations. This is natural and as it should be since the stock market can be very risky. However by follow some simple steps, taking it slow and making deliberate moves you can mitigate many of the risks involved with stock market investing. This does not mean you will never lose money because you will however, by following these guidelines you can ensure that in the end you will come out profitable.

If you are just getting started with investing then one of the easist ways to get up and running and typically the safest is to get a stockbroker. Later you will want to do away with a stockbroker and save on the fees and have more control. However when starting out a stockbroker can be very useful in getting you familiar with how the stock market works and how to begin trading. It can also be very helpful to find a trusted friend that invests and use them to bounce ideas off of and discuss the process with. Once you get some basic level experience you will want to strike out on your own and go for it making your own decisions etc. However, when you first get started having advice and someone to show you the ropes can really help.

One of the worst stock moves you can make is with variable annuities using the premium of your insurance. A variable annuity is an insurance contract that allows you to invest your premium in mutual fund-like investments. This sounds good in paper, but if you look at it a little harder, you’ll find that they are bad investments in the long run for the following reason:

Some other things that you want to watch out for and be carefully when considering investing follow.

Tax cuts Ordinary investments in stocks and mutual funds qualify for low capital gains treatments, thus smaller taxes. Your gains from investing your premium, on the other hand, get taxed as income as soon as you withdraw the money.

Early withdrawal penalties Insurance plans are designed for retirement. Taking out money from your premium entails a certain amount of penalty from both the insurance company as well as the government. So if you withdraw your profits, you will be penalized.

Death benefit If your stocks are down upon your death, your beneficiaries can get as much as the investments you put in. Unfortunately, if your stocks are up, they get taxed as a regular income.

Costs Annuities with insurance features are actually more expensive than ordinary mutual funds. The more insurance features your annuity has, the more annual feels are heaped against it, which naturally eats up your profits.

Timming There are specific times as well, when to and when to not make an investment. For example times of natural calamity may drive prices of stocks down but there are no insurance these would recover to make a good profit.

As always investing in anything has some risks involved and there are times that you might lose money. The important thing is to remember the points above, start slowly and as long as you are earning money more then you are losing stay with it. It can take a lot of time to learn the ups and downs of the market.

Author`s note:
For more great information stock market investing check out Best Guides Money: Stock Market Investing. BestGuideMoney includes other money saving and investing tips as well. Check out Best Guide Money for all of your money related needs.

Published under category : Stock Trading

The 6 Best Times Of The Day To Trade A Stock

2006-11-26T07:49:00.000-08:00

by Larry Potter

1. Post-opening buying: Let's say a stock rises 5 percent or more during the opening and there's no news about it. Typically, the stock will fall off after 30 minutes of trading. Why? Market makers may be trying to open the stock at an artificially high price to sell off excess inventory they've acquired the day before. However, if the stock doesn't fall after 30 minutes of trading, it's liable to continue rising for the rest of the day.

Tactic: Buy at 1/16 above the day's high after the opening. Set a stop at 1/16 below the day's low.

2. Post-opening selling: The opposite of the above strategy. When a stock opens lower on no news, it could be that sell orders from nervous investors have piled up since the close of trading the day' before. Sometimes market makers open the stock artificially low, to draw in more panic sellers. This allows them to accumulate shares, because market makers as a rule buy on price declines and sell on price increases. After 30 minutes, the stock usually recovers in price and normal trading begins. The market makers profit by selling the inventory they've accumulated at the lower price. However, if the stock continues to drift lower after 30 minutes, chances are it'll decline more during the course of the day.

Tactic: Sell short at 1/16 below the low of the day; set a stop at 1/16 above the day's high.

3. Playing the spread: This one's really simple. Buy at 1/16 above the bid. Sell at 1/16 below the ask. The strategy works best with non-volatile stocks where the spread is at least 3/8 of a point. When successful, you make a quarter point per trade, or $250 on 1,000 shares. You can also short the spread by selling short at 1/16 below the ask and covering at 1/16 above the bid. Problem is, it's not always possible to get in and out at these levels. Market makers may easily spot what you're doing and adjust prices so they blow you out. Often day traders try this tactic several times during the day before they succeed.

4. Grinding: Another relatively simple tactic. Follow the message threads at, for instance, Silicon Investor for a particular stock. When everyone is screaming that the stock is going to make a move, jump in with the mob. Be content with an 1/8 or 1/4 point. Then get out before the rush.

5. Fading the market: With this contrarian strategy, you buy into weakness and sell into strength. That is, you buy stocks with small percentage declines relative to the market. You're hoping they'll gain when the market reverses. Hold off buying until the stock trades above its opening. Reason: Previous buyers of the stock will sell to prevent loss, thus driving the price down in the short term.

6. Shop the final hour: Stocks often ease off their highs of the day during the last hour of trading. Why? Because day traders and market makers seek to exit their positions and lock in profits. A price downturn often occurs during the last hour of trading as many seek to exit their positions. This downward momentum can create some lucrative short-selling opportunities.

About author:
Larry Potter is a recognized authority on the subject of trading. For a FREE report on HOW TO TRADE FAST and a 2-week trial to Stocks2Watch®, visit: http://clik.to/stocks2watch and http://commodities-business.blogspot.com

Published under category : Stock Trading Tips

Stop Orders In Your Stock Market Trading

2006-11-21T02:09:00.000-08:00

by Dave Wooding

So we are clear, a stop order is an order that becomes active once a certain price is exceeded. A buy stop order is an order to buy once price exceeds a certain price. Until the price is exceeded to the upside, the order is not active. The opposite applies for a sell stop order. Sell stop orders become active once a price is exceeded to the downside.

There is an important point to consider, one I was not aware of until a stop order of mine was executed. Depending on your broker, “price” can indicate either a transaction that has occurred or simply that the bid or ask occurred at that price level.

How did I figure out this distinction? For a buy stop order I had in, I reviewed the time / sales report for a stock I bought using a buy stop order without a limit. I noticed that my order was the first transaction at that price – which by the way, turned out to be the high price for the day. My understanding at the time was that a stop order does not become active until another transaction occurs at that price.

Not true according to my broker. Their explanation of why my order was filled was that the asking price tripped the buy stop level I had set. Once that occurred, my order automatically became a market order to buy. Fortunately for me, the trade ending up being a winner. The lesson was learned, make sure you understand how orders work, in particular stop orders.

A way to enter a stock as it starts to move in the anticipated direction is to use a stop order with a limit. For example, if you are interested in buying a stock but you want to wait until the stock “proves” that it is moving higher, you can place an order to buy at a price higher than the current market price and specify the maximum price you are willing to pay. Assume that the current price is $45.51 and you are interested in purchasing this stock if it trades above yesterday’s high of $46.14. You could place a day order to buy 1000 shares on a stop at $46.15 with a limit of $46.21.

If your method of trading uses previous highs and lows as entry points, then using a stop limit order like the one described allows you to place an order when the market opens and not have to watch the screen all day. Additionally, if your stop order becomes a market order to buy, then you have a limit to what you are willing to pay. The $0.05 difference between the stop price and the limit price gives you a little “wiggle” room for getting a fill.

Stop orders can be used to close profitable positions without giving back much of the profits. If you are in a profitable long position, then using a trailing stop below the previous day’s low or the three day low can keep in you a profitable position.

Finally, a stop order can be your best protection from catastrophic losses. It is not a bad idea to place a stop order to exit a position once you enter a stock position. If you are a buyer of a stock, then placing a sell stop order either a certain percentage or below a significant low, can minimize your losses.

Use stop orders in your trading to minimize losses and protect profits. Contact your broker for clarification on the types of stop orders they allow.

Article Source: EzineArticles.com/?expert=Dave_Wooding

Published under category : Stock Trading

Stock Trading Personality - What is yours?

2006-10-02T15:58:00.000-07:00

by Eddy K

Before we put any money into the stock trading, we need to define our stock trading personality.

1) The first step in this process is to determine whether we are traders or investors. When you know your trading personality, you will know type of stock trading plan and strategies to employ.

Investors adopt a "buy and hold" philosophy. They hold positions for a long period of time. This can be weeks, months, or even years. Traders are different. They want to make money yesterday! Traders hold positions for days or weeks and in some cases for just a few hours.

Investors and traders use many of the same tools and techniques, but they adapt them to their stock trading personality and timeframe. The timeframe used is sometimes chosen for us.

For example, if your profession or job does not allow you to monitor the market during the day, it will be very difficult to function as a trader, even though your personality may pre-dispose you to active stock trading.

Investors choose solid quality stocks because they will hold their positions for longer periods. They use fundamental analysis to select stocks that have strong ratings and a promising long-term outlook. Investors are not concerned with the daily price fluctuation because they know that they own fundamentally strong companies that in the long run should eventually go up in price.

2) Traders on the other hand can chose a style that matches their own personalities and risk tolerance. A day-trader is one who is in and out of a stock in one day and never carries a position overnight. Relatively few traders can function in this stressful environment for very long. Most traders fall into the categories of swing, momentum, or position stock trading.

This individual usually does their stock trading from a few days to a few weeks, depending upon the market. They let the prices determine entrances and exits. The fundamentals are not as important to a trader as they are to an investor; price movement takes precedence.

Both the traders and investors can make good use of technical analysis to determine the timing of their entries into the market, as well as accurate exits. However, precise entries and exits are of more importance to traders than to investors.

Both investors and traders should monitor their positions on a daily basis. Neither need spend more than thirty minutes each day tracking and evaluating their portfolio.

Traders who decide to do stock trading full-time to make their living must decide whether they are willing to make the time commitment to follow the market intra-day. This does not mean that they are glued to the computer following every stock tick. However, there are decisions that often must be made during the course of the market day that will affect their positions. The fact that we follow the market on an intra-day basis does not mean that we are day traders.

Most traders are also investors, although the reverse is not necessarily true. Even traders who normally hold positions in their trading accounts for a few days at a time typically also manage their retirement funds in an IRA or other retirement plan. These accounts are normally not actively traded, so you might say that those of us who have both types of accounts have a "split personality." This is not a bad thing; both disciplines have much to offer.

The investor who does no active stock trading might do well to learn the disciplines of active stock trading, particularly in the area of technical analysis. The time may come when their investments will grow large enough that they can choose to quit their day job and trade full-time. The ability to monitor the market during the day may allow them to reap the benefits of active stock trading, provided their personality allows for it.

Whether you consider yourself a trader or an investor, make sure that you learn well how to make good entries and exits. Discipline is very important to stock trading. It does no good if you buy the right stock after it has made its run, and sell it to close at the same price.

The other discipline that applies to both traders and investors is proper money management. It is impossible to overemphasize the importance of the use of stop loss orders. It is also vital to know your targeted exit point before you enter any trade.

