Trading education » Losses

Trading Stocks – How to Buy Safer Stocks?

admin — Wed, 16 Jun 2010 08:30:32 +0000

So you bought yourself a stock and it crashed losing 30 percent overnight. What do you do now? Good question, indeed. And it’s a tough one too, so there is really no right general answer. Your trading plan, which you should have prepared before you even started trading, should answer this.

But let’s ask an easier question and one that is related to the problem at hand. Namely, is it possible to tell how risky individual stocks are so that we could avoid situations like that in future. Certainly, not too many people enjoy waking up to a disaster like that.

In other words, we would like to know if there are some measures of risk for the stock market. Yes, there are and one such a measure is called the beta or the beta coefficent.

What this coefficient measures is the stock volatility. It measures it relative to a broader market, which has the beta of one. A stock whose beta is one is about as volatile as the general market. Stocks with their betas lower than one are less volatile and those with betas higher than one are more volatile than the general market. The beta is not constrained from the above, in principle, so there are stocks with betas as high as 3 or 4. And even higher. Many stocks like that are penny stocks, which is one reason why penny stocks should be avoided.

Now, the more volatile a stock is, the more risky it is to your portfolio. On the other hand, if you only swing trade or day trade, you want stocks like that as they move more rapidly and generate faster gains. Or losses, depending on your luck.

To be more precise, the beta measures the correlation with the broader market. For this reason, this coefficient can be even negative for stocks that are negatively correlated with the general market, meaning they rise when the market heads south or vice versa. This, for instance, is often true of gold stocks. And since beta is not constrained from the below either, some highly volatile gold stocks can have pretty negative betas.

If you want your portfolio to be immune to excessive volatility, you should look for stocks with betas of one or lower. There are plenty of those out there too. The stocks of companies that produce staples tend to have lower betas. For instance, Procter&Gamble can serve as a classic example. They make soap. And last time I checked, there was really nothing exciting about soap, which is why the stock of a company like that is unlikely to generate much volatility. Another example is provided by utility stocks. Just like soap, energy is needed by everyone and all the time, meaning the stocks of companies that deliver those have little tendency to be cyclical and hence less tendency to fluctuate wildly.

Now, how do we find betas? That’s another good question. One way to do this is to use a stock screener, such as the one you can find at Yahoo! Finance or similar larger finance related sites.

Remember, though, that there are really no risk free stocks. Just some are less risky than others.

By: Waldemar Puszkarz

Learn Currency Trading – How Did These Traders Make Millions After Two Weeks Training

admin — Tue, 08 Jun 2010 15:11:50 +0000

If you want to learn currency trading and what it takes to win then you should make this story part of your essential for ex trading education. In just 14 days ordinary people with no experience learned to trade and make hundreds of millions of dollars. How did they do it?

In the nineteen eighties trading legend Richard Dennis decided to prove that anyone could learn to trade, with the right forex trading system and mindset.

He therefore gathered a group of people together who had no trading experience, who were of all ages, both sexes and of all educational standards. The group was diverse consisting of a security guard, to an actor.

He then taught them to trade forex and after 14 days gave them trading accounts.

This group made $100 million dollars in 4 years and went on to become legends.

So how did they do it -after all 95% of traders lose what made them different?

Dennis knew that the problem with traders is not so much method but mindset – they simply cannot stick to a plan and keep going when they incur losses. So although he taught them a simple method, he didn’t tell them blindly to follow it, he taught them to learn it and have confidence in it.

You cannot have discipline without confidence.

Even when your confident, its hard to keep trading when the market hands you loss after loss and makes you look a fool.

It’s a fact that anyone can learn to trade yet, few succeed and the reason is they either get the wrong information or simply cannot stay disciplined.

Most traders are simply unprepared for the fact that they must execute rules and stay on course when they lose trade after trade and don’t believe all the rubbish you read online, about regular income and 90% accuracy – that’s not the real world.

You can win at forex trading but you must be able to take losses to win longer term.

Most traders simply don’t have the discipline to do this.

We don’t have time to explain all the aspects of trading discipline here but it’s hard to achieve but that’s why traders who can trade with discipline are so successful – Dennis proved it.

