Trading education » Stock Market

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

Trading Stocks -Never Forget About A Past Trade

admin — Wed, 16 Jun 2010 02:41:32 +0000

We all know that emotions control every decision that an investor makes in any type of money related vehicle. Whether is be the stock market, real estate, art work or antiques, emotions ultimately set the final price on both sides of the transaction. Some investors have greater control over their emotions while other investors are destroyed by their emotional reactions to certain events.

One common occurrence that I have seen many investors make, including myself, is placing a position in a stock at the wrong time. My last article detailed the importance of timing, while this article will concentrate on the importance of staying focused and emotionally stable when things don’t work out as expected. In the past, I would study a stock’s chart, the fundamentals, the general market health and everything else that I felt necessary before placing a large sum of cash behind my beliefs. When things went wrong and I was forced to sell for a small loss, I would drop the stock from my watch lists and remove it from my memory. This was one of the biggest mistakes that I was making during my earlier years of investing. The greatest investors study their mistakes and learn why they were wrong. If you don’t learn from your mistakes, you will continue to repeat them and never move to the next level.

I was usually correct with my analysis on the particular stock but many times I was too early with my entry point during a new up-trend. Months later, I would come across the same stock in my screens but it was now up 25%, 50% or more from my initial buy point and stop loss. I would be frustrated for selling my stock too soon and was getting tired of using rules and missing big winners that I sold for a loss. I knew money could be made in Wall Street by using the law of averages to my advantage and employing strong money management skills but I needed to employ the rules more consistently. I started to practice what I was taught by selling my losers quickly and allowing my stronger stocks to ride their trends. Over time, I was experiencing a few more losers than winners but my stake was growing because these losers were smaller in size than the winners. The words written in the books were true; Jesse Livermore, Gerald Loeb and William O’Neil were all accurate with their lessons about cutting losses quickly.

More importantly, I learned to keep strong stocks on my radar even if I bought too soon and was forced to sell for a loss. My timing was wrong and my ego was shot because I was wrong, so I typically decided to stay away from that specific stock because it had already taken my cash and my pride. Emotionally, I was burned by the stock even though this was not entirely true. Investing is a game of trial and error. It is okay to buy a stock at the wrong time and sell, only to buy it again because they timing may be better. If you cut the losses small and allow winners to grow, the averages will ALWAYS work out, I promise. You must be honest with yourself to allow the averages to work out. You cannot allow a stock to drop past your sell point and you must try to always hold the strongest stocks without selling them during a premature pullback. This all sounds so easy but it is not! If it was so easy, we would all be extremely rich and the stock market would be everyone’s full time job.

I kept using my system of trial and error and started to record every thought and transaction I made. With my revised philosophy in place; I continued to study the stocks that I was forced to sell and tried my best to re-purchase, even at higher prices than my original position if the time was right. Even now I have these issues, the greatest traders of all time always had these issues and every fund manager must decide if the time is right. My latest example, which can relate to almost everyone in the community is Paincare Holdings, a stock that was purchased solely as a “test buy” that I was forced to sell. If things turn around and the general market starts to rally, I would have no problem buying the stock at a higher price than my original position if the opportunity presents itself.

LaBarge is another example, first showing up on the screens at $9.35 but during a down-trending market. The new pivot point and buy area was $14, over 50% higher than the original price but a solid entry point regardless of past gains or prices. Mentally it is always the toughest to buy a stock at a higher price than you were watching it at an earlier date but it can be the most rewarding strategy. Never look at a chart and toss away a candidate because it has moved up 50% or even doubled in recent months, the real move may just be beginning.

The moral of this article is to make you understand that timing may be your only issue when buying stocks so never throw away a possible superstar because you bought too soon. Keep it on your watch list and be prepared to initiate another position, even if it will cost you an extra point or two. If you buy again and it doesn’t work out, re-peat the process, there is always a chance that the stock was not meant to be or your analysis was slightly faulty. In either case, learn what you are doing right and wrong so you can be prepared to use those lessons with the next stock.