Investor or trader - which is better? Whichever fits your personality, risk tolerance and life style. Don't let anyone tell you that you should be one or the other. Examine yourself, and do what lets you sleep well every night.

The best thing is to have a proper and yet effective strategy to trade stocks more successfully before embarking it as a stock trading career. One of the best online course I have come across is The Way To Trade which you can get by clicking here.

Remember, pursuing a career in stock trading is like running a marathon, slow and steady. A lot of stamina and enthusiasm is needed to sustain you. More importantly, you must enjoy the process and journey of success! If you are not getting the results you are getting in stock trading be sure to check some course.

About author:
Eddy owns a few blogs on option trading and online stock trading and stock trading.

Published under category : Stock Trading Psychology

Taking Risks in Stock Market Trading

2006-09-01T11:28:00.000-07:00

by Amelie Mag

One general asserted truth is that profit is a goal for many of the men and women who populate this planet. Profit is the more desirable in the case of those who actually invest money because they want to extract even more financial benefits out of these particular investments. One popular way of giving a fertile employment to your money is making them circulate through stock market trading. Share owners can sell, hold their shares or even buy some more, if a series of rules (based either on well-established commonsense practices or on mere intuition) tell them the moment is just ripe for this or that strategy.

As a matter of fact, strategy is one of the terms often heard of in stock market trading. But can anyone talk about a strategy that never failed in this area? This is a frequently raised question, since it is widely acknowledged that the stock market can be tricky. The stock market may easily lead to a downfall in stock market trading. This process takes place, obviously, to the disadvantage of the investor. However, stock market trading doesn't always end with a loss. Should loss be a certainty, people would no longer invest in the stock market.

Whether we are talking about time-honored stock market trading ? taking place within the 'real' here and now, on the floors of stock exchange rooms ? or about online stock market trading one of the regularly advised strategies is to stick to the trend. Online stock market trading has acquired, in its turn, a value over the past ten years so it can be taken into consideration also. Every stock market undergoes certain (longer) intervals of development manifest in the evolution of stock price. Terms like bull market or bear market are recurrent in stock market trading reflecting either the continuously rising stock prices or the reverse situation. Both online stock market trading as well as its longer-established relative go hand in hand with the progress of the national economy. One example at hand is provided by the extent of a bullish market during the 1990s, determined by the robust national economy of the USA ? a genuine initiator of investment confidence. When the situation changed, at the beginning of the year 2000, the market turned bearish and stock prices began falling. In both situations, the advised approach was not to go against the tendency of the market.

Circumstances have long proven it is wise to be consistent with the general trend. Indeed, there is 'fashion' within stock market trading as well. And if you don't want to be outdated ? being outmoded in stock market trading may have damaging consequences ? you go with the flow. Nevertheless, when someone trustworthy or when some reliable conditions offer you a 'hot' suggestion, you may want to act in its direction. Nonetheless, caution, shrewdness and wisdom must be in your proximal reach. This means that you are not to instantly trust any 'good old pal' who, out of good-will, provides you with a tip. You must be able to make your own research targeting the tip you received or else request the services of a stockbroker.

The latter may turn out to be a wise stratagem. Stockbrokers, even in online stock market trading, are generally certified and skilled authorities whom you can easily employ for you to take full advantage of your capital investing. Notice however that their expertise is not available free of charge. There is nothing 'on the house' in stock market trading. Basically, brokers get involved in stock market trading for you, making use of their fuller comprehension of the stock market status quo so as to trigger gains that will proceed to your pocket or to some further investment. Should the commission basis on which the relationship between you and your broker is built (as a general rule) not be appropriate for you, there are other possibilities as well. In online stock market trading it is less costly to supervise your own deals.

Additionally, in online stock market trading, the useful, instructive material you may need is obtainable day-and-night. Moreover, in case you take particular content in looking into your private stocks, you cannot find a richer source of information than the Internet. Online stock market trading allows you to research websites designed by investment companies so the client and the virtual investor can be aware of previous operations. By accessing reports and descriptions offered even by the companies themselves, one may even notice the excellent performance of key institutions. Even more, online stock market trading sites offer the investor support in the shape of online stock market trading tools, services and instruments that allow the investor to place an order beforehand and, should the client not be present at the moment when the market reaches the condition opted for by him or her, enter the order automatically.

Certainly, both online stock market trading and its 'next of kin' have their own advantages. Whereas online stock market trading provides more accessible assistance for dealing with stocks, what was the initial, fundamental stock market trading still goes on. Even if not following a time schedule as generous as that of online services, the traditional ways do not disappear. However, they both involve taking risks which is why prudence is the most often heard of strategy. In other words, it's better to "hold for a while the bird in the hand than quickly grab two in the bush".

Author`s note:
For all those interested in traditional Stock Market Trading or in Online Stock Market Trading, visiting these web resources and finding out more on the subject is the right thing to do. It's not wise to risk investments without an attempt to inform yourselves first.

Published under category : Trading Risk & Money Management

What does the “M” in CANSLIM stand for?

2006-08-28T09:35:00.000-07:00

by Chris Perruna

According to William O’Neil, it represents the market and direction it is heading in. Over the past several months, you have listened to me write about the “M” in CANSLIM almost every single week. Some of you have wondered why I put so much emphasis on this one letter in the CANSLIM acronym. It is very important to understand and recognize what type of market you are in before you ever make a stock purchase or place a large position. If you don’t know if the current market is a bear, a bull or if it is trading sideways, how can you realistically make money and set goals based on a blind strategy. Markets trade in trends and 75% of all listed stocks will follow the general direction of the major indices which include the NASDAQ, the DOW and the S&P 500. If the market health is poor and a bear market has developed but you don’t know about it because you haven’t assessed the health of the “M”, you may lose money by placing a long position in a stock. The stock you buy may have a nice chart pattern and excellent fundamentals but it may come under pressure due to the general market weakness and sector weakness. The same can be said in a bull market: a stock that is sub-par may perform strongly and give the investor solid gains due to sector strength and overall market strength. Study the market and you will see that stocks move in groups and most of the stocks in a strong industry will move in tandem (up). The same holds true for weak markets; if you own a stock in an industry that is starting to churn or breakdown, it may be wise to pull in a potion of you position to lock in gains. More times than not, the strongest stock in an industry group must conform and move in the direction of the others. A perfect example can be the home builders, they have moved in tandem for the past five years. If you look at their weekly charts for the past several years, you will see that they all have the same patterns but with different numbers.

I trade based on two major criteria: a strong up-trending market (a bull market) or a market that has reversed to breakout and follow-through telling us that the “M” in CANSLIM is gaining strength.

Second, I use the daily new high and new low ratio (NH-NL) to compliment the overall strength that the market is presenting. The price and volume alone can fake out many investors and lead them down the path of faulty investing. In order for the market to be strong, the NH-NL ratio must compliment the general outlook and present us with at least 500 new highs per day on a consistent basis. When both the NH-NL ratio and the “M” in CANSLIM are strong, we can justify placing larger positions and labeling the market as healthy. William O’Neil, the founder of Investor’s Business Daily, states that many of the best stocks over the past 50 years have made their advances when the overall market was strong, not weak. The NH-NL ratio is always comprised of the strongest stocks in the current market and we know that these individual leaders are responsible for the bulls and the bears.

How can an investor monitor the market action to tell if it is weak or strong?

As mentioned above, the first thing to look for is a breakout of one or more of the major indices with volume greater than average. Next, I look for the daily new high/new low ratio (NH-NL) to be entering new high territory and reaching new highs of 500-1,000+ stocks per day. In 2005, we have not had one day exceed 1,000 new highs to date (October 22, 2005 – almost 10 complete months of trading). In 2003, we had several instances when this number was reached multiple times in one single week. In 2003 we were in an obvious bull market and in 2005 we are in an obvious sideways market. On a side note: Sideways markets are typically tougher to trade than a market that is trending in one direction, whether it is up or down. Sideways markets whipsaw investors up and down and typically cause frustration that leads them to make poor decisions. It may be wiser to sit in cash during an extended sideways market because you will never know if the market will be up or down the next day. In bull markets, stocks move higher and in bear markets they move lower and a trend can be targeted but sideways markets provide us with many head fakes!

During bear markets, the strongest stocks that propel the market back to the bull side will typical have the strongest relative strength ratings when everything is weak and investor confidence is low. These stocks will become the new leaders and will typically emerge from a few specific industry groups that are gaining strength. When the market reversal happens, the first 10-15 weeks will be crucial as the biggest winners will breakout during this time. It is not to say that additional winners can’t breakout after the first 15 weeks of a new up-trend but the odds decrease and your risk rises. When the follow-through occurs in the market, you must see an increase in market volume from the previous day and substantial price advances that equal or exceed 1%-2% for the NASDAQ, DOW or S&P 500. When we see two or more of the indices follow-through on the same day, it increases the validity of the new up-trend.

Markets typically top after a prolonged period of higher highs and the first sign of a possible climax run or topping of the NH-NL ratio. If the market starts to make new highs on large volume but it is not moving as high as it was during the entire length of the up-trend, it may be topping. If price progress is poor and the volume continues to increase, the market may be churning or topping. I will immediately turn to the NH-NL ratio to gage the strength of the individual leaders to give me a glace at the broad market strength. One of the biggest black eyes that an investor can receive is during the topping of a long bull market where they made extensive gains and have emotions that are telling them they are genius. If an investor ignores the “M” in CANSLIM and holds their winners while the market tops and then starts to decline, their gains will be erased quicker than they were accumulated and their egos will be shot. When red flags appear, such as moving average violations, support levels sliced and the decline of the NH-NL ratio, it is time to lock in profits and move to cash until things settle and you can figure out what is happening.

Never listen to personal opinions on the market offered by talking heads because they are usually wrong or don’t understand the key factors that decide if the market is going up or down. It is most important to understand the exact condition and health of the market today rather than trying to predict where it will be in 6-12 months. Is it currently up-trending, moving sideways or down-trending? When you understand this last question, your trading results will improve dramatically. You could be the best stock selector in the world but that doesn’t mean anything if you buy and sell during the wrong time because you don’t study or understand the “M” in CANSLIM. Always know the exact direction, health and conditions of the “M” in CANSLIM before you ever put on a trade.

Remember, you could be right in every aspect of your stock analysis but if you are wrong about the direction of the market, you will most likely lose money.

About author:
Chris Perruna - http://www.marketstockwatch.com

Chris is the founder and president of MarketStockWatch.com, an internet community that teaches you how to invest your money with solid rules. We offer an extended no obligation monthly trial period starting immediately with two free weeks. We don't stop at just showing you our daily and weekly screens, we teach you how to make you own screens through education. Through our philosophy, you will be able to create your own methods and styles to become successful.