The forex trading system used was simple ( essentially a long term breakout strategy) but it was the mindset he taught the traders – to stand on their own two feet, be confident and take short term losses, to seek longer term gains which was so important.

If you can learn a simple forex trading strategy, get confidence in it and apply it with discipline, you can win.

Sure its not easy, but you wouldn’t expect it to be with the rewards on offer.

So if you want to learn currency trading the right way get a simple forex trading strategy and focus on your discipline and remember if you can’t trade a system with discipline you don’t have one!

There are big rewards to be made but your on your own and must have courage, confidence and conviction in what your doing – do that and you can enjoy spectacular currency trading success.

By: Monica Hendrix

Trading Strategy – Give Your Stop Orders Room To "Wiggle"

admin — Fri, 21 May 2010 08:01:03 +0000

A simple stop order is an order to buy or sell stock, once a predetermined price is traded at or through. Buy stop orders are placed above the current price of the stock and sell stop orders are placed below the current price of the stock. Once the stop price is hit the buy or sell action becomes a market order, enabling the trade to be executed at the current market price.

There are as many ways to determine the position of your stop orders as there are traders in the marketplace. Most stop orders are placed according to a specific price, dollar move or percentage move, with 8% being one of the most common.

When placing a stop order it is important that the order be placed close enough to the current price to prevent a loss but far enough away to stay out of the stocks current range. The goal of the stop order is to prevent losses during major market swings, not to keep pulling you out of your trading strategy on simple trading range swings.

A good rule of thumb to remember is to place your sell stop orders below current support levels so that you will have multiple levels of protection in place. When buying, you will want to place your buy stop orders above current resistance levels so that the stop is only activated if the stock is making a strong upward move.

Placing your stop orders will require a certain amount of study of the stocks current trading range. Exactly where to place your stop orders will mostly be a matter of personal choice, based on your current analysis of the stocks trading range.

Stop orders should be an integral part of every trading strategy. When used correctly the sell stop order can be a useful and powerful protection tool when profit is involved. It can also be used to safeguard your positions in the event of a strong price reversal of your position.

By: Jimmy Slagle

Trading Emini Futures – The Failure to Cut Losses Short Revisited

admin — Sun, 09 May 2010 16:52:29 +0000

Emini futures, or simply eminis, are smaller-sized contracts of “full-grown” futures contracts that have been around for decades. Unlike the latter that have been traded on physical exchanges, eminis have always been traded electronically, allowing retail traders with access to the Internet to compete against institutional traders from the comfort of their homes or home based offices.

Futures offer much greater leverage than stocks or bonds, and practically only trading currencies on the Forex can provide even better leverage. While this leverage can be also very risky in the hands of unskilled traders, this somehow has not prevented wannabe traders from flocking to emini futures or Forex.

Trading eminis is not easy, although it can be mastered given enough time and dedication. The basic trading rules apply here just as in trading stocks or bonds, but due to this enormous leverage following these rules is even more important than in stocks or else it’s very easy to end up blowing one’s trading account in no time.

One of such rules insists that you “let your profits run”. Another urges you to “cut your losses short.” Both make a lot of sense and when combined, they give rise to much more intelligent trading.

Let us discuss the latter here as it seems to be of even more importance than the former. This is so because ignoring this rule is a sure path to ending up with a totally depleted account relatively quickly when trading emini futures.

Yet, this rule is often violated despite the grave consequences that doing so entails. Why is it so, one can wonder. Let us address this issue here as that is not always done in an exhaustive, comprehensive manner.

There is no doubt that trader’s ego is involved in this process. Most humans, traders being no exception, do not like to admit that they have made a mistake, so they would rather wait for things to somehow get worked out in their favor while they adjust their stop-loss and keep going deeper into the red zone. This is often no more than wishful thinking that masquerades as eternal hope. Yes, it is true that to be a good trader one has to be an optimist, but one also has to be a realist and being self-disciplined. Violating basic rules of trading is hardly a sign of solid self-discipline.

But there is also another reason why overriding this rule often takes place. At the core here seems to be the lack of confidence in one’s trading methods. This is what also can make the trader to hold to his losing position because he does not believe that he will be able to get a better trading opportunity. Had he believed a much better opportunity is likely to present itself while he is stuck with his loser, he would have cut it much faster.