By: Chris Perruna

Best Online Stock Trading

admin — Fri, 11 Jun 2010 01:25:04 +0000

When you go for best online stock trading then you should have a good knowledge about the stocks and the market. You have seen many people who earn a lot of money by investing in shares and stocks. They have a good knowledge about the current market situations and they know the right time when to invest in shares.

Life is full of ups and downs. There are people who have gone through a lot of hardships in life. It is not that people always get higher returns by investing in shares and stocks. You should be very careful in every step you take because one wrong decision can make you go bankrupt. So you should always go for best online stock trading.

When you wish to trade online, it is always better to consult someone who has a good knowledge of the market. There are stock brokers who can help you and also advise you in investing wisely. But you must be very careful when you chose your broker because there are many brokers who claim themselves to be an expert in the field but by the end you are bankrupt and you do not have any other way to get the money back.

Another important thing that you need to know when you go for best online stock trading is that you should be sure that the site you are visiting is a secured one. Nowadays there are lots of unsecured sites, which also provide you with the wrong information on stock trading companies. So, you should be very careful when you go for stocks and shares. There are people who think that investing in stocks help them in multiplying their money. But this concept is wrong. The main important thing is that you need to have a good knowledge of the stock market.

So, if you are really looking for some investments then you should consult a good broker or you can even consult your good friend who is a regular investor in a stock market.He or she can guide you in the right direction and you can get some idea about the market.

If you are looking to invest in online stock trading then you should go for websites that deal with stocks. Do not get mislead by the words of the people that you always get good returns by investing in stocks. Online trading has become very popular these days. It offers some sort of online service. You can choose your stocks online.

Internet stock trading has proved very useful for investors who can have all the latest updates on the market. So it has become very popular in today’s life. You can use the internet to invest online. So, make sure that you get all the knowledge of the stock market.

By: Amit Malhotra

Emini Trading – Basic Introduction to Day Trading Emini Futures

admin — Fri, 21 May 2010 20:31:42 +0000

Have you ever thought about day trading for a living? I am sure you must have at least heard about it, right? Yes, there are people doing it for a living, some making big bucks in the process, others losing their shirts, trophy wives, and mortgages. Not necessarily in this order. And I am quite positive that you would rather be in the former category.

I have been contacted by more than just a few folks who wanted to know what it was like to be a day trader once they had somehow found out through my relatives or friends that that’s what I had been doing for a living for a few good years. I don’t blame them for this curiosity. Everyone once in a while wants to improve his or her life and day trading can be a very alluring way to do it. And quite lucrative too, if you know how to make it work for you, which is not always so easy as most people actually never succeed at this business. But then again, most businesses fail routinely, and most people never succeed at anything big, so these challenging circumstances should not necessarily discourage you from giving it a try.

Now, when thinking about day trading, most people think this has something to do with the stock market. Yes, that is correct, but that’s not the only way to approach it. In fact, this could be put day trading out of the reach of the majority of folks, for to embark on day trading stocks you would need to come up with at least 25,000 US dollars to be deposited with your broker.

It turns out that there is an easier way to do this. And a simpler one, too, for you don’t have to be interested in the whole universe of stocks, but just in a single trading instrument. It has to do with trading emini futures rather than stocks and to do this no more than $3,000 is necessary if you are just starting. In fact, with some brokers, you may never need to deposit more and still be able to make $100 to $200 a day, if you are really good at it. More money is better though, making it safer to start and keep trading and easier to make more money as you simply have more to trade with.

Emini futures, or eminis for short, are traded in contracts. One contract is just like one share when it comes to trading stocks, that is, it is the smallest unit you can trade. There are many eminis currently available for trading, literally dozen or more, but some are more popular than others. The most popular is the S&P 500 emini contract, known under its symbol, or ticker, as ES. Another one is YM, the the Dow Jones Industrial Average (DJIA) emini futures contract.

In what follows, I will focus on this contract as it is more suitable for beginners, in my opinion.

The moves in this contract mirror the moves in the DJIA index, sometimes being ahead of it, sometimes being behind it. One point is the smallest amount the Dow emini futures can move and this move can make you 5 dollars. Usually, one targets more than 1 point, 5-10 pt targets being among the most popular targets for quick scalps. If you happen to make a 10 pt trade, you profit 50 dollars minus the commission that can be as low as $5 or even less for a round turn with many a broker out there, although some may charge more than that. I would avoid them, though.