Earning Money Through Online Trading Stock

2006-08-20T16:08:00.000-07:00

by Amelie Mag

The first thing you need to know when you decide to trade shares by joining an online trading of stocks system is to visit the websites of the best online trading brokers available. These companies offer a wide variety of market flow previsions and developments in the online trading of stock futures. When you decide to open an account, you must know that this is generally free of charge, but you have to pay every time you engage in a stock or security bonds transaction.

After completing this process, you must choose between several available broker-services specialised in online trading. The cheapest solution to your problem is an execution broker. This type of online trading service provides only an electronic transaction option consisting in buying or selling shares or stocks, without any stock futures prevision, counselling or any other advisory support in finding realistic market trends.

Like all the participants in the stock exchange, you can only decide between three types of operations. The first one is buying, while the others are selling and holding. The single time when you require a broker is when you decide to buy or sell. You don't need the assistance of an online trading broker to hold your personal stocks or already established stock futures.

The most important advantage in having an online trading account is the enhanced speed with which you can either buy or sell stocks. Of course, you'll have a limited period of time to transact your stocks or stock futures, but once you get accustomed to the online trading market, you can start earning big money.

Obviously, this is normally easier said than done! To become an ace in the online trading of stocks and in the online trading of stock futures you must frequently analyze (usually daily) the prices' evolution caused by the development in the leverage balance between demand and offer. This market leverage is widely generated by the market-makers or as, they're also known, "big fish". The market-makers are powerful companies that operate on the stock market and set the value for a specific stocks-class (for instance coffee). One of their main goals is to gain control and implicit wealth by speculating in online trading of stock futures. This way, they can raise their income by using the variation leverage of the stock market value in the online trading of stocks system.

The average stock holders and participants both in online trading of stocks and in online trading of stock futures don't normally have any chance in front of these market giants. Of course, this is not the case for you! Now, there is help available for you on the Internet. You can choose among many free online trading services provided by PhD specialists in the evolution of the stock market.

The online trading of stocks has become an extremely appreciated occupation for many "nine to five" working class citizens who have rapidly transformed into expert stock holders. To add more points, the even more complex online trading of stock futures has generated even more "over the night" millionaires.

Nowadays, online trading has become one of the few domains in which you can start with little, and quickly earn a fortune. This is a real opportunity available for almost anyone! You only have to think of a realistic plan in buying or selling shares for the online trading of stocks or for the online trading of stock futures. It's a great chance you should not miss.

Author`s note:
Interested in making money? Then Online Trading of Stocks and Online Trading of Stock Futures is the best way to go. Go ahead, find out more about them!

Published under category : Online Stock Trading

The Curve Drawdown - A Sensitive Aspect of Stock Trading

2006-08-16T16:59:00.000-07:00

by Ispas Marin

If you are a new player on the stock market, you should know that things aren't always nice and shiny when it comes to stock trading. There are downsides and upsides as in any other trading or investing process and you have to be prepared to cope with the negative aspects. The drawdown is the worse thing a stock trader may experience along the years. You should know that a peak in a share's price is always followed by a going down to the bottom period. But don't panic, this negative impact is also followed by an ascending trend, so your shares will be going up again.

Experienced systems traders are well aware of this drawdown trend; the 'rookies' (new traders) are those who panic and start selling their shares. This drawdown period represents an important percentage of the stock's profit evaluation process.

This drawdown curve is representing a test for the 'buy, hold and hope' rule that investors should follow on the long term. What does this mean? Well, inexperienced stock traders chose to sell their shares when their price is going down, instead of realising that this price drop is only a natural thing to happen. This kind of traders is losing money as the price is lower than the one they have paid for the shares. This is the reason why you should try not to panic and to commit yourself to holding to your shares. Keep in mind that this price drop is a normal phenomenon on the stock market.

Experienced traders have a strong commitment when it comes to a drawdown. They know that the best thing to do when a drawdown occurs is to follow all trade recommendations. Anyone who is involved in stock trading should be emotionally and financially prepared to deal with this kind of negative situations. Experienced traders know that the worst thing to do is to sell your shares just after a drawdown as the price will definitely go up.

Therefore, if you plan to get involved in the stock trading process, be prepared to face its downsides too. And keep in mind that any investing process is a matter of instinct, trading method, good information and luck.

Author`s note:
For a Stock Trading system and investment strategy that is simple and easy to follow just visit www.mytradingsystem.net Portfolio management strategies that work in all types of stock market.

Published under category : Stock Trading

Technical analysis, what is it and why is it important to me?

2006-08-02T15:33:00.000-07:00

by Jim Banks

I had never heard of technical analysis until I tried my hand at futures trading. Like most new traders my plan was to buy low and sell high, which is still the best way to buy and sell stocks. The problems start when we try and figure out what is low and what is high, that's where technical analysis comes in.

There are basically two ways to analyze a stock, one way is fundamental analysis. This type of analysis is conducted by analyzing a company's financial condition, are they profitable, are their products in demand, or how many sales have they made. This is a very simplistic view and will be explored in another article.

The second way to analyze a stock is by technical analysis. This widely used approach employs charts depicting price charts (daily or weekly), and trading volumes. Each price chart will show the opening price, the daily range and the closing price of a particular stock. Pure Technicians do not involve themselves with fundamental analysis. Technical analysis uses chart patterns to forecast future price movements. Fundamentalists also can use technical charts to determine entry and exit points where stocks are extended or have retraced a big price move and should commence a new up-leg.

Investment time periods vary from the day (day trading), to short term, to intermediate, to long term. Short term normally implies days to weeks, intermediate implies weeks to months, while long term means months to years.

Moving Averages suggest the smooth trends in the stock most often used by technical investors based on time horizon. First, let's define trendlines. An uptrend is a series of higher highs and higher lows. An up-trend is drawn underneath the beginning low and the lowest low of an up-move. A downtrend is a series of lower highs and lower lows. A downtrend line is drawn from the initial high to next highest high of the downtrend.

Now, let's define support and resistance. Support is an area of prior purchases which acts as a source of demand for the stock on the way down. Resistance is an overhead source of supply of stock to sell triggered by an area of prior purchases. Unsophisticated investors will not sell their losers, they will wait until the price returns to their entry level so that they can end the pain by selling at a breakeven. Likewise unsophisticated investors who at a lower level and saw the stock run up significantly only to return to their purchase are likely to buy at their prior entry level.

To keep it in its simplest form technical analysis uses Trends, Moving Averages, Support and Resistance levels to enter a trade as well as exit a trade. These technical indicators can be very useful in developing a trading system, that being said I want to issue a word of caution, I've been trading in one shape or form for the last 15 years and still learn every day.

My advice to you is read, study, learn then practice. There are many fine books out there on Technical Analysis, don't be afraid to buy one or two and learn as much as you can from them. A good book may cost you $50?.A bad trade $500.

About author: Jim Banks has over 15 years investing experience investing in everything from real estate to commodity futures and is a frequent contributor to www.profit-mountain.com

Published under category : Stock Technical Analysis

Using Bollinger Bands for Trading Large Cap Stocks

2006-07-30T14:32:00.000-07:00

by CT Larsen

The Bollinger Band is the closest thing to 'The Holy Grail' of technical analysis there is. Especially for large cap stock traders, it just cannot be beat for analyzing charts. Having said that however, there is probably no other technical indicator misused or misunderstood as often as the Bolinger Band (BB). This article is to provide the technical analyst with the basics needed to interpret the many faces of the BB.

Before we begin, let me explain the type of trading done at http://livingonlargecaps.blogspot.com. We trade large cap stocks, we generally hold stocks for less than two months, and make about 3-5% on an average trade. Done over and over again throughout the year, we have made over 50% annual returns for the last three years.

Now lets discuss what the Bollinger Band (BB) is. In its standard usage, the BB is derived from taking the 20 day moving average of the stock price. And then adding and subtracting two standard deviations of that stock price and placing a line above the moving average and below the moving average. Now without having to re-visit my statistics classes of some 25 years ago, I will try to clarify a standard deviation. It is simply a measurement of how far the price has deviated above or below the moving average. A stock going through a particularly volatile patch, will see its BB's expand, and a stock going through a calm period, will see them contract.

BB's are available on most charting software. Yahoo has them on their technical analysis charts, as do most other web sites that are dedicated to technical analysis. If you are unfamiliar with them I urge you to right now, go experiment with them, using a few stocks and market indicators like the Dow, or Nasdaq.

If you are familiar with technical analysis, and use indicators such as the RSI or stochastic. You know one of the unique things about the BB's is they are placed right on the stock charts. They are viewed in the context of the actual price movements. In fact, for me, they define the stock chart. Stock charts tell me way more about future movement with the BB placed on them. I rarely do any analysis without them, except for perhaps an initial viewing of a stock chart I am considering for watch list placement. BB's therefore do not give you a number, like most other indicators, they don't tell you an overbought or oversold condition. They just provide a visual, a story, of where a stock has been. Therefor you have to interpret.

But what can be learned is crucial, to guessing what will happen next. BB's can help you predict price movements, like no other tool. The trick is, to know what to look for. In other articles I will present what I require a price pattern to look like before I even consider it. But for this article, realize that price patterns need to be structured, calm, heading up, down or flat. But they can't be erratic. Erratic price patterns are never worth trading..

If the upper band and the lower band are not moving in unison then the pattern is erratic. There is one exception to this rule, and that is at the beginning of a powerful up or down move. Remember, the bands tell you where the price will fall in relative to the 20 day moving average. Well, if a powerful move is underway, then the price is moving away from the average, and the bands expand. Once the bands expand it is too late to trade that move, but the stock is worth watching, one can climb on board on the next pull back.

But trading the way we do on our blog ,at http://livingonlargecaps.blogspot.com, that has produced greater than 50% return three years running, we like the bands to move in unison. That shows predictability. And predictability is crucial in getting large returns. It is not the home run we are looking for, just hit after hit after hit. Load the bases repeatedly and you generate runs. OK enough baseball analogy. Here is an example, take the chart HIG. With BB's in place look at the chart in early June 2005. It is just after the powerful upward move, that occurred in May. First notice in May how the BBs expanded, as the stock shot straight up. Then in June the bands moved in unison. Around mid June the stock touched its 20 day moving average, then its formation started to 'bowl' as it moved up. Buy it here. Once it hits a 5% profit move up a sliding stop, and ride the price up. Several things can be learned form this chart. The single most bullish pattern, is a stock that has small trading day ranges, and hugs the upper band. It rides it up between the 20 day average, and the top band. The bands are at an upward angle, that is not too steep. And everything moves in unison, both bands, the moving average, and most importantly for profits, the price.

If one should know anything about the stock market, it is this. It is ruled by emotions. Emotions are like springs, they stretch and contract, both for only so long. BB's measure this like no other indicator. A stock, especially widely traded large caps, with all the fundamental research in the world already done, will only lie dormant for so long, and then they will move. The move after such dormant periods will almost always be in the direction of the overall trend. If a stock is above it's 200 day moving average then it is in an uptrend, and the next move will likely be up as well.

