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The stock market crash of 2008 lost many investors a lot of money, and had many other investors bailing out of stocks for the safety of savings and checking accounts, treasury bills and gold. However, it is still possible to invest - and yes, even make money - during the current rocky economy.
The broad decline across financial markets in the past year has persuaded a small but growing number of financial experts and advisers to ditch the traditional buy-and-hold strategy - which promotes long-term investing in a mix of assets - for a new approach that aims to sidestep future market plunges and ease instability.
What does this mean to the common everyday investor? Read on for some investment advice that everyone can use.
Be Informed
First and foremost, the best investment advice you'll ever receive is to take control of your own future. You are the only one who will have your best interests at heart. Even if you do not understand exactly how to invest your money or don't feel comfortable doing it yourself, an investment advice site such as MySMP.com can get you on the right path to getting the right advice and asking the right questions.
Take an Active Approach - Buy and Hold is Out
A common misconception about the stock market is to just "ride it out." Don't sell and eventually your stocks will go back up, right? Wrong! If a financial advisor suggests that you need to take a long term buy and hold approach, you should run. They probably don't understand how to invest the right way and figure that the market will go higher over time. You want to hear answers suggesting that the investment advice you will be receiving is based on a sound understanding of the financial markets; including concepts such as technical analysis and options hedging.
As we learned in 2008, established stocks such as Lehman Brothers and Bear Stearns can go at anytime, so do your research and find out which sectors have the most potential 2-3 years out. These are sure to be your best investment.
Diversify Within Different Assets
Don't put all of your money into stocks, true diversification is asset class diversification; including stocks, bonds, commodities, and currencies to name a few.
401k Plan Investment
Here are a few pieces of investment advice when considering a 401k plan. First, contribute the full $15,500, or deduct 15% of your gross pay, to your 401k plan if you can. This is tax free money, and it's a no brainer. If you cannot make the full contribution, be sure to at least contribute in an amount equal to your companies match. If your company matches 6% and you only contribute 3%, they will only match 3%. If you are coming near the age of retirement and can't afford to lose any more money in your 401k, get out of stocks funds and move your money to money market. If you are not comfortable investing money into stocks, put it into a money market fund within your 401k; the key is not to stop investing.
If you are going to manage your 401k assets, make sure you diversify between different asset classes, if possible. Unfortunately, you are typically limited to stocks and bonds. If you don't have options such as commodities available to you, go talk to your plan sponsor and push to get some more selection. When you leave your company, be sure to transfer your funds to a rollover IRA; you will be able to trade any asset class here.
In Summary
There is no one size fits all answer to investing and you're probably not interested in becoming a full time money manager. Investment advice is always easy to come by but good advice is very hard to come by. The key is to put people around you who have a good track record and know how to invest with capital preservation in mind at all times. Never get involved with people who promise you the world. Odds are they will do well for a while but their ego will eventually blow up in their face.
Some say that "Money is the root of all evil" but still, you can't deny the fact that you need money in order to survive in this world. Without money, you can't buy food, shelter, clothing, and the other necessities of life. If you want to live comfortably, you must have a stable source of income. Aside from your job, you can also earn additional income through stocks trading.
If you want to be successful in stocks trading, you must be involved in day trading because that's one way of earning huge profits. For those people who don't like long term investments, day trading might work for you. By investing in day trading, you can expect the profits to be reflected in your account the soonest possible time. This is also the reason why day trading is very much popular these days.
Like other trades, day trading also involves risks. If it is possible to earn huge profits in one day, the chances of losing huge investments are enormous as well. As a trader, you're not expected to remain active at all times. Did you know that with a very good negotiation strategy, you can earn huge money in seconds, minutes, and hours? That is indeed possible but it will take time. You should not rush things when you're studying the market. Take your time because after careful and thorough market analysis, you can make a good deal. It's up to you whether you will only make one transaction per day or several transactions.
Studying market trends is also very important. Some value of stocks tends to rise continuously and if this is the case, a trader may buy the stock with the hope of selling it at a much higher price later on.
Before making any transaction, there are things to consider like:
1.Stocks can be very unpredictable. If you want to buy a stock and hope to sell it at a higher price, you need to monitor or check the computer often. Frequent observation is needed so that you can make an informed decision. Your internet connection should be reliable so that you won't lose in any of your transactions.
2.Beware of day trading because even if you earn huge profits today, there is still a possibility of losing even a larger amount in the days to come. If you've committed mistakes in the past, you need to learn from them. Risking your investments is not a good idea so try to be very careful with all your transactions, online or offline.
3.You must be patient. Again, you must always take your time and don't be hasty with your buying or selling decisions. If you're unsure of a certain transaction, get out immediately.
Indeed, day stocks promises a lot of profit to those who are willing to take risks but this doesn't mean that they can simply make uneducated decisions. Investing in day stocks requires careful thought and analysis of the market trends, along with other factors.