Now, imagine that you are lucky enough to make only 5 trades like that. That would give you about $225 after commissions, which would amount to a nice monthly paycheck if you were good enough to keep repeating this day after day.

Yes, it is possible to do this. How? Well, that would be the subject of another article.

By: Waldemar Puszkarz

Learning Forex Currency Trading For Beginners

admin — Fri, 21 May 2010 10:32:59 +0000

The Forex foreign exchange market is the largest market in the world. The foreign exchange market, open 24 hours a day 5 days a week, is participated in by nearly every country in the world. Individual investors to massive corporations take part in this exchange market, trading currencies to purchase goods from one country to another or to make profit. However, in order to succeed, a beginner must learn online currency Forex trading. The ins and outs of the system need to be understood to make a profit.

The Forex market is deceptively complicated. The simple concept of buy low and sell high can become very complex. It’s easy for a beginner to get overwhelmed by the large amounts of online currency Forex trading information available, not all of which is viable. Those that take the time to learn the trends and secrets of the system have the potential to reap large rewards. Those willing to actively participate in the market will financially benefit substantially.

Why participate in and learn online currency Forex trading? There are a large number of reasons. Perhaps the most appealing aspect of the Forex market is its ease of use and accessibility. Unlike other markets, such as the stock market, online Forex currency trading is open 24 hours a day, 5 days a week. Since Forex is a worldwide trading system that has no center of operation, it never closes during the business days. With the widespread use of the internet, trading currency online has only made trading more direct. Today’s Forex software makes online currency trading more streamlined and self-sufficient.

Another huge advantage to online foreign currency trading is the absence of commissions and taxes. There are no middle men to pay. Profits are yours and yours alone. Since Forex is a worldwide system, governments can’t put a tax on your earnings. Every single profit made is yours to keep. There is never a lack of somebody to trade with, either.

Forex works by exchanging currency on large margins. Foreign currency trading has a larger margin than almost any other investment medium. For example, the stock market has a 1:1 margin. In the stock market, if you owned $1000 worth of stock, you have $1000 worth of purchasing power. Margins in Forex are much larger, closer to 100:1 ratio, or $100,000 for every $1000 invested. This large margin means start-up costs in the foreign exchange market are much lower than other forms of investment. Some have been able to start with as little as $100. This amount of leverage makes the potential for profit huge.

On the flip side, potential for loss in online currency trading is quite high. That is why an investor must actively participate in Forex. Unlike mutual funds, the market is volatile and can dramatically change in a matter of minutes. Financial disaster can be avoided with proper training and understanding of the market.

One who takes the time to learn online currency Forex trading is in great position to earn large profits. This volatile, thrilling market will never leave an investor without something to do or something to study. Don’t wait! Get involved in online Forex currency trading. Do your homework and get started! Profits are waiting to be made.

By: Peter Flemming

Trading Stocks Online – The Value of a Trading Plan

admin — Thu, 20 May 2010 22:05:00 +0000

I started trading stocks online about 10 years ago and then in 2004 took some classes on trading options and moved into trading options online fulltime 2005. It was during this period that I learned the value of a trading plan. Most of you probably already have a mental plan but how many of you have actually written down? If you have a plan, how many of you are actually following it?

What Is A Trading Plan?

This is a document describing the methods you will develop and use to become a successful trader. It describes in detail how you will proceed to successfully execute your plan. Once your plan has been developed, trade according to the plan you developed. Create a Plan, Plan to Trade, Trade to the Plan.

Why Do I Need A Trading Plan?

“Every successful Professional Trader has a successful trading plan. Without one, you will lose before you even get started. You’ve heard the horror stories of beginning traders getting wiped out soon after making the move to trade professionally. In fact, only about 10% of those who start day trading the stock market are still around after three months.” Taken from “Trading Every Day with the right focus”

What Do I Include In A Trading Plan?