The moral from the last observation is this: if you are considering trading emini futures or any other market, for that matter, you want to make sure you have a good solid strategy that you trust as this can only help you to cut your losses short.

By: Waldemar Puszkarz

Forex Trading Made Easy – A 3 Step Simple to Follow Plan For Big Profits in 30 Minutes a Day!

admin — Wed, 05 May 2010 19:27:19 +0000

Here we will discuss the subject of Forex trading made easy and despite the fact that over 90% of traders lose money, it’s a known fact that Forex trading is a learned skill and in this article, we will show you how to get the right mindset and education, to enjoy big profits in 30 minutes a day.

Lets go to the first step to success which should be obvious but most traders don’t understand it and lose money – here it is:

1. Accept Responsibility for Your Actions

Most traders don’t and they think they will get rich quick by buying a Forex robot for a hundred dollars or so and making no effort. These systems are laughable in their claims of easy money and anyone who tries them soon gets wiped out. If only making an income for life was as easy as paying a hundred dollars and making no effort. Accept you have to work and now for some good news…

2. Get a Simple Robust Strategy

Forex trading is simple and simple, robust systems work best. If you make a strategy too complicated, it simply has to many parameters to break. Many people think there is some holy grail system and constantly look for it – but there isn’t one so don’t bother looking. Get a simple strategy and you will do just fine and you should be able to learn a system which can make you great profits in around two weeks.

Learning a system which can make money is easy but you have to adopt the mindset to make it work lets take a look at why and how you can get the mindset of a winner.

3. Staying on Course with Your System

When you trade, you will have losing periods, all traders do and it’s the way you deal with these losses which is the key to making money in Forex. Let them run and hope they turn around and you will lose, cut them quickly and you can preserve your equity, until you hit profits again. When you trade Forex, you need to keep your emotions out and follow your system with discipline.

Be a Winner…

Simply understand the three points above and you can enjoy currency trading success. If you do understand them, you can see how you can win and make great profits, when the vast majority of traders lose – good luck and good trading!

By: Kelly Price

Penny Stock Trading Investment

admin — Wed, 05 May 2010 08:48:50 +0000

Penny stock Trading investment involves trading in low priced stocks that have a high return. One scans through the listed traders in the market and identifies the companies that have stocks that are showing the prospects of upward movement. One then identifies them by studying their performance in the stock market and from the trends they display points out where he is going to invest.

In order to make the best judgment on the stocks to invest in, one needs to take time to study the trend of the particular stock company. This gives one a clear picture of the most likely company to make an upward move to avoid investing in a company only for it’s shares to go down. This would not work for the penny stock trading investment.

In order to make the prediction and trading quick and more accurate, Michael and Carl came up with a computer program which they called Marl. This program analyses the history of trade of a particular company, and in the process is able to make reliable predictions on the possibility of upward surge. The program run on a computer will be very fast, analyzing about 17,000 companies a day. The more it is allowed to run through one company the better for it and the trade on the company, since it will be more accurate in its judgment.

Penny stock trading investments has been known to give a lot of profit. Since the prices for the stocks are low, it makes investing in the penny stocks easy. It does not require a lot of capital to start the investment. However since one invests in a large number of shares, one is bound to make a quick kill when the prices change by a fraction. At the same time, when the prices go down they do not make a big dive. It therefore cushions the investor on losses and maximizes on the profits.

Penny stock trading investment by use of the Marl program will even alert you when a better option appears before you have settled on the chosen one. It is constantly on alert to identify the company with the most favorable trading pattern. It scans through all the companies trading and from that it creates a “To Watch List’ of the companies displaying the most excellent progress. This helps the program to narrow down on the companies it will forward to the investor to invest in.

Since the program developed by Michael and Carl has been very revolutionary and profitable, the inventors have placed a high price on its license. To show the commitment of the two to providing the best to the people who acquire it, they have offered to tutor anyone who purchases it for free in their own apartment.

For those who can not afford the high fee charged on the license, they can opt for a newspaper that gives details regularly. Using the computer, though, is about ten times more efficient than the newspaper.