Try to consider the things mentioned earlier especially of you're into day trading. Beginners need all the help they can get because day trading is not very easy. Gather as much information as you can about day trading. You can find a lot of information about stocks trading online. Start your research now so that you will know how to conduct day trading and understand the processes involved.
Many forex traders like to incorporate forex breakouts into their overall trading strategy because they can be extremely profitable. When a price finally breaks out of a tight trading range, many traders tend to jump on board and carry the price further away from this trading range, which is why this strategy is so effective.
One of the most popular ways of trading these breakouts is by focusing specifically on overnight / opening range breakouts. By that I mean the opening hours of the new trading day. I myself tend to focus on the hours between 00.00 and 06.00 GMT and predominantly concentrate on the British and European-based pairs such as the GBP/USD and EUR/USD pairs, for instance.
These hours are notoriously quiet and yet these few hours before the busy opening session set the tone for the rest of the day. You will often find that the price will stay confined in a fairly tight range during these six hours or so and when the UK and European markets open, the price will trend significantly in one direction and will often break strongly out of this initial trading range.
Therefore a profitable strategy is to open a long position when the high point of this opening range is breached and open a short position when the low point is breached. There are various ways you can put this system into practice. You can either open a position as soon as the price crosses the line or as soon as the breakout candle closes, or you can wait for a pull-back and then jump on board if the price continues to move in the direction of the initial breakout.
All of these methods tend to work quite well and there is a logical reason why this is the case. The fact is that every currency pair has an average daily range, ie the average number of points between the high and low points for a given trading day. So on those days where the opening range is very narrow, this initial range will be a mere fraction of the overall average, so therefore you can expect some big price moves to occur during the rest of the day either above or below the overnight range.
So if you are looking for a simple forex trading system (that doesn't use any complicated technical indicators), then I can definitely recommend you consider trading breakouts from overnight trading ranges because this can be a very profitable strategy.
Mini forex trading is perfect for newbies in forex and with those who have a little amount of capital available at present. What the mini-account does is that it allows them to trade with real money, as it also limits their risk in trading. With a mini-account, the lot size of trades is only one-tenth of the actual lot size for a standard account, and with the same broker too.
Now, newbies to forex has three options:
(1) they can start out immediately with live trading in a standard broker account, wherein they can invest ranging from $1,000 to $5,000 (gives a great deal of risk for a novice and therefore not recommended);
(2) they can start with live/actual trading in a mini-account (In general, they'll need around $250 for this, but there are always brokers who'll let them start with a lower cost); and
(3) begin with a demo account as they pick up their trading skills without investing any real kind of money, then as they go on and continue in making good profits, they have the option to switch between a mini-account or a full brokerage account (depending on the capital that they have and their strategies, of course).
As for the advantages of the mini-account, most users will choose the third option, which is the demo account. Why? It's because it's really much safer to use toy money rather than real ones online for days, weeks or even months! With a demo account, they will be given an opportunity to try out different kinds of strategies in trading. But, on the other hand, running a demo account for too long can impose a false sense of security to the user, as they may be practicing with the strategies that may not be really effective when it comes to the trading in real life.
So what this kind of account does is that it teaches the trader to make profits out of medium to high risk strategies, but when the time comes that they get to face a real money situation, possibility is that they may lose their confidence, which results to poor decision-making and strategy-hopping, wherein they continually go from one plan to another. Loss of profits can't be avoided in this scenario.
In lieu to this, what some experts advise is to start using a mini-account and use real money almost from the very beginning (they can use the demo account when dealing with a few trades so as to get familiar with the technical stuff of operating their own account and making different trades). Through this, they will be able to learn the techniques and the skills necessary that will work for them on a long-term basis.
The mini-account has also its disadvantages. As the newbies trade small amounts, they are to pay more percentage terms to their chosen broker. Now, this will truly affect their profits negatively, which can have a great impact on their side. With this, those who use this kind of account will switch over to higher value trades whenever they have the capital to enable them to do so.
Beginners should always keep in mind that forex trading is by nature a very risky kind of business, as it gives them the possibility to have large gains in a short-term basis. So, they should invest the amount of money that they are, in a way, ready to lose when the time comes that things will go against their favor. The mini forex trading account is truly great for beginners and is the best way to find out whether or not forex trading really is the thing for them.
What is it?
Online stock trading allows you to buy and sell stocks from the comfort of your home or office without having the hassle of having to call your broker every time you want to trade. For doing online stock trading you need to have a computer with a sufficiently good internet connection and an online broker, through whom you would make all such trades. It allows you to trade stocks at your discretion and also saves you a lot of commissions.
Choosing an online broker
There are a huge number of online stock brokers available, who would be only too happy to let you set up a trading account with them. What you need to look for in a broker to help you with your online stock trading is information that most of them would readily give you so that you become one of their clients for online stock trading.
You need to know the minimum investment necessary to make for starting in online trading. Make sure that there are no fees if there is no activity on their site for whatever reasons. Get their full list of commissions/fees which you would need to factor in every time you make a trade. Some online brokers also help you out with your online stock trading by offering you tips and suggestions, and their own outlook on the market and its prospects.