Look at the chart CIT, with the BBs of course. See how in June 2005, the BB's contract late in the month. While the price touches the lower BB. See how the stock is above the 200 day moving average. And more importantly the slope of the 200 day moving average is upward. The stock clearly wants to move up. The bands are ridiculously close together. Buy right here, an oversold stock, moving upward, with narrow bands. What happens next is the bands expand, I call it fish lips, I love fish lips. This stock could have been bought in June sold at exhaustion as the bands had expanded with an upper band touch. And then re-purchased in July and done again. While fish lips provide remarkable entry signals, they generally aren't held as long as the upward unison movement of HIG mentioned above.

There you have the two most crucial lessons in Bollinger Bands. The HIG pattern I call riding the wave, and the CIT pattern I call fish lips. Riding the wave can usually be done longer up to two months, using stops along the way, one doesn't even really need to watch it, of course one can as they ca-ching in one those safe profits. The other pattern is fish lips, they are usually held for less than a month, and are exited upon upper band touches, or mare exactly retreats from upper band touches. (When the price touches the upper band and then retreats). Fish lips that re formed out of a flat pattern can often turn into 'riding the wave,' and then are held longer.

About author:
CT Larsen has been trading stocks since 1990. Now trading large cap stocks exclusively. He has recorded three straight years of greater than 50% annual returns. You can read his blog at http://livingonlargecaps.blogspot.com

How to Add Shares to a Profitable Position

2006-07-18T16:16:00.000-07:00

by Chris Perruna

Say you have a stock in your portfolio that is up 30% and it forms a base or consolidates to a moving average, and you want to add to this position. How would you go about doing this?

There are a few ways that I have approached this situation. Some of you may agree and some of you may disagree with the way I pyramid or scale my positions when they are in confirmed up-trends after my original entry. When the market is weak and the NH-NL ratio is not confirming a bull market such as 2005 and 2006, I am cautious when I enter a position making a new high. Hypothetically speaking, I will use a $100,000 portfolio and round numbers to keep the examples simple although the CBG position explained in detail is based on a true position.

If I start to research a stock and feel it will travel from $60 to $100, I will determine the maximum position I can assume from a simple position sizing calculation. If I determine I can handle an 8% drop, I am allowed to purchase 208 shares at $60 per share (I’ll typically round it off to 200 shares in this situation). My position size will be $12,500 with a maximum drawdown risk of $1,000 or 1% of my entire portfolio. My stop will be located at $55.20 or slightly beneath a specific support area that is within 8% of my purchase price. If the stock is breaking out of a specific pattern such as a cup with handle, I will buy half my position at the time of breakout and the other half after the trend is confirmed several days later.

If the stock is in a solid up-trend and not in a recognizable pattern, I will typically purchase 2/3rd of the position when I see the opportunity and then follow up with the remaining 1/3rd of the position at the time of the next pullback (only after the stock reaches a minimum gain of 25%).

Other times, when the market is acting healthy and the NH-NL ratio is strong, I will initiate the entire position based on my original 1% position sizing model and reassess the situation at a later date. Using a recent example, I added shares to CBG when it consolidated in the $40’s and then readjusted my position sizing model to 1.5% (the math can become tricky at this point since the price has changed and my portfolio value is different). I have never gotten into this much detail in a simple blog post but I guess now is better than ever. This method is my own so you will not find it anywhere else and it may or may not appeal to everyone.

The following is a true example using actual stock prices but the portfolio size has been altered to keep the calculations simple and to keep my own activity discreet.

When I first purchased CBG, I took on the entire 1% portfolio risk and wasn’t sure if I would ever add shares in the future (this wasn’t my concern at the time). I liked the stock and thought the 15 week pattern that preceded my buy was picture perfect (especially since the correction was due after the prior up-trend from the IPO date). I placed a market order on June 1, 2005 at $38.97 for the entire risk amount of 1%. The stock was already under coverage on the MSW Index since May 21, 2005 at $37.20 but I was looking for a break above $39. I used the calculation of $39 which gave me the purchasing power of $12,500 or 321 shares (my order was filled for 320 shares at $38.97 = $12,470). After I placed the position, the stock immediately reversed but I stayed put as it didn’t violate any sell signals and then watched as it quickly advanced into the $40 range and approached $50. The stock consolidated over the next three months as I held the position and started to cover it more heavily on the MSW Index with a new purchase price of $50. The resistance line was touched several times so I decided that I was going to add shares if the stock broke-out above $50 with confirming volume.

As it turns out, I did add shares when the stock started to form the obvious consolidation during the fall of 2005. I added shares on November 2, 2005 at $52.68 (a little higher than I wanted but it was an extremely powerful move that day). The stock hesitated slightly over the next several days but never violated the new support line of $50. Within six weeks the stock moved towards $60 per share and I felt very comfortable. So, how many shares did I buy and how did I determine the size of my additional position? When pyramiding up, I have always been taught by my father to take on a smaller position than the original purchase. In this case, my portfolio had grown by about 10% since the summer so I decided that I could take on another 0.5% risk in CBG (a total risk of 1.5% - my maximum risk in any one stock caps at 2% of my entire portfolio). When running the new calculation, I had a portfolio size of $110,000 (hypothetical value) with a 1.5% risk factor or $1,650 risk on the entire position.

I used a price of $50 with a risk factor of 0.5% (half of 1%) with a stop of 8% (typical for my calculations) which gave me the purchasing power of $6,875 or 138 shares. I bought an additional 130 shares and added them to my original position of 320 shares for a total of 450 shares and a total cost of $19,318.80 (minus all fees, etc…). Now, take a look at how this works (it doesn’t work perfectly every time but this time I kept the numbers round): Using the position sizing calculator; plug in a portfolio value of $110,000, a risk of 1.5%, stop loss of 8% and an average cost basis of $45.83 (($38.97+$52.68)/2). What do you get? Amazing: a position size of $20,625 or 450 shares. I currently hold 450 shares with a dollar value slightly lower ($19,318.80) than the maximum calculation in this equation.

The support line is $50 but the stock went on to maintain the 50-day moving average as the true support line heading into 2006. I have not sold one share in this company as I approach one year of holding the stock from the original date of purchase. I will not base my sell on anything but my stop which currently resides slightly below the 50-day moving average. I have a tremendous gain in this stock and I owe it to two things: CANSLIM for finding the actual stock (strong earnings and a recognizable pattern setup) and position sizing for giving me the right amount of shares to purchase. By using the moving average and a retracement stop calculation, I know the exact location to take my profit. Also note that I will most likely scale out of the position if it starts to consolidate in a new range. This is a topic for another day! I always start with a 1% risk factor but will raise my risk factor to 1.5% or even 2% in rare situations when things are working out and I am placing good money after a profitable trade. Again, this is my own personal method so I advise that each individual use what works best for their own portfolio and test several scenarios.

Chris Perruna - http://www.marketstockwatch.com Market Talk with Piranha

Chris is the founder and president of MarketStockWatch.com, an internet community that teaches you how to invest your money with solid rules. We offer an extended no obligation monthly trial period starting immediately with two free weeks. We don't stop at just showing you our daily and weekly screens, we teach you how to make you own screens through education. Through our philosophy, you will be able to create your own methods and styles to become successful.

Published under category : Stock Trading

Benefits of Electronic OTCBB Stock Trading

2006-07-06T16:10:00.000-07:00

by Praveen Ortec

Although today almost all stock market trades are done electronically with advanced software platforms, Over-The-Counter Bulletin Board (OTCBB) stocks are traded either directly or by call in. These processes take much time and causes physical/mental stresses compared to online stock trading. But today some companies, like nobletrading.com began to introduce online/electronic OTCBB stock trading services on specialized direct access trading software platforms. This service is becoming increasingly popular.

The online OTCBB stock trading service enable all OTCBB traders to buy and sell like an online stock market trader. The major benefits of electronic OTCBB stock trading include minimum expenditure of time and energy, the ability to trade stocks without broker intervention, real time news and order placement, time sales, historical and intraday stock charting, high speed order execution, and the access to major OTCBB markets such as Knight, NITE, DOMS, Finance 500, SBSH, VERT, Citigroup, FANC, ARCA etc.

Online OTCBB stock trading also holds many other advantages than traditional call in trading style. Electronic OTCBB stock trading simple and any individual want to trade OTCBB stocks can make use of it without any training. One can trade from anywhere the world with a suitable platform selected and customized by him or her. The trading software platforms offered by online OTCBB brokers are either their stock trading software or a modified form of it, so there is no question of the standard of software. There are both web based free systems or direct access customizable systems and the choice is yours.

Some online brokerage firms like nobletrading.com, allows you to trade stocks markets, options, futures and pink sheet securities from your OTCBB trading account and software. Some offer flat fees for unlimited number stocks per trade, live customer support and the ability to interfere with major market makers. That is why this new service is most attractive for those investors trading highly active sub penny securities.

But currently there are only one or two online brokerage firms who offer this service. Being a riskier trading industry, most brokers are turning their face off from this service. We can hope that in future more competitors will evolve and more affordable trading plans will be established.

Source: www.articlealley.com

Published under category : Stock Trading

Other Stock Trading Methods

2006-07-02T11:38:00.000-07:00

by Mark Crisp

Elliot Wave: What is it?

Elliot Wave is a way of defining the market action in a five wave formation. A very simple explanation. It basically says mass psychology is predictable in a liquid market by a five wave cycle. An accumulation wave. A correction. A much bigger wave. A correction again. Then the final "speculative" wave. Where the public jumps in. This is the final wave and the the next correction is not correction as such but the end of the market cycle.

A picture is worth a thousand words. See the chart of the NASDAQ during the great "bear" of 2001 to 2003

So, looking at the above chart Elliot Wave does seem to hold some credibility. It's is clear the great market crash of 2001 to 2003 did move in an almost perfectly formed five wave cycle. Three waves down. Leg three being the biggest and leg five being the final one. All seems well.

This is what I want to say about Elliot Wave. In a "nutshell" it does seem to have some substance. Look at some monthly bar charts of a liquid market (where there is massive public participation) and you will be able to see some great five wave formations. Great. That's about all the interest I have in Elliot Wave. There is absolutely nothing you can trade off. It's not quantifiable. Sometimes you will see Elliot Wave formations, most of the time you will not. And then it gets worse.

Ask twenty Elliot Wave enthusiasts what they see in the same chart and I'll guarantee you will get twenty different answers. How can you trade of something so subjective? Why should a market move up in three waves? where's the common sense about this method? I do not see it.

And when an E.W. formation goes wrong do they say "oh sorry I am wrong. cut your losses and get out"? No. They they bring in extra rules about a correction wave within the formation and pile more and more B*S already onto a sea of B*S and non-sense.