Here is the information that I put in my plans:

• Mission statement
• Goals that I want to reach (needs updated periodically)
• Rewards — How am I going to reward myself when the goals have been reached
• My trading styles
• My trading strategies
• My risk tolerance — How much am I going to place on a place? How much of my portfolio am I going to risk with all my trades?
• Emergency contacts — You should have at least have your brokers phone numbers here
• Anything else that you deem important

Where Can I Get Examples Of A Trading Plan

There are many examples of these plans on the web. Just search for them. There are also some trading planners for sale. Here you enter your plan information and they prepare the plan for you. I have looked at some of them, but not purchased. From appearances they looked OK but I felt I could just create my own using Word.

If you don’t have a plan you should start preparing one as it will help you in organizing your trading habits. One of the key ingredients of a trading plan is discipline. To make a plan work for you, you must have the discipline to follow it.

By: Chuck Ainsworth

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

Commoditiy Trading – Financial Indexes

admin — Sun, 11 Apr 2010 07:58:27 +0000

Although it might not stand to commonsense, stocks and bonds can indeed be traded as commodities. Especially if you’re novice investor, you probably don’t see that the statistical measurements of changes in price are similar to those of gold, wheat or oil. However, these trade in the form of futures and options contracts; this is because stocks and bonds, and the indexes that measure price changes, trade within the form of futures and options contracts. Therefore, they can be traded just as other commodities are.

Oil is still the most traded physical commodity. It is the largest of all contracts traded in the financial futures market today. One of the most popular of these is the contract for the Standard & Poor’s 500 Index, or the S&P 500.

The S&P 500 is the gold standard of indexes. Therefore, it gives traders a broad view all the entire stock market. The companies listed within the S&P 500 represent 80% of the entire market capitalization. The top 40 stocks in the S&P 500 represent 50% of the total market.

This means that traders can be confident that there will be no problems with liquidity, as can sometimes happen within other commodities.

In general, this also means that risk is easier to assess. The tools used to predict the S&P 500 are more reliable than others; this is because stock prices are generally easier to predict that commodities prices. The S&P 500 stocks included therein also have offered the highest return over a 30-year period, historically, when compared to other types of investment. Generally, return has been around 12%, depending on the range selected.

Stock prices can most certainly be volatile. There have been a few large single day price drops. However, by design, indexes typically move less and not as rapidly as other prices do. When one uses of broad-based index, this “smooths out” the fluctuations of individual stocks, so that it’s easier to see an assess the direction of the market in its entirety.

Kept this is beneficial because along with reduced risk and better predictability, traders have the same advantages they find when they use futures and options as trading vehicles. Margin percentages generally run in the 5 to 7% range, so that high leverage is still available. This makes it comparable to other commodities futures and options contracts.

Commodities trading is typically oriented to the short-term; here, day trading the typical set up. However, with index trading, investors can use those sharp swings to their advantage; even so, they can still have a long-term view of the horizon, just as they would if they were doing stock investing.

One common trading strategy is called the rollover. With rollover, traders can take a long position on a futures contract. As the expiration nears, they can transfer their position to another contract; the new contract as an expiration date that is beyond the one in their current contract.

By using this type of “spread” strategy, traders can take advantage of price differentials and low commissions even as they exert control over the liquidation date. The trade is executed when traders predict that prices will soon move in the preferred direction, meaning just beyond the expiration date.

S&P Index futures are traded on the Chicago Mercantile Exchange, or CME. There’s also an S&P 500 “E-mini” contract available; a set of contract carries a much smaller commitment, with a size that is one fifth of the standard contract. The trade unit is $50 times the S&P 500 index. The trade unit for the standard contract is $250 times the S&P 500. In addition, everything is traded electronically, with no open outcry or pit trading. This means that trading hours have been extended from those typically limited to the hours of the stock exchange to a 24-hour trading day.

The CME web site, at http://www.cme.com, has more information, including contract specifics and current prices.

By: Amar Mahallati

Highly Successful Forex Trading Systems

admin — Sun, 28 Mar 2010 18:32:25 +0000

Forex trading systems are key to turning a profit in the foreign exchange market. Forex trading systems are strategies used to determine how the market will treat a currency. They are formed around companies and investors from around the world, and most are systems that