Opening an account
Opening an account with an online broker is generally a simple affair and can even be done online. You would however have to provide all the necessary paperwork and open an account with the stock exchanges, which will allow you to get all your stock price quotes electronically. The online broker may even have his own enrollment or other fees, for you to gain access to his online network so that you can trade in shares. You would also have to provide a wire transfer link to your bank account so that funds can be transferred both in and out of your account, in order to allow you to carry on the activity of online stock trading.
Most online brokers require that you deposit funds with them to start the trading activity. Initially, it's possible that you may only be allowed to trade in the underlying stocks. Trading options on futures, forex, may require additional registration documents and procedures as this is considered to be very high-risk trading. Also, if you intend to trade on margin, there may be separate documentation and funding requirements for this. Check all this with your broker.
Be cautious while trading
Online trading involves that you exercise the same amount of care and caution that you would in other trading activities. It may require even more caution, as you are on your own and the action of buying and selling is instantaneous. You need to constantly monitor your portfolio. Fortunately, the online broker you have opened an account with will make this easy for you. They have plenty of powerful analytical software tools which keep your portfolio updated on a minute to minute basis, and give you all the risk parameters you need. They also have tools to enable you to analyze and study any particular stock in depth to ensure that you are in the best position to make the right trading and investment decisions.
When the \"average Joe\" decides that he wants to purchase some stock, it is usually beyond him what stock to purchase. There are so many out there, and they do not look like sound investments because buy one share you have to pay such a ridiculous price. There is a way though. The Securities and Exchange Commission (SEC) offers a whole category of stocks from companies that sell below $5 a share. They are called Penny Stocks.
Penny Stocks trade for such a low price because they are from companies that are new, have small value, or have lost a lot of value. Most of these companies are under the radar and so they have not gotten a lot of buzz from the regular news shows that promote certain stocks. They also do not have the same hype because they have not been around as long as some other companies. However, when deciding to purchase a stock these may be the way to go.
Some features of these stocks may not be as attractive as the more established \"blue-chips”. Blue chip stocks come from companies that are well established and have to follow certain guidelines to be a member of one of the more recognized exchanges. This does not mean that the companies that sell their stocks at below $5 per share are trying to pull a fast one; they may be as solid as any of the larger companies. However, they are not as recognized. Small companies have to start somewhere and so they usually peddle their wares on the Over the Counter Bulletin Board (OTCBB) or on Pink Sheets. These two exchanges deal exclusively with Penny Stocks. They do not have some of the oversight that the other exchanges do, but they do offer stock at prices anyone can afford.
Like any other investment, you need to do your research. Yes, there are fraudulent practices perpetrated with these low price stocks, but there are with the big boys too. The companies usually are not involved in any fraud, but the low price of the stocks makes them an attractive target for unscrupulous types. Many of the stocks that sell at these low prices are from sound companies that have a high amount of money invested by the workers. This is important because if they are making the product and investing in the company’s future, since they have the most knowledge of the company, it is easier to trust that company. Outsider who sees a possible patsy in a small company that is trading at a small price and tries different ways to manipulate the price does the fraud. Just do not jump into something without proper research.
Penny Stocks can be a great investment for someone with out a lot of money to spend. In addition, in these times they may actually be a better investment that some of the big companies. Make sure you research the company, follow seasoned advice, and have some fun with it.
Many investments may seem out of reach. Unfortunately, land is priced out of the range of small investors many times, blue chip stocks sell for hundreds of dollars, and you don't have any gold jewelry to turn into ready cash. Small investors do not seem to have very many options. Just stay in your 401k and save until retirement. However, this is not entirely true. There are Penny Stocks.
Penny Stocks are those that sell for less than $5. They are particularly attractive because not only do they sell small, but also they are volatile enough that you may end up with a boatload of money with a single day of trading. This volatility can also cause one to lose his or her shirt also. There are some precautions that need to be taken and tips that can make the whole process easier.
First, how can I find them? Penny stocks can be sold on any of the exchanges, but they are mostly listed at either the Over the Counter Bulletin Board (OTCBB) or the Pink Sheets. These tow exchanges are specifically designed to handle Penny Stocks List. They can be accessed via the internet (like any other exchange) and are traded in the same way. These two companies do not require the same level of oversight that the NYSE and NASDAQ do, but they still have some good stocks.
Is it safe? Well there is risk associated with any investment. I mean, your house could burn down today. Your 401k might tank because the blue chip stocks that it has in its portfolio are hemorrhaging money. No investment is completely safe. However, there is a lot of volatility associated with these stocks. The reason for that is that they trade at such a small value. If you buy, for example, IBM and that company makes a 1% gain you have had a good day. For the micro caps, if they gain a $1 you could have just recognized a 100% gain. See the attractiveness. Unfortunately, there are also sharks in the water. It is easy to manipulate the stock because it sells small. Do some research about the company, and do not trust to Internet ads.