I used to subscribe to an E.W newsletter. It was really interesting to listen to. this market was in this wave and would go here.. blah,blah,blah.... I didn't make any money from their recommendations. Lost a lot.

Verdict:

Something that might hold some academic interest if this is what "bakes your potatoes" but beyond the definition about liquid markets moving in five waves... I wouldn't delve any deeper into this. I honestly do not believe you can trade from this "theory"

Rating

2 / 10

W.D Gann: What is it?

This isn't a what but a who. WD Gann was a famous trader who made millions, billions way back at the turn of the century by predicting future stock market trends by using the superb Gann Angle System. Just think for a few hundred dollars many vendors are willing to let you find the "Gann Secrets" and help you make millions in the stock market. Drop everything.. we have found the Holy Grail of stock trading.

Back to reality. Gann ..... do your-self a favor and do not even waste your time in this area. For one it is a method that tries to "predict" the future. ANY method that does this, in my eyes, should not even be considered. But here are some shocking facts about the so called brillaint WD Gann and his amazing method.

The Gann method is about measuring slope of trends to predict reversals in those trends. It's fancy. It can look great on "cherry picked" past charts. But predict the future.... it can not do!

You must read William Gallacher's book: "Winner Takes All", It is some time since I read it and do not have a copy here right now but I always remember the section on the Gann Method. His son was interviewed for a position at a bank and the conversation of his father (the Great W.D. Gann) came up. It went something like this:

Interviewer: So what happened to all those millions your father made in the stock market?"

Son of Gann: "He never left us millions. He left us $50,000 ( do not quote me on this.. it was a low figure). My father was a failure trading the stock market. Although he did o.k. selling his trading materials."

There was a bit more to it than that but read the book for your-self and have a laugh at all those so called "Gann" experts selling trading methods based on a method whose originator never made any money from.

Here is another fact about Gann... I read in the Market Wizards II book the Interview with William Eckhardt (p.110 / p.111) , and believe me if the top, professional traders talk about Gann trading methods in this way, you do not want to be wasting your time on it.

Eckhardt: "If you wanted your computer system to be cognizant of slope, you would have to program this feature into it. At that point, it would become abundantly clear that the slope value depends directly on the choice of units and scales for the time and price axes"

My comment: Basically he is saying in non mathematical language.. Gann angles for trading are too subjective.

Jack Schwager: I have always been amazed by how many people are oblivious to the time scale-dependent nature of chart angles or unconcerned about its ramifications. My realization of the Inherent arbitrariness of slope of line methods is precisely I've never been willing to spend five minutes even five minutes on Gann angles or the works by the proponents of his methodology.

There you have it.

Verdict: I wouldn't even look at it for an academic interest point. Never mind from a trading method. A complete waste of your time, money and effort.

Rating:

0/10

Author`s note:
Get your Momentum Stock Trading System and sign up for my free weekly online trading system newsletter here at: http://www.stressfreetrading.com

The Profit Potential Of Penny Stocks

2006-06-10T12:46:00.000-07:00

by Joe Kenny

Penny stocks, as the name suggests, are shares that are available at extremely cheap rates. Being available literally for pennies, you can purchase such stocks for as low as $2 per share. These stocks are usually of very small companies, which have a market capitalization of less than $500 million. They are not traded at the major stock exchanges like NASDAQ or NYSE, but are listed in the pink sheets or the OTCBB (Over The Counter Bulletin Board), because these stocks are of companies that are unable to meet their listing requirements. They are also referred to by other names such as pink sheet stocks, nano stocks, small caps, micro caps or juniors.

Investing in penny stocks is considered very risky as they are traded without any regulatory or listing requirements, which provide security to shareholders. There are no accounting standards, and the shareholder gets no information about the change of ownership of shares etc. This makes it a potential source of fraud.

However, with proper research, investment in penny stocks can be a tremendous earning potential. Not all companies listed with pink sheet stocks should be considered fraudulent. Some of them represent good companies, which are too small to meet the requirements of the NYSE or NASDAQ. Many such companies have a bright future. Unlike blue chip stocks, penny stocks have greater volatility; hence, they have the potential of sometimes reaping rich dividends in a relatively short span of time. Thus, investing in these startup companies at rock bottom prices can end up in making investors very wealthy.

However, finding these companies requires research. The number of shares that the company has on ‘float’ is one indicator that needs to be ascertained. ‘Float’ is the technical term for the number of shares of the company being traded. Since penny stock companies are unregulated, they are not bound to report these details to the public. The information, however, can be found in TV interviews, and the like, given by the representatives of the company occasionally, and are sometimes archived on their websites. There are forums on these websites where stock brokers chat with each other. You can also get the information on the message boards. Find and read the articles and reviews written about the company, which will give you a good idea of the float. For instance, if a company’s float were very high, it implies that it is merely issuing extra ones to keep afloat, hence would not be worth investing in. Companies that have five million to one hundred million shares are considered fit for investment.

The product of the company also needs to be scrutinized. For example, it is important to find out if the company would face obstacles in selling its products for various reasons, or whether patent issues would allow some other company to introduce a similar product in the market, all of which would affect the value of the stocks. Another important consideration would be whether the product is going to find appeal with the target consumers.

While investing in penny stocks may be more perilous than putting your money in bonds or the shares of established companies, the chances of striking it rich is also a strong possibility, which makes it a risk well worth taking.

Joe Kenny writes for SelectLoans.co.uk, a secured bad credit loans comparison site, visit us today for information on all loan topics including debt consolidation loans and links to leading UK providers. Author`s Site: http://www.selectloans.co.uk/

What is a Trading Plan - and Why You Need One?

2006-06-05T14:06:00.000-07:00

by David Jenyns

How do you make money without picking tops and bottoms?

I am glad you asked...

Successful trading is similar to a successful business. You see, every successful business has a business plan so do successful traders. The astute reader knows that, successful traders have a systematic way they approach the market.

The definition of a trading system is a trader's business plan; it defines your approach to trading...

1. A properly constructed trading system will leave no room for human judgment
2. It will define your actions given any circumstances that may arise.
3. It is a distinct set of rules
4. Which instructs the trader what to do and when to do it.

The importance of this trading plan cannot be understated. Without a consistent set of guiding principles to govern your trading decisions, most traders will hop from one trade to the next, guided by emotion or hysteria.

I firmly believe that not having a plan, you are doomed to fail.

Trading systems themselves will come in many varieties, although they all take the guesswork out of trading. A trading system will determine for you when to buy or sell. System trading has proven itself consistently to be the most effective long-term trading technique.

In fact, you may have even heard the story about one of the most famous system traders of all time, Richard Dennis. It just so happened, in mid 1983, Dennis was having an ongoing dispute with his long time friend Bill Eckhardt about whether great traders were born or made. Dennis believed that trading could be broken down into a set of rules that others could learn. On the other hand, Eckhardt believed trading had more to do with innate instincts, and this skill comes naturally.

In order to settle the matter, Richard suggested that they recruit and train some traders and give them actual accounts to trade to see which one of them was correct. He named his protégés after visiting turtle farms in Singapore; he decided to grow traders similar to the way farmers cultivated turtles, hence the name: Turtles.

To cut a long story short, Dennis taught his trading methodology to these groups of students who later became some of the most successful traders of all time; proving finally, that anyone can become skilled at system trading.

Just like the turtles, I too have studied under a mentor who tutored me in the science of trading. Now, I pass these secrets on to you.

A trading system is simply a set of rules that address every aspect of a trade such as entry and exit conditions and money management. Regardless of how complex it may be, a good test for your trading plan is to hand it to someone else to read thoroughly. See if your selected candidate asks questions. If they can easily understand all the rules and the requirements of your strategy with little to no questions, then you have compiled a sound investment plan.

All successful traders that I meet do this and they have their exact trading methodology written down.

Since most traders lose money and do not have their trading methodology written down, does not it make sense to do what the masses are not doing? If you are trading now and have not taken the time to write out methodology, then stop trading and get it done!

Why is it so important? When you take time to sit down and spell out how you perceive the markets, you are accepting the fact that you might be wrong. You are beginning to accept responsibility. Once you write down how you perceive the market, the only conclusion you can arrive at, if the market does not behave according to what you wrote, is that your perception is wrong. When you write down how you are going to enter a trade, only if certain events transpire, you eliminate any possibility of blaming the market. You are forcing yourself to have discipline.

In other words, if you determined that certain bullish signs show up in your market then you enter into a long position. If these prior events occur, and you did not enter the trade, that failure is your fault.

The Components of Your Trading Plan:

A business plan has set components; so does a trading plan. In fact, there are three major components within any trading plan and they are entry, exits and money management rules; here is a quick summary:

1. Tested Entry Rules

-- Entry rules are a precise set of rules that an instrument must pass before you enter a trade. Entry rules should be simple, direct, and leave no room for human judgment.

2. Confidential Money Management Rules

-- Perhaps the most important and least addressed aspect of trading is the ability to manage risk. A profitable trader is one who has the ability to manage the risks associated with trading. A trading system should define exactly how much money you are willing to lose on any given trade.

3. Tested Exits Rules

-- Entering a share is all to no avail if you do not know when to exit a position. Having rules that defines your exit is equally important as one that defines your entry.

When you take time to write down your trading rules, you transform your mental reality to a physical reality. You cannot fudge the numbers, or avoid taking responsibility.

By writing down your methodology, you are forcing yourself to create a series of decisions based on how you see the markets and this my friend is just the beginning.

About author:
David Jenyns is recognized as the leading expert when it comes to designing profitable stock trading systems. Discover the "secret formula" of trading that anyone can use to consistently generate BIG profits from the market by downloading your FREE copy of David's new Ultimate Stock Trading Systems course. Click Here To Download

Published under category : Stock Trading Strategy

Predict Stock Market Tops and Bottoms With The NH-NL Ratio

2006-06-02T19:58:00.000-07:00

by Chris Perruna

The new high/new low ratio (NH-NL) ratio has been around for many years but different investors use this indicator in different ways. Some investors plot the ratio on a chart using the number zero as a neutral designation with positive numbers equaling more new highs than new lows and a negative number equaling more new lows than new highs based on a specified period of time. I have developed and used the NH-NL ratio in a completely different way from some of the more popular methods. I started to follow stocks making new highs while reading the paper Investor’s Business Daily many years ago. I didn’t use the news highs as an indicator but I only studied stocks to buy from the list. As I became a more experienced investor, I subconsciously started to gauge the market while noting if the new highs were increasing or decreasing. After the stock market bubble burst in 2000, I started to record the difference between the daily new highs and the daily new lows. I would enter them into an excel sheet along with the price and volume of the major market indices and study their relationship. Within two years, I was convinced that the major market tops and bottoms could be located easily by aggressively studying the price and volume of the major indices and studying the ups and downs of the NH-NL ratio. The general market indices often give investors false moves in all directions and many market services and investors have developed new indicators to help assess the market to try and pinpoint turning points without great success. Many of these secondary indicators are successful in showing the investor if the market is weak or strong but they fail to pinpoint the strength or weakness of a turning point with great accuracy. Many of these secondary indicators give false signals along with the general market indices.