By: Gilbert Stockton

Forex: Money Management Principles

admin — Sun, 02 May 2010 20:35:25 +0000

Trade With Sufficient Captial

One of the worst blunders that forex traders can make is attempting to trade without sufficient capital.

The trader with limited capital not only will be a worried trader, always looking to minimize losses beyond the point of realistic trading, but he will also frequently be taken out of the trading game before he can realize any sense of success trading the method(s) or patterns.

Exercise Discipline

Discipline is probably one of the most overused words in forex trading education. However, despite the cliché, discipline continues to be the most important behaviour one can master to become a profitable trader. Discipline is the ability to plan your work and work your plan.

It’s the ability to give your trade the time to develop without hastily taking yourself out of the market simply because you are uncomfortable with risk. Discipline is also the ability to continue to trade the methods and patterns even after you’ve suffered losses. Do your best to cultivate the degree of discipline required to be a world-class trader.

Employ Risk-to-Reward Ratios

The following shows you possible risk-to reward ratios, and the win ratios required to break even in a trading system.

Risk-to-Reward Ratio (in pips)and Win Ratio Required to Break Even(%)

40/20 (2 to 1) = 67%, 40/40 (1 to1) = 50%, 40/60 (1 to 1.5) = 40%,

40/80 (1 to 2) = 33.5%,

60/20 (3 to 1) = 75%,

60/60 (1 to 1) = 50%,

60 /90 (1 to 1.5) = 40%,

60/120 (1 to 2) = 33.5%

Important Note

Never risk more pips on a trade then you plan to make. It doesn’t make sense to risk 100 pips in order to make only 10. Why? See below example.

Profit taking level (pips): 10

Stop used or pips at risk: 100

You win 10 times which makes 100 winning pips.
You ONLY lose once and have to give back all profits!!!

This type of trading makes no sense and you will lose on the long term guaranteed!

By: Toby Smitz

FX Trading Strategy – To Win it Must Contain These 3 Vital Elements

admin — Tue, 13 Apr 2010 15:27:56 +0000

If you want to win with your FX trading strategy make sure it contains these key elements otherwise you will be doomed and join the 95% of losing traders.

1. It must be Your Strategy!

Don’t fall for the hype that some junk robot will give you success or a guru or mentor there are plenty sold online with huge profits in simulation but they don’t work – no one gives you something for nothing and forex trading is no different.

Even if you have got the forex education from someone else, you must understand it and have confidence in it so you can follow it with discipline – discipline is the key, you must be able to ride out losing periods and wait until you hit a home run.

If you don’t have confidence you will never be able to do this make sure you have it.

2. You Must Understand Your Edge

Your trading edge is the reason you will win when 95% of other traders lose and you must have confidence and understand what it is and it must be based on sound logic.

Many people think they have an FX strategy based on sound logic and do the following and lose.

- They try and predict market prices

- They follow bogus scientific theories

- They trade news stories

- They day trade and try and scalp

- They follow experts

All the above will see you lose if you don’t know why, continue your forex trading education until you do.

Your trading edge is something that is personal to you and can be based on a simple forex trading strategy you can execute with discipline – that’s enough, remember simple systems executed with rigorous discipline work!

3. Play Defence First

When you are trading on leverage you need to trade great defence first and always protect what you have this means rigorous money management rules and money management is much more than placing a stop!

If you don’t keep your losses small you will get wiped out – sounds obvious?

Well most traders don’t heed it and use leverage of 200 or 300:1 on a few hundred bucks, 10 or 20 is enough.

Forex trading can make you a lot of money but if you expect not to have to work your in for a rude awakening.

Do your homework, get confident and make sure you have the discipline to stick with your FX trading strategy and follow it through drawdown periods, to long term success and the rewards if you can do this are huge.

By: Kelly Price

Learn About Commodity Trading

admin — Fri, 02 Apr 2010 03:29:16 +0000

Have you ever heard investors mention speculating in futures of the commodity market and wondered what it they are talking about? While most of us are familiar with investing in stocks, commodities can be an interesting way to have your money make money for you.