Can I make money? That is the most attractive feature of Penny Stocks List. You can make a lot of money. Because they sell so low and are so volatile, it is possible to make a large amount of money on a very small investment. All you have to do is watch the trends of the particular company that you wish to invest in. A lot of the smaller these days are involved in Biotech or some other sort of technical endeavor. These companies may be relying on one product to put them over the top. They ask for investors so that they can fund the research. After the product is launched, you could realize a large return on investment.
Therefore, it is possible to make money and be safe with Penny Stocks. However, the only person who is going to protect your money is you
Investment if fraught with difficulty. How can something that seems easy (spending money) be so hard? The reason that there are roadblocks to investing is to make sure that the investor is safe, and the individual selling the investment has scruples. When it comes to stock there is an entire governmental body that is tasked with the proper exercise of the sale and purchase of stock. It is the Securities and Exchange Commission (SEC.) The SEC makes sure that rules governing the safe exchange of stocks are followed. Certain types of stocks are harder to govern though. Penny Stocks are those, which sell for under $5 per share on the exchange and are small company stocks. They are easy to purchase, but they can be hard to sell.
They are easy to purchase because there are a lot of them out there. The abundance of Penny Stocks makes it easy to find an investment. These stocks seem to grow on trees. There are many small companies who need the outside investment, but cannot afford the stricture of the large exchanges (NYSE and NASDAQ.) Therefore, they trade their company on either the Over the Counter Bulletin Board (OTCBB) or the Pink Sheets. These two exchanges were specifically designed to assist smaller companies with the exchange of their stock. The boards make these micro caps easy to attain and trade. There are also brokers that deal specifically with Penny Stocks and can help the average investor purchase them.
One of the major drawbacks of Penny Stocks is that they can be difficult to unload if you are losing money. Blue chip stock is easy to buy and sell because the companies are usually large and solid. However, many of the stocks sold on the smaller exchanges are from unproven companies that cannot necessarily guarantee any growth. Therefore, when it comes time to get rid of the stock because it is a poor performer, there may not be any buyers. In addition, if someone does decide that they want your stock they may demand that you sell for a lot less than you paid for it. This is one of the cautions that are inherent in the purchase and sale of these stocks.
It is important that you purchase from a reputable seller. Look for testimonials. Ask someone you trust whether they have used a particular company and how did they like them. Follow watch lists. There are certain brokerage companies and traded companies that are listed by the SEC because they have been complicit in some shady dealings. Also, make sure that you follow the SEC guidelines for the purchase and sale of stock.
Penny Stocks can be a great investment, but they can also lead to bankruptcy. It is important that you make sure and only buy from reputable sellers. Do not follow the email spam sites. Use only those that are highly rated and have proven their ability to make sure their customers are well taken care of.
Do You Have the Knowledge to Successfully Trade in the Share Market?
Successfully trading and investing in the share market is a positive move to achieving your goals.But acquiring the knowledge that you need to understand the share market is definitely an important part of your trading success.For without this knowledge you are doomed to failure before you even start trading.
We have been reminded only to often recently that the share market is very volatile, but sometimes this volatility can appear to produce market patterns. The speed and flow of information through the share market is not an issue that most of us think about very much.
Yet tomorrow if the Dow falls and the oil price rises you will be told the loss on the share market is "because the oil price rose. Given that the volatility in our market has continued to unfold in recent months, many are beginning to question whether the share market is really a good investment.
Financial markets are generally very efficient at processing information.To have any serious chance of achieving above-average returns, you need new information and you need it faster than other market participants.
But they can feed you with so much rubbish through the media that you have been conditioned into never questioning their "explanations" as to why the market went up or why it went down.
Remember,the share market is a medium to long term investment therefore, I would recommend sitting back and waiting until the market finds a positive direction before deciding to invest.
This means attempting to buy shares during periods when the share market is weak and selling the shares once the market has risen. One thing we know from looking at the long-term performance of the share market is that, despite short-term volatility, the market always recovers.
It's never an easy time for investors when the share market hits a pocket of turbulence. Indeed, savvy long-term investors understand that short-term highs and lows are a natural part of the investment ride.
Sir John Templeton was well known for making money at times when others were either selling or sitting on their hands and watching the US market under pressur at times of it's worst crisis.
Markets move in cycles and the share market is traditionally a forward indicator of what has the highest expectation of occurring in the real economy over the next year or two. I cannot tell you when this market will bottom but there is now good value out there even though there are some nasty profit results still yet to come.
There are many ways that you can educate yourself on the theories of the share market and how to trade shares.Until now, developing and practising share trading techniques using the real share market has been an expensive business.
One thing that I highly recommend is that you start by paper trading before you begin trading share trading for real. By doing this you can test out your trading plans and your trading system without risking any capital.
The next thing you should be doing is to access all the educational information you can. For this will ensure that you have the knowledge readily available to assist you to a profitable trading future.And one of the best places for that information is right here at www. asxnewbie.com.