With several years of serious study under my belt using my method of the NH-NL ratio, I have accurately protected my money during downturns and have accurately guided my buys when the market has reversed and started a new sustained up-trend (not a head fake).

How do I use my NH-NL ratio?

I start by recording the daily new highs and new lows from Investors Business Daily (my preference) but you could use any free or paid service on the web. Over the past five years, I have developed key levels that the market must reached or violate to trigger certain actions. I am not pulling any of these numbers from thin air as they are all based on actual experience and have not been derived from back testing. For a market to convince me that it is following through and is starting a new up-trend, it must present me with a minimum of 500 new highs per day on a consistent basis. When a week ends, I add the weekly NH-NL totals and divide by the number of active trading days to get the weekly average. The average must have a minimum of 500 stocks per day for me to consider risking over 50% of my cash in new positions (the new leaders). Once the weekly averages reach 800-1,000+ stocks per day, we know that the market is in a full fledged rally and you can start to commit your entire trading stake and use margin. In 2003, the market gave numerous instances when the new highs topped 1,000-1,200 stocks per day, a very impressive amount. When the market shows strength like this, the trend has become obvious and you must have your money working for you by following the trend. Keep in mind that 75% of all listed stocks will follow the general trend of the market.

Recently in September and October of 2005, the NH-NL ratio has been negative, meaning that we are seeing more new lows than new highs. When this type of action happens, you must lock in profits and move your cash to the sidelines. It is not safe to invest on the long side of the market when the ratio is negative. Often times, a bear market may be forming when the ratio weakens and turns negative. If the market confirms a bear market or down-trend, it can be an opportune time to make money shorting stocks or using advanced strategies with options (I only recommend this for advanced and experienced traders). You must determine f the market is in a down-trend or if it is trading sideways. If it is trading sideways, it will be better to pull your cash to the sidelines and wait for a direction to form (either up or down). This article is being written and published on October 25, 2005, the first day after the NH-NL ratio has turned back to the positive side after 13 consecutive days of a negative ratio. The past two weeks have averaged negative ratios with some days only reaching 15 quality new high stocks. This type of weak action could signal a bottom in the market as we get ready to form a new rally. The most crucial indicator to watch over the next few weeks will be the NH-NL ratio to see if it can continue to gain strength and increase the new highs to 500 or more stocks per day. If this happens, the current indication that a rally has formed on the major indices will be confirmed and you can start to commit more than 50% of your trading stake to new leaders breaking out of sound bases or stocks moving higher from establish support areas.

As I look back at my archived hard copies of IBD, I can see the strength and weakness that this ratio gave us throughout 2002 and 2003. I am reminded how the ratio went from negative territory in September of 2002 to a positive ratio in October of 2002. After reaching positive territory, the new high ratio soared into the 800-1,100 range in the first six months of 2003 as we were in a strong bull market, the strongest year since the bubble burst. I don’t know what next month or next year holds for investors, but you can get a good idea by tracking this indicator as it turns back to the positive side after a very poor October (2005). I once wrote about the Halloween indicator and I am now convinced that it has some validity, especially if this NH-NL ratio confirms another rally as October draws to a close.

Chris Perruna - http://www.marketstockwatch.com

Chris is the founder and president of MarketStockWatch.com, an internet community that teaches you how to invest your money with solid rules. We offer an extended no obligation monthly trial period starting immediately with two free weeks. We don't stop at just showing you our daily and weekly screens, we teach you how to make you own screens through education. Through our philosophy, you will be able to create your own methods and styles to become successful.

Published under category : Stock Technical Analysis

Ignore Stock Market "Talking Heads"

2006-05-29T08:44:00.000-07:00

by Chris Perruna

You should ignore analysts on TV, the radio, the newspaper and all other TALKING HEADS when it comes to investing! What stocks do they talk about? - The same old group, every day of every year - Why? Because they don't know any better, they are sheep like the general public, repeating what every economic textbook says and every other economist tells them to say. Everyday, the same companies are highlighted on the evening news -

WHY?

They aren't going anywhere. Some of the stocks that make the headlines every night were leaders of the market 20 years ago. New cycles bring new leaders; this has been proven year in and year out. So many of these TALKING HEADS shout out about "buy and hold" but what are they really holding? They hold old high-flyers that were superstars but have now become fallen stars that sit 20%, 50% or even 90% off of their all-time highs (some may have given you a small return - 10% or less over the past 5 years - WOW - BIG DEAL!). Yes, maybe over 15 or 20 years, you will get your money back - but what is the point? Many of these "so-called" investors tell you how they own XYZ stock and it has returned them 65% BUT they leave out the key factor that it has taken 16 years to get to that point.

One of the strongest and most promising stocks of the early 1900's (1920 decade) was RCA - this stock was one that people claimed you put in your portfolio and hold it till near death - it will NEVER fall and if it does, hold on because it will come back. Well, let's take a look: RCA soared over 1100% during the 1920's and crashed with the rest of the market in the early 1930's. It went from a low 0f $8.70 to a high of $106 to a crash level of $3.00. Some said to hold, some said buy on every dip. - Guess what, it didn't climb back to pre-crash levels until 1963! 30 years to break even for some. Maybe that stock in your portfolio is the RCA of yesterday; history always repeats itself because human nature is always the same!

Stocks are worthy to be held over long periods of time, this is a proven fact but don't EVER hold a stock when it is flashing SELL signals left and right (especially if everyone on TV is telling you to buy now on the dip, "it is a bargain"). These talking heads were saying this about every stock on their computer screen in 2000 and 2001 - "buy the dip". The only dip was the guy on TV and all of the suckers watching him/her. I don't mean to offend anyone but you need to take control of your investing life, you need to learn why stocks go up, why they go down and that NO STOCK is immune to a bear market like the one we just had.

Leaders of the market now, won't be leaders in the future - on some rare occasions, a stock here or there will defy everything and grow decade after decade, but even these stocks end their amazing rise at some point. Same is true for old leaders, they won't lead the markets of today - they become too large and their growth slows, preventing them from being excellent growth stocks and giving you excellent returns. Now - I never said you couldn't own a stock like this, many people are satisfied with these companies, they "feel secure", that is fine; everyone has different goals.

Let the market tell you what is going up or down. Watch "sister stocks", I talk about them in our education section of the website. What do I mean by sister stocks? They are stocks that are in the same industry. When an industry is strong, most of the stocks in this group will rise, hand in hand. (I say most - not all, laggards always stay behind). Fundamentals will be strong for most stocks in the group and technicals will guide you along the trip - think of technicals as a road map.

Once fundamentals have been established, check the charts, if several stocks from a particular group are breaking out of bases, this is a strong sign that something great is about to happen in this group. The more positive the overall market the better the group will perform (bear markets tend to hold down just about everyone). Why buy a stock that has great fundamentals in a weak group? If all other stocks in that group are acting weak, this may be telling you that the "one" bright spot in this group will eventually come back to the pack, so don't chance it. Investing is about lowering your risk! Don't take a risk on a stock that looks good but the industry is hurting.

Buy the leader of a group where several stocks are showing strength. Never buy the cheap stock that is lagging in performance, this is a sure way of losing money - buy the best of the group - the one with the best fundamentals (accelerating earnings, ROE, sales, etc.) and technicals (basing pattern, breakouts on huge volume, relative strength, etc...). What may look high to the general public; usually turns out to be low to the smart professional investor. I am not talking about the "talking heads" on TV - the smart investors work for institutions - they move the market! When they buy, everyone knows because volume jumps to extreme levels or levels not seen in prior months or years. The everyday guy doesn't have this power - ONLY institutions have this power - learn to understand this power, here lies the smart money.

Finally, as I grind this educational information into your subconscious mind, ignore the "Talking Heads" and learn to listen to the market. Price and volume will always give you the best advice.

About author:
Chris Perruna - http://www.marketstockwatch.com

Chris is the founder and CEO of MarketStockWatch.com, an internet community that teaches you how to invest your money with solid rules. We don’t stop at just showing you our daily and weekly screens, we teach you how to make you own screens through education. Through our philosophy, you will be able to create your own methods and styles to become successful.

Published under category : Stock Fundamental Analysis

Mutual Fund Honor Roll - Buy High, Sell Low by Chasing Performance

2006-05-26T11:42:00.000-07:00

by Tim Olson

Buy high and sell low -- It's not a typo.

Millions of investors guarantee their failure by selecting mutual funds and stocks based on quarterly or annual performance records. Do you chase performance? You might be buying high and selling low!

As the year draws to a close, millions of mutual fund investors begin an annual event to divine next year’s winners. Yet most of these individuals rely heavily on a time-honored – but terribly wrong – method of evaluating strength. Whether analyzing screening tools from websites, reviewing fund honor rolls in magazines, or using star ratings from fund analysts, normally savvy business people foolishly chase the returns of last year’s hottest investments.

This begs the question: Can top performing mutual funds lead two years in a row? Consider a study commissioned by Vanguard Investments Australia and released by Morningstar. The five best performing funds were analyzed from 1994 to 2003. Here are the results:

-- Only 16% of top five funds make it to the following year’s list.

-- Top five funds average 15% lower returns the following year.

-- Top five funds barely beat (by 0.3%) the market the following year.

-- 21% of all top five funds ceased to exist within the following 10 years.

Academic studies and market statistics confirm the typical investor acts in direct opposition to the sage advice – buy low, sell high. It’s only after high returns are realized and reported that investors pour money into both stock and bond mutual funds. In fact, Financial Research Corporation compared investor cash flows into mutual funds. Purchases immediately following best-performing quarters exceed 14 times those immediately following their worst-performing quarters. In other words, you are 14 times more likely to buy funds at their highest price than at it’s lowest. Buy high and sell low.

Just what kind of damage are they inflicting to their investment returns? DALBAR, Inc., conducted a well-known study called Quantitative Analysis of Investor Behavior. The study confirms investors’ poor timing and the resulting financial carnage. Investors buy funds immediately after a rapid price appreciation. This just happens to be right before investment performance wanes. Prices fall soon after and the investors quickly dump their holdings to search for the next hot fund. The resulting returns fail to even beat inflation! When measured over the last nineteen years, the average equity investor earned a meager 2.6% annual return. Compare that to a 3.1% inflation rate and a 12.2% return from the S&P 500 over the exact same time period. Not only did investors fail to keep up with the market, they also lost money to inflation.