But first, you might ask what is a commodity? commodities are goods we are each one portion is the same as the other. For examplee, oil is a commodity because one barrel of oil is the same as the next. Wheat is also a commodity each bushel of wheat is identical to every other bushel of wheat and anyone purchasing them could care less whether they get bushel number one or bushel number two. Gold is another example of a commodity. 1 ounce of gold is the same as the next.

There are some differences in some commodities to external forces such as shipping costs or differences in composition. For example, not all oil sells for the same cost because they may come from different sources were shipping is a consideration. Also they may trade on different markets where the pricing is different.

There are two ways that commodities are traded, in spot markets, or as futures.

Spot markets, refer to trades that take place literally on the spot. The commodity is traded right then and there, usually for cash but also could be for some other product or good. For example, if you want to buy an ounce of silver, you can go right down to the jeweler give him some cash and it will give you so. This is spot trading.

Of course, spot trading can be done in larger volume as well. Some traders exchange millions of ounces of silver or thousands of barrels of oil and then sometime later the actual goods are delivered.

When traders talk about futures or options it is not the actual good that is traded for rather a contract to buy or sell that particular commodity for a particular price a certain date in the future. This is how most commodities trading is done. This type of trading can have huge profits and also huge losses as it involves speculating on the future which can be full of risk and uncertainty.

this type of trading has been around in its present form since the late 18th century . Around this time farming became more modernized which allowed commodity trading to be profitable. Although this is an age-old way of making money, the basics remain the same today as they were in the late 1700‘s.

For example, wheat takes many months to grow. So at the beginning of the planning, the market price when the wheat is ready and speculated on. So if a farmer plants meet in May which will be delivered in September, the price at that time may be four dollars a bushel. If in June the price begins to fall, and the farmer feels the price will continue following, he may offer a contract on this week for the current price (lower than $4.00). Now if someone thinks that the price will go up over four dollars, then this contract will look like a pretty good deal and they may take them up on it.

Since no one knows for sure what that price will be, an actual prices based on such unpredictable things such as weather, this whole process Is called speculation. so now when September rolls around, the farmer delivers his wheat for the agreed on price. Now if the price has actually gone up to over four dollars and the speculator has made a profit. But, if in fact, it is fallen to wander the agreed-upon price he has lost money.

So there you have it, the basics of commodity trading.

By: Lee Dobbins

Forex Trading Made Easy – A Lesson From a Group of Super Traders For Big Forex Profits!

admin — Thu, 01 Apr 2010 23:58:21 +0000

95% of all traders lose money and that’s a fact but Forex trading made easy is possible and to show you how you can win, I am going to tell you about a group of traders who learned to trade in two weeks and enjoyed stunning trading success…

Richard Dennis was a well known trader who wanted to prove anyone could win at Forex trading, so he set up a test and the test was simple. He set out to get a group of people who knew nothing about trading and taught them to trade in two weeks. He completed his test and his pupils went on to make several hundred million dollars in just 4 years – he had proved that anyone could win with the right guidance.

Before you say, these people must have been college educated or nerds, they were the exact opposite, just ordinary people a security guard, an actor, a boy just out of high school and an actor, to name just a few of the group.

So why did they do so well when most traders fail? Lets take a look in more detail and see how they achieved success.

The strategy itself was simple, it traded long term trends and did so, by entering trading signals via breakouts which all experienced traders know, is a timeless way to make money. The system had far more losing trades than winners and actually had losing periods that lasted months but long term, it did triple digit annual gains.

The key to the systems success was its simplicity which made it very robust and the fact it had strict money management rules which cut lossers quickly and ran profits. Dennis knew the system was easy to understand but the traders would all have problems following it with discipline and this is true for most traders. Most traders simply can’t take losses or stay on track, through losing periods and here Dennis focused on giving them the right mindset to succeed.

Having the right mindset is a choice – if you want to feel smart and clever and win all the time trading is not for you – but if you can accept losses cheerfully, keep them small and stay on course you can win, as the group showed.

Now you may not become as rich as this group of traders, life is simply not like that – but there is nothing to stop you winning as trading success can be specifically learned. Getting the right education is easy but getting the right mindset is harder however you can do it and you can make a lot of money as the experiment we have just looked at proved.

By: Kelly Price