Trading is not a risk-free activity. Although all traders know that losses are inevitable, they want to minimize those losses and still be around to trade another day. Having the right tools, techniques and skills can help you enter the world of trading and enable you to continue to trade for a long time to come.
Before you buy that first share of stock, you need to be certain that you have the right trading software or tools to be successful. You need the right tools to identify trading candidates; display the interpret charts; research trading opportunities; screen stocks for fundamental constraints; and monitor and analyze your portfolio, open positions, market indexes, sectors and trading statistics. In summary, the proper tools are critical to finding the right trades and then monitoring those positions after you’ve found and entered them.
If you don’t have the right tools, you may not be able to enter and exit positions efficiently, control or track your orders, track your profits and losses, analyze your trading history and monitor economic reports, earnings and other business news.
The proper tools help you evaluate your trading system and test your trading ideas. They enable you to keep trading logs to review your trading performance. You also can use tools to stay in touch with other traders and exchange ideas that ultimately may help you improve your trading skills and discover trading opportunities,
Tools are the core of any good trader’s business. Without the right ones, your chances of success drop dramatically. Don’t scrimp on the tools you select for you trading activities and choose and use your favourite tools wisely
As you begin choosing your stock trading software you’ll probably find out about the hundred of tools and charts that are out there on the market. You don’t need to learn and use them all. You’ll find that you get mixed signals and will probably end up in a state of analysis paralysis trying to figure out which tool is giving you the right signal. To avoid driving yourself crazy, pick the one makes sense to you and fit your trading style. Take your time getting to know how they work and how best to interpret the information they generate use them to build the types of charts that match your trading style and don’t worry about learning all the new gadgets. If your tools are working and you’re making good profit, don’t rush to add the newest tool innovation
Keep your eyes open for new tools that can improve your trading profits, but use caution before making changes to your winning trading systems.
The 1st quarter of 2009 saw dividend decreases outpacing increases, for the first time since 1955. Income investors are finding it increasingly challenging to find safe high dividend yields.
Free cash flow is an important measurement in assessing the safety of a company's dividend, as is the dividend payout ratio, which usually gives investors a good idea of how much of a cash cushion a company has after paying out dividends. With the exception of MLP's, LP's, and REIT's, beware of firms that have very high dividend payout ratios.
Olin Corp., (OLN), is a good example of a stock with a low dividend payout ratio. At a price of $13.56, OLN was yielding an attractive 5.99%, ($.20/quarter/share), as of April 23, 2009, with a dividend payout ratio of just 39%.
An easy way to gain even more yield out of this stock would be to sell covered calls options against it. As an example, using this strategy, you would buy a minimum of 100 shares at $13.56, and then sell the Jan. 2010 $15 calls against it for $1.70/share, which would give you an additional 12.53% yield. (Note: 1 option contract corresponds to 100 shares of the underlying stock).
Your total "static yield", (and downside protection), would then become 16.7%, for this 9-month investment term, (since you'd only receive 3 out of 4 quarterly dividends before the January 2010 expiration). This equates to an annualized yield of approximately 22.27%.
However, the covered call strategy also gives you a third potential for profit, via price appreciation. If OLN rises to or past $16.70, your shares will be assigned/sold, giving you an additional $1.44/share, (10.62%), in profit. The assignment process doesn't usually happen until on or near the expiration date, particularly with long-term LEAP calls.
If the OLN shares get assigned, your total profit would be $3.74/share, on a $13.56 stock, or 27.58%% for the 9-month term, which equals a 36.77% annualized yield.
The trading range for this example is:
Downside Breakeven: $11.26 ($13.56 less $2.30 dividend/call $)
Maximum Resale Price:$15.00
Static Profit: $2.30/share (22.62% annualized yield)
Assigned Profit:$3.74/share (36.77% annualized yield)
The static yield from the dividend/call $ gives you downside protection of 16.96% in this trade. "Static" refers to a scenario in which the stock doesn't rise enough for your shares to be "called away", (sold).
Obviously, there's no guarantee that the stock won't go lower than $11.26, but this strategy gives you much more downside protection than if you'd simply just bought the stock.
Your upside potential profit is limited to your total assigned yield, since you must still sell the stock at the $15 strike price if it gets sold away from you, even if it goes much higher than $16.70. However, earning a 36.77% annualized yield makes a very compelling case for using this strategy.
So, we've taken a stock that's yielding 5.99%, and increased its annualized yield to 22%-36%, almost 4-6 times the original yield, AND given ourselves 16.96% downside protection. All done in 2 simple steps.
Sound too good to be true? It isn't, but there's one essential element: Good research. Make sure you're investing in sound companies to begin with; cash-rich companies with strong earnings that can sustain their dividends. When it comes down to it, finding the best research, and harnessing it to the most powerful strategy is the holy grail for investors...
One of my favorite investment types are penny stocks. Since some people view these stocks to be a little risky, I see a lot of people avoid them altogether Don't be nervous of these shares though - you will make incredible money if you know how to analyze these shares.