We’ve all seen the warnings on packages of cigarettes. Even smokers understand their relevance; smoking is not a healthy activity. So why do investors not heed warnings about mutual fund returns? You’ve all seen those statements too. But can you remember what is said? Past performance is not a guarantee or indicator of future results. Research and studies have proven this fact, yet the majority of investors choose to ignore this warning. Yes, it’s an easy means of comparing funds. It also happens to be completely irrelevant. Let me evangelize these words for you. Past performance does not predict future results!

Here’s how you can stop chasing short term performance and stay focused on your financial goals. Identify appropriate long-term investments by evaluating the following:
(1) Leadership: How does the fund perform relative to similar size and similar style funds?
(2) Tenure: How long have the managers and advisors been at the fund?
(3) Management: Managers well-known, highly-regarded (e.g. remember Peter Lynch)?
(4) Consistency: Are the 3, 5, and 10 year returns all above average?

Finally, measure returns based on your entire portfolio. History shows that no single investment success repeats. Accept the fact every year is different and brings new leaders and laggards. Use an asset allocation strategy to guarantee balance and increase long term returns among all your investments. Invest in a diversified portfolio to meet your financial goals — and stick with it.

Not yet learned your lesson? Consider this: Fourteen mutual funds topped the 2003 charts with returns over 100%. In 2004, these fourteen funds lost over 4% while the S&P 500 gained 3%. Congratulations, chasing performance lost 7% of your money this year.

Tim Olson

TheAssetAdvisor.com
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About author:
Mr. Olson is the editor of The Asset Advisor, a financial investment service providing proven strategies for no-load mutual fund investors. He brings 26 years of education and experience from Stanford University, Ernst & Young financial consulting, personal wealth management, and venture capital investing.

Bull Call Spread

2006-05-25T13:40:00.000-07:00

by Nick Hunter

A bull call spread is when you have a long (buy) call option and a short (sell) call and you want the market to rise, hoping the options get exercised or are traded for a profit. Bullish call spread strategies have premium (cost) risk, but in the option world - that is pretty minor. Since one option offsets the other, large or unlimited losses are not usually seen with spread trading.

It's important to understand first that a buy or long call option, by itself - is bullish and a short call by itself - is bearish.

When you own a call option, you are bullish because the contract gives the holder the right to buy the underlying stock at the strike price. When a trader is short a call contract, he is bearish. That is because the investor is obligated to deliver shares of the stock to the call holder when the option is exercised. This usually results in a loss for the seller, as the market will be higher to get the stock and it's being sold at a lower strike price.

A spread takes those 2 positions and has them work together. Although, they do not have to get exercised together. A bull call spread means the contracts are set up in a way that makes strategy profitable only if the market goes up. This also means that the contract bought cost more than the contract sold. Bullish call spreads are also known as call debit spreads.

Example:

Buy 1 SDH Nov 80 Call for $500
Short 1 SDH Nov 90 Call for $200

This is an example of a debit bull call spread. Debit because the investor has lost $300 on the premiums bought and sold. The buy option cost $500 and the short took in $200. Since the trader is very aware of this initial loss, he wants the market to rise so the options have a chance to grow in value. If this happens, the person take advantage of trading opportunities on the more valuable contracts or he can look to exercise both contracts and make a positive spread on the strike prices.

Exercising bull call spreads

Spreads are basically covered options. One option covers the other - but not always for a profit. When it's a bullish call spread, it will be profitable. The buy or long call can be exercised at 80. This means the trader can own the stock itself at $80. If the short call is exercised (called away) at 90, he has a 10 point positive gain on the strike price. The maximum gain for this strategy is 10 points minus the net loss debit of 3 points. So, on one contract each, the maximum profit on this call spread is $700.

The point being, bullish call spreads are only profitable when the market goes up. Otherwise these options would fade out in a declining market and the investor would lose the $300.

Expiring bullish spreads

The worst case scenario with bullish call strategies are the options expiring. It is to the investors advantage the market rises soon after the contracts have been established. That is always the big picture with options. They come and go quick.

Happy Trading

More Spreads

About author:
Nick Hunter is the President of American Investment Training. Their website http://www.aitraining.com offers investors and brokers with education courses and investment information.

Published under category : Stock Trading

Should I Incorporate Fundamental Analysis When Trading a System?

2006-05-22T18:38:00.000-07:00

by Markus Heitkoetter

There's a common misconception about "Fundamental Analysis": People tend to think that the market should react in a certain way to news. Example: "Unemployment Rate goes down", which means that the economy is doing better, therefore companies should make more profits and stock prices will move up. Conclusion: If the unemployment report is positive, the market moves up.

But in reality the markets are driven by greed and fear, and not by supply and demand or anything like this. A report itself is meaningless: It's the traders reaction to the report that moves the market.

Here's a perfect example: On Friday, April 7th 2006 the unemployment rate for March was published. The market expected an unemployment rate of 4.8%, and the numbers came in better than expected: Only 4.7% (for details see http://biz.yahoo.com/c/ec/200614.html). That's good news, isn't it? The market should move up, right?

WRONG! On that day the e-mini S&P dropped 20 points. Why?

Well. here are some comments I got from a news-service:

"Not surprisingly, Friday's equity trade was dictated by the March employment report. More specifically, it was the Treasury market's reaction to it that set the stage for stocks." ...

"A lack of negative surprise caused the stock market to breathe a sigh of relief."...

"The Treasury market had a very divergent reaction to the data, and it took the stock market down with it. For Treasury traders, the in-line data essentially provided no evidence that the Fed will be inclined to soon end its monetary tightening cycle."

Oups. So the stock traders thought it's good news and the market was moving up, but the treasury trader in the other room thought it's bad data. So treasury instruments were rallying, causing the stock market to drop like a rock. But don't stocks lead the treasuries? Or do treasuries lead stocks? ...

As I am writing these lines another news hits the ticker: Oil prices trading above $69 per barrel. But what does it mean? Should the stock market move up or down? Here's a discussion that I heard this morning: "As crude oil prices continue to plug higher the debate over what it all really means will begin again. The questions that will be batted back & forth are "Are sky-high oil prices indicative of a coming economic slowdown or looming inflation?" And more important: How will the Fed react? Will they cease increasing interest rates or even lower the rates again? This would provide a boost for the stock market. Or will traders fear that there's an economic slowdown which might result in lower company earnings? This would move the market down.

As you can see, it's not the news that move the market; it's the reaction of the traders to news that let prices jump up and down.

Now, how should a computer model take these emotions into consideration?

In my opinion there's no way, and I haven't seen any models (incl. artificial intelligence) that is coming somewhat close to this (sometimes really weird) human behavior.

That's why I for one don't incorporate Fundamental Analysis into my trading systems.

About author: Markus Heitkoetter is a 15 year veteran of the markets and the CEO of Rockwell Trading. For more free information and a free eBook "How to make money with trading systems" visit www.rockwelltrading.com and www.futures-trading-systems.net

Published under category : Stock Fundamental Analysis

Basic Strategy Day Trading

2006-05-16T08:50:00.000-07:00

Stock trading is a very competitive field and in order to succeed you need to focus on a set of simple strategies that you can implement without hesitation. That's why the most important aspect of stock trading is the knowledge filter you employ to make your buy & sell decisions.

Day market online stock trading is not more risky than other trading activity, but substantial gains and losses can occur a small period of time. Money management in the field of stock trading is almost as important as stock selection. A primary motivation of day trading stock online is understandably the lure of quick money. Another motivating factor is that it isn't necessarily any riskier than other forms of trading activity.

There are six basic strategies day traders use to make a profit:
1. Spread Covering: Refers to buying at the BID price and then selling at the ASK price. The spread is the difference between these two prices.

2. Technical Trading: Simply the action undertaken by a technical analyst. He or she evaluates securities by relying on the assumption that market data, such as price charts, volume, and open interest, can help predict future, usually short term, market trends. Unlike fundamental analysis, the intrinsic value of the security is not considered. Technical analysts believe that they can accurately predict the future price of a stock by looking at its historical prices and other trading variables. Many technical analysts are also market timers, who believe that technical analysis can be applied just as easily to the market as a whole as to an individual stock.

3. Scalping: Refers to an extremely quick trade for a small profit. For example, if you bought 20,000 shares in XYZ Corp. @ $1 per share, i.e. $30,000 invested, then sold them 30 minutes later for $1.025 per share, $30,750 gross return, you would end up pocketing a cool $750 less brokerage. Note: when you are day trading stock online, the round turn brokerage fees are minimal.

4. Range Trading: It is a little harder and inherently more risky, but the returns can be proportionately greater, too! If you are canny enough to be able to pick the intra day market swings and either BUY at or near a low, then SELL at or near a high you can often make substantial profits using this method. But you do have to be wary, because if you buy into what you think is an intra day low point, only to discover that the market sentiment has changed and that a severe sell off is in progress, you could get badly burnt!

5. Playing News: It is the realm of the adrenaline seeking day trader. The technique refers to buying a stock which has just announced, for example, a short sell on bad news, the contrarian traders love this sort of play as they will be standing in line to BUY the stock at the end of a short, sharp sell off in the belief that most if not all the bad news is already factored into the market and therefore there wont be any further downward pressure. The sheer volatility offered by unexpected news announcements can provide the diligent day trader with huge potential for quick profits, or losses if they call the market incorrectly.

6. Trend Following: Assumes that if a stock have been rising steadily it will continue to rise. Admittedly, this technique is better suited to position traders, i.e. where stocks are held for a number of days, weeks or even months, but in strong bull markets some stocks will rise steadily for days on end, making the intra day trend follower excited.

However, unless thoroughly tested and proven trading strategies are put in place with each trade, the risk of incurring substantial losses within a frighteningly short period of time is all too real. So, watch your step carefully

Published under category : Stock Trading Strategy

Stocks - A Winning Way To Scan For Stocks That Are In Uptrends

2006-05-11T09:48:00.000-07:00

by Ricky Lim

With thousands of stocks listed in the stock exchange for trading, how does a trader go about his stock selection? I am not refering to the fundamental approach where the trader studies the fundamentals of the company, and research the performance results of the company, check its price-earnings ratios or check its balance sheets and turnover and its dividend yield.

By and large among those successful traders who really make their living off by trading professionally in the stock markets, their preferred method seems to be the technical analysis approach.

By this, they use charting, and technical indicators applied to the stocks. They will devise filters or explorations, to scan for stocks that meet some selected indicators to show that the stocks are beginning to move or have started to move.

Professional traders who trade for a living have an array of trading tools to help them, but one of the most common tools they use to good effect is the indicator called On Balance Volume.

Popularised by Joseph Granville, the On Balance Volume or OBV in short is actually cumulative volume, where the underlying principle is that similar OBV should support equivalent price. By using this indicator, short term traders will be able to identify when there is a difference in this setting, or where OBV has outbreak already but price has still lagged behind, giving rise to the situation where an impending price jump is expected.