Any share under $2 is what I see as a penny stock. When I choose a stock to invest in, I search for a company that is new and growing. You will see numerous businesses that are now trading under $2 because they have had certain difficulties. Instead of investing in these businesses, I search for newer businesses that are growing. By focusing on these companies I can set myself for huge profits later on when they start doing well..
We should now take a look at how you can seek out money making penny stocks. Once you recognize what to look for, you can start earning exceptional money.
Studying the industry that the company is involved with is an important first stage. Is the competition too tough for a new entrant? You must look over the industry in general to ensure that the organization is producing a product or service that is going to have enough clients.
Second, how about the business itself? Are you pleased with the management? You also want to analyze what the company offers and analyze if their product or service is different from what other companies are providing. Make an effort to find businesses that either produce a unique product or compete on some other aspect such as their prices. It's a good idea to find a organization that produces an original product and stands out from the rest in some means.
Have a look at the financials of the business to see if anything stands out to you, however do not automatically worry if the business isn't generating positive income when you do. Quite often this is the situation with growing companies. Nevertheless I want to determine that the company has access to funds or laons so that the company can continue to push forward.
Also, look for a company that has strong communications with stock owners. I love being able to visit a company website where the business prints periodic updates because this lets me have a manner to stay abreast on company news.
When you start researching penny stocks and buying some stocks, you can find yourself making some huge gains. There's terrific money to be earned when you know what to look for.
Perhaps the most critical characteristic shared by successful investors and traders is their psychological approach to the market. All forms of financial investments have foundational knowledge that is essential to success in that market. I am not suggesting that you can simply think the right way and trade stocks, commodities or any other market successfully. But you could be the world's foremost expert on the commodities market and still not be able to translate that knowledge into monetary success.
Two emotions, fear and greed, can be lethal to your financial success. Developing an unemotional, systematic approach to your trading and investments is crucial for success. The following ideas will help you control your emotions and improve your trading results.
Develop a Trading System
Many people approach the market in a very unsystematic fashion. One day they are buying blue chip stocks that pay dividends; the next day they are playing tips from their nephews on biotechnology start-ups. Develop a system that suits your personal style, risk tolerance, knowledge level, and time available to devote to this activity. Decide what market you will trade and exactly how you will trade. Simply saying I will buy and sell stocks is not a trading system. Write down your rules. For example, for a stock investor, what criteria will stocks meet for your consideration? At what price will you buy? Will you short stocks? Where will you set your stop loss price? How much will you invest in any single position? How much will you diversify among industry sectors? Will you rotate in and out of sectors as they fall out of favor with the markets? Wherever possible, back test your rules and ensure your system has a reasonable expectation of profitability.
Have a Written Plan for Every Trade
Before you buy that stock or option spread or other investment, you must make some critical decisions. Write down your answers to the following questions: Why do I think this is a good idea? At what price will I admit my idea is not working and close the trade? If appropriate for this trade, at what price will I make some adjustments to the position? At what price will I take my profits? The answers to these questions and others constitute your trading plan. Be sure you have a plan before you establish the trade.
Follow Your Plan
This may be the hardest aspect of trading you must master. Once you have your plan, you must have the discipline to follow the plan unemotionally. Don't allow yourself to rationalize how the stock is going to rebound or allow your ego to refuse to admit the mistake. When the stock price dips below your stop loss price, close the position.
Don't hope. Don't rationalize. Follow your plan.
Evaluate Your Results
Develop a routine of reviewing your trading results periodically. When I review my trades each month, I make an important distinction between my "closing trades" and my "bad trades". Bad trades result when I break my own rules for entering the trade or lack the discipline to follow the plan. Losing trades are those where I followed all of my rules, but the trade just didn't work out as planned. These losses are simply a "cost of doing business". It is critical to treat your investing as a business, not a hobby. In any business, there are necessary expenses to keep the business open. Trading losses are an expected, necessary part of any investment activity. Developing a trading system and following the individual trade plans ensure that your profitable trades will outweigh your losses.
This Isn't Gambling
A common misperception holds that investing is akin to gambling. In fact, when you closely analyze the actual trades of many investors, they are indeed gamblers. They are following tips and hunches, investing large amounts on expected turnarounds, anticipating mergers, betting on start-ups, and so on. But consider the business of gambling - not the gambler, but the casino. The casino establishes a game where the casino holds a statistical edge; depending on the game, that edge may be rather small, of the order of 1-2%. The casino owner knows that he may have a big winner today at one of the blackjack tables, but that doesn't concern him because he knows he has an edge. When averaged over all of the different players and games, and over the long term, the casino will come out ahead.
When you work hard to develop the knowledge of the market you are trading, develop a trading system, have a written plan for every trade, follow your plan with great discipline, and learn from your mistakes, you have positioned yourself as the casino owner, not one of the customers.
Many people enter trading, whether it be stocks, options, commodities or other markets, after having been very successful in their primary occupation. Many of these new traders are perfectionists by nature and driven to be successful. This often leads to a couple of fatal flaws in trading:
1) The novice trader stays with a losing trade too long because of a reluctance to admit the original analysis was incorrect. His or her ego and sense of success are intertwined with the trade.
2) The novice trader does not understand that losing trades are a necessary cost of doing business.
The reality of the trading business is that some percentage of one’s trades will be losers. Every business has overhead expenses, or costs of simply opening the doors for business. Trading is no different and trading losses are a large part of those overhead expenses. Once one accepts that aspect of trading, it becomes much easier to close losing trades early with minimal emotional attachment.
It is also crucial to post audit your trading every month. I evaluate each trade that lost money and categorize it as a “losing trade” or a “bad trade”. The bad trade is the one where I did not follow my own trading system rules, whereas the losing trade was executed and managed correctly, but simply did not turn out positively – it was part of my overhead.
The precise percentages of losing trades will depend upon the markets being traded and also the particular trading strategy. For example, many successful commodity traders will only have 30-40% winning trades. At first blush, that doesn’t appear to be a viable proposition, but the key is the ratio of gains on the winning trades versus the losses on the losing trades.
For example, let’s assume my trading system’s average winning trade returns $250 but my losing trades average about $500. That doesn’t look like a winning system, but the crucial missing piece of information is the ratio of wins to losses. If I win 10 of the next 12 trades, I will gain $2,500 and lose $1,000 on the two losing trades for a net gain of $1,500. Another trading system might have a different pattern, e.g., winning trades average a $750 gain, but losing trades average losses of $100. This pattern of wins and losses is fine if the probability of success is high enough to make up for the losses. For example, if my probability of success is only 20%, this system will be profitable. Out of the next ten trades, two winners would account for $1,500 while the eight losers would total $800 in losses, for a net gain of $700.
Always understand the risk/reward ratio of your trading strategy. Couple that with the probabilities of success and loss to know the expected value of a series of trades using this system. Depending on the parameters, one system will be profitable with infrequent, but large, winning trades, while another profitable system may be characterized by highly probable, but small, winning trades.
This explains why you often hear a trading guru adamantly insist that you must always trade where the maximum gain is at least three times the maximum loss (a low risk/reward ratio). But then you hear another well known trading coach tell you that the best trading strategies are the ones with probabilities of success greater than 85%, with a high risk/reward ratio. Nether system is superior. But each system has its own pattern of wins and losses and optimal trade management. Which system is most compatible with your trading style and risk tolerance?
Some of the most important things to be aware of when trading are, Tape Reading, Technical Indicators and basic Discretionary Trading Rules. Being able to understand how to apply these methods when trading is a huge factor when learning how to trade. These skills are hard to learn and a little tough to apply while trading. Throughout this article I will explain these rules and how to use them, so you can have a better grasp and a better knowledge about them.
What are technical indicators?
Used primarily by short-term day traders, technical indicators apply a specific formula to the price of a security. These ‘indicators’ look to predict future market direction by using previous price patterns.
Example of the most common technical indicators includes Moving Averages, Relative Strength Index, Stochastic, MACD and Bollinger Bands.
Day Traders use these ‘indicators’ to identify specific times in the market when the opportunity for winning trades is the greatest.
What are Discretionary Trading Rules?
Discretionary trading rules are one of the most important aspects of consistently profitable day trading. Just like any business, you must have a business plan or a set of specific instructions on how to run your business.
Everything from start-up capital, research and development, operational expenses and even the re-investment of your profits or the management of losses are included in this plan.
Professional day traders use their rules like a roadmap to success, just like a small business owner uses the business plan they wrote. A disciplined use of this set of ‘rules’ results in a day trader taking only the trades that meet his/her specific trading criteria, and nothing else.
Just like a small business owner would never buy inventory for a product they don’t sell, a day trader must practice discipline to avoid the trades that do not meet his/her criteria, and to only take the trades that have demonstrated the highest percentage of winning results.
Tape Reading and How To Use It.
What is it?
•Tape Reading is the study of raw price action as it comes across your time & sales window, and is considered by most to be the ‘purest form of the market.’
•The term tape comes from ticker tape; print out by the ticker tape machines available since 1870s which reports the latest trade/bid/ask update information.
How it’s used:
•Predict short term price changes by examining price and volume information as it comes across the ticker tape.
•Most effectively used at potential turning points in the market to gauge overall market sentiment and help determine the future direction of price.
•Traders use this to see confirmation of a potential trade set-up, or a heads-up that a set-up should be avoided.
Benefit to the trader:
•Filter out the highest percentage set-ups
•Confidence in your entries
•Know when to exit a trade
•Maximize profits on each trade
•Limit the risk on each trade
What to watch:
•Speed of the orders
•Size of the orders
•Order Condition
Learning to read the tape is a vital part to becoming a successful trader in the long term, and understanding how to learn this skill can be difficult if you don’t know what to look for.