But how large is the impending jump? If there is indeed an OBV outbreak, and by inference the price should follow in the next few trading sessions, one must also ensure that the impending jump is of sufficient size to warrant a good margin of profit attractive enough for him to trade.

Added to this trading indicator, traders add yet another trading stipulation to nail those giant moves. We know in Elliot wave theory that the 3 and 5 waves of any stock are the impulsive and strong waves up.

I have seen much success from traders who scan their stocks with an OBV outbreak and are in their impulsive 3 and 5th waves which are their longest and strongest waves.

Armed with this understanding, when a stock is found to have just undergone an OBV Outbreak upwards and is moving within either its 3rd or 5th wave, you have an excellent candidate that will probably run away in price, and letting you reap a handsome profit within a short trading period.

Peter Lim is a Certified Financial Planner and trading coach. His ebook "Swing Trading For Gigantic Profits" at http://signaldot.poolofwisdom.com/swingbook.phtml reveals how one can become a winning trader. You can also access free resources on swing trading and momentum trading by visiting http://www.online-guides.info

Published under category : Stock Technical Analysis

Six Things To Do In A High Risk Market

2006-05-08T14:33:00.000-07:00

by Thomas Mullooly

When the market turns against you, what should you do? Sell everything? We discussed that choice in a recent column. Selling everything draws your “line in the sand” and announces that you have determined there is no future for you in the market.

There are other steps you can take when things start moving against you. Here are 6 actions you take today to help protect the money you’ve worked hard to get. In my next article, I will share several more ways you can help protect your stock market and mutual fund investments.

1. Decide at what price you will buy the stock or fund if it pulls back. Take a long look at where the stock has been the last few months. Has it gone up without any kind of break? It may be due for a pullback. WRITE DOWN your reasons for buying and the ideal price you’d like to own it at...and be patient. If you miss it, you miss it. Don’t chase stocks.

2. Manage your stops. Re-examine where your stop orders are and decide if you can live with getting stopped out. These days, stop orders usually need to be renewed or revised every 60 days. If your stock has moved up nicely of late, you should move your stop up as well.

3. Buy puts on stocks. You may own a stock where you have a profit. You may really have no intention of selling the stock soon. But you know that the individual stock may have gone up too far, too fast. Buy a put on the position. It is considered protection on your original investment. If the stock falls, the puts should climb in value. This will offset the drop you have (on paper) in the underlying stock. And if you’re right, and take a profit in the put, you may have enough cash from the put sale to buy more shares of that stock at a good price, now that it has dropped.

4. Buy half of what you would normally buy. You want to tread lightly in markets when the risk is high. Buy half of what you’d normally think of doing. You‘re automatically keeping more cash than usual on the sidelines, which is smart decision in a risky market.

5. Invest in a basket instead of an individual stock. Exchange-traded funds are a great way to do this. If you feel strongly that a current theme will work, but are unsure about the market, this may be your ticket. Thinking about swapping a single stock for a basket. You’ll get diversified since you own a basket of names instead of one single stock.

6. When stocks start to fall, think about selling stocks short. It’s not for the faint of heart, since being “short” leaves you on the hook, because your loss is unlimited. But remember, stocks don’t just go in one direction. What makes it an interesting market is that stocks go up AND down.

One decision you won’t see on the list is the choice to do nothing, and just “sit it out” or ride it out. You’ve worked hard to get where you are financially, the last thing you should do is sit idle and let the market take your profits away from you.

There are other methods you can employ to help reduce the risk in your account, which we will get into in the next article. In the meantime, feel free to contact us, toll-free, at 877-223-7300 if you would like further information on how to protect your assets in a high risk market.

About author:
Thomas P. Mullooly, President of Mullooly Asset Management, LLC (http://www.mullooly.net) has spent over twenty years in the investment industry, as a broker and as an investment advisor. Mullooly Asset Management is a fee-only registered investment advisory firm based in New Jersey, specializing in retirement plan accounts, particularly managing 401k, 403b, and deferred compensation accounts for individuals. Feel free to contact us to check out the relative strength of your portfolio by sending an email to tom@mullooly.net or visiting http://www.mullooly.net/403b-plan.html or sign up to receive the market report and tips on how you can soundly invest your money at http://www.mullooly.net

Published under category : Stock Trading Tips

Shorting Strategy and Value Investing

2006-05-03T11:48:00.000-07:00

by Henry Lu

How does shorting work?

Shorting strategy has been very popular since the bubble burst of technology stocks in 2000. Shorting a stock is simply a bet that the stock price will drop.

An investor can sell a stock he/she does not own by borrowing shares from brokers. The investor can sell the stock first and then buy back the shares at later time. The investor can make profit if the stock price he/she sells is higher than the price he or she buy back later on.

Shorting Strategy for Value Investors? At appearance, shorting strategy should work well with most value investors. The core task of a value investing is to calculate the intrinsic value or the worth of a stock in order to identify bargain stocks that are trading at discount to their intrinsic values. If a successful value investor can buy cheap stocks based on their intrinsic value, why not just short a over-priced stock? In the end, method for calculation of intrinsic value is same whether the stock is overpriced or underpriced.

However, if you read carefully the value investing books from Benjamin Graham, the father of value investing, you can find very little information on shorting. We also know that Warren Buffet himself does not utilize shorting method. So why is shorting strategy not used by 2 greatest value investors in history?

Shorting Requires Higher Degree of Diversification

Mutual funds are known to have extremely diversified portfolio of hundreds to thousands of stocks.

Many successful value investors invest into concentrated stock portfolio with adequate diversification. In the book Intelligent Investor Chapter 5 titled "the Defensive Investor and Common Stocks", Benjamin Graham preached "adequate diversification" of 10 to 30 stocks, but not "excessive diversification". Warren Buffet was also known to invest into portfolio of less than 20 - 30 stocks for his hedge fund in earlier years and for his firm Berkshire Hathaway. Charles T. Munger, the second man of Berkshire Hathaway, and a great billionaire value investor himself, was also known to make even more concentrated bet than Warren Buffet when he was alone managing his own hedge fund before he joined Berkshire Hathaway. My past investment performance in Blast Investor Real-time Plus newsletter was also obtained with concentrated portfolio of around 10 stocks as well.

However, this kind of concentrated portfolio common in value investing world would not have adequate diversification with shorting strategy. To illustrate this point, I put following 2 hypothetical cases for comparing a typical long-only value investing portfolio and a short-and-long combined portfolio.

Case 1 - Long Only Value Investing Portfolio

Table 1- Portfolio 1, Long Only Portfolio

Stock Long or Short $ USD for stock position

1 long $10,000

2 long $10,000

3 long $10,000

4 long $10,000

5 long $10,000

6 long $10,000

7 long $10,000

8 long $10,000

A long $10,000

B long $10,000

Total Equity $100,000

Table 1 is fully invested hypothetical portfolio with 10 stocks. All the 10 stocks are long position of bargain value stocks. Suppose for the 2 years, 1 to 8 stock price stayed flat with no gain and no loss, and stock A and B each lost 90% of their value in the first year, and then not only regained all the losses in the second year and actually doubled from the original entry price. Table 2 is performance of portfolio 1 for this 2 years:

Table 2 - Performance of Portfolio 1

Stock Initial Year1 Year2

A $ 10,000 $1,000 $ 20,000

B $ 10,000 $1,000 $ 20,000

Portfolio1 $100,000 $82,000 $120,000

Portfolio1 Performance NA -18% 46,34%

90% of loss in 2 of 10 stocks in portfolio did not kill the 2 year overall performance of portfolio 1. In fact, Portfolio 1 still enjoyed overall 20% gain over the 2 years.

Case 2 - Long and Short Portfolio

Table 3- Portfolio 2:

Long 8 Stocks, Short 2 Stocks

Stock Long or Short $ USD for stock position

1 long $ 10,000

2 long $ 10,000

3 long $ 10,000

4 long $ 10,000

5 long $ 10,000

6 long $ 10,000

7 long $ 10,000

8 long $ 10,000

X short $ 10,000

Y short $ 10,000

Total Equity $100,000

Table 3 is fully invested hypothetical portfolio with 10 stocks. All 8 stocks (stock 1 to stock 8) are same long position of bargain value stocks, and Stock X and Stock Y are short positions. Suppose for the 2 years, 1 to 8 stock price stayed flat with no gain and no loss, and stock price X and Y each increased 10 times in the first year, and then not only lost all the gains in the second year and actually further crashed and cut in half from the original entry price. Table 4 is performance of portfolio 2 for this 2 years:

Table 4 - Performance of Portfolio 2

Stock Initial Equity Year 1 Equity Year 2 Equity

X short position $ 10,000 -$90,000 $ 15,000

Y short position $ 10,000 -$90,000 $ 15,000

Portfolio2 $100,000 $ 0 (wipe out) $ 0 (wipe out)

Portfolio2 Performance NA -100% -100%

Although the investor correctly predicted that stock price of X and Y would drop in 2 years, the first year rise of 10 times in stock price of X and Y triggered margin call in portfolio 2. The 2 short positions of X and Y wiped out the whole portfolio 2 so that the portfolio never had a chance to profit in the second year of dramatic crash of X and Y stock price.

Market Timing and Money Management

Although the above -90% loss and 10 times rise hypothetical cases are not common, this kind of wild ride in stock market did happen. A stock price change from $1 to $10 or from $10 to $1 was even less rare in small cap or micro cap market.

A prudent investor certainly can not rule out such possibility in portfolio management. Long term oriented value investing with 10 stocks can certainly withstand this kind of losses in case 1. However, the same kind of change would not have chance of surviving for shorting strategy as shown in case 2.

To avoid wipe out with short strategy, investor has 2 choices:

Investor either has to have a more diversified portfolio, possibly with hundreds or thousands of stocks just like a typical diversified mutual fund portfolio.

or Investor would engage in short term trading or market timing so that the investor can short at or near top to avoid wipe out risk.

Neither of above 2 choices are attractive for a truly successful value investor. First of all, concentrated bet without excessive diversification is one of key reasons for high performance. With hundreds or thousands of stocks under management, a portfolio with short strategy would be as mundane as a typical mutual fund portfolio in terms of performance. Second of all, value investing method is price oriented long term investing method, which by itself is at odds with any market timing or short term trading strategy.

Certainly, there are successful investors utilizing short strategy in stock market. However, here is my final 5 cents as below:

Great value investors such as Warren Buffet and Ben Graham do not short, you don't need to either.

About author:
Article by Henry Lu of BlastInvest LLC, a premium investment newsletter publisher in Connecticut. Visit http://www.BlastInvest.com for FREE "how-to" investing assistance, web services and more.

Published under category : Stock Trading Strategy