Lately you have been hearing news from the experts you have followed during the last recession or stock market crash period. But you should also look out for the optimists’ point of view. Now these experts are loudly saying that the recession is long and stock market rally for the last two has also been long and sharp in a short period of time. It is now time that market made a reversal. What should you do when these experts say like this?
First of all you should understand that these experts are not right all of the time. You start following an analyst or a market advisor when their statements fall inline with the market movements. This is natural for everyone. Except people who are too new to the market who fall for every advisor, every smart investor or trader learns to listen to experts whose talk matches with the market.
Though it is a good practice one should keep in mind that no expert can be right all of the time about the stock market. Market can behave independently and that is the beauty of it.
You should take their advices with discrimination. Generally there are two types of advisors at all times. Those who talk about crashes and suggest you to move to safer income streams and there are those who talk about bull markets and optimism suggesting you to invest more now. Naturally when there are two sides of a coin for the same stock market and same time period, it will be hard to decide which side to take.
My way of dealing with this kind of situation is to let the market decide its course and let me know that. That means I will watch the market and continue what I have been doing for the last few weeks or months. I will still follow recent trend. Of course I should be cautious now more than every because the market has shown the worst of its behaviour in the last year.
Meanwhile I will listen to experts and take on information that they have to offer. I do not just follow either side of experts easily. But I will consider their information and use that to match with the market movements on a daily, weekly and monthly basis.
Their information is more crucial than their suggestions. If you did not yet understand what I mean by information, this information is about news not related to the stock market but its listed companies and general economy. They speak about demand for products, joblessness rates, monetary policies, budget deficits and allocation, its consequences one economy etc.
What you can take from these snippets of information is that you can use your experience whatever little it may be along with your conscience that tells you how much weightage must be given to each of these information.
If the market continues to move in the same trend that means you will adjust the weight of the information that is supportive for the current movement of the market and also study more on that specific information. It may happen that market makes a sudden reversal and you will not get surprised or affected by this if you followed any updates on that specific information.
Similarly when market reverses direction you should start understanding the weight of the opposite information and consider studying in detail of that. It is very important to get updated with news. But you need not do this too much. There is always a simple way to get the most important information in a few word summary on the internet. Go for details only when circumstances demand and you have time for that.
In the present circumstances I haven’t seen any major shift in news or mindsets of the experts and stock market analysts. Hence I don’t see any reason for a sudden reversal though many experts like Marvin Clark, David Rosenberg started saying that. Some experts supporting opposite side of the market are always ready or cautious and keep telling the same thing that market had peaked by now.
Unless the market proves that by making a sudden jerk backwards and not being able set any more new highs it is time to reconsider our chips. Then start following these bear market experts.
The recession is long and the rally too was long. Though it is feels like the right time for a reversal, we are not the people who move the market. Let the market decide its course and adjust your movements accordingly!
People generally get confused with two major terms, 1) Share Market & 2) Stock Exchange. To make things clear they aren’t the same. Share market is the platform where stock exchanges happen. A Share Market is a public market for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately. A Stock Exchange is a corporation or mutual organization which provides "Stock trading" facilities for stock brokers and traders, to trade stocks and other securities. Securities Traded on a stock exchange include shares issued by companies, unit trusts, derivatives, pooled investment products and bonds. The KRA (Key responsibility Areas) of stock exchanges include raising capital for businesses, facilitating company growth, profit sharing & corporate governance amongst others. The oldest stock exchange: i.e “The New York Stock Exchange” originated in 1872. Since then there has been 20 legitimate registered stock exchanges all over the world.
The best way to start of is to open a broking account with a registered stock broker. With the advent of the internet, Online Share Trading has become one of the most important features for every major stock trading/ broking firm. Online trading has helped improve consumer base. After this is taken care off sign the broker client agreement with your broker. Open an Online Demat Account with any of the Depository participants registered with NSDL or CDSL. If your broker is also a DP, you can open the DP account with him also. Sign the relevant papers and execute agreement. Trade within your predetermined limits and financial capacity. It is always suggested to trade carefully while dealing in super derivatives. Derivative Trading as the name suggests are the financial contracts which derive their value from the underlying. The underlying may be the security or an index. Thus derivative instruments have no independent value. Currency futures are contracts where two parties agree to do a trade at a future date at the pre determined or agreed price and quantity.
Other then this the firm through which you invest in shares, stocks and bonds must assure you of proper portfolio management services. If your investment portfolio doesn’t comprise of the correct asset or classes as per market requirements, your investment is bound to go haywire. As of today firms are also providing Online Mutual Fund transaction. It is wise to seek the assistance of a relationship manager who would guide you through your investment strategies after conducting thorough Equity Research. Last year’s major recession worry saw many stocks crumble and major companies go defunct leaving millions unemployed. This just goes to show the economic weight that any major stock exchange holds. What really matters when you invest in Stock Markets isn’t the tenure or the amount, infact the time of investment is the most important. Hence investing with the most secured and reputed brokers do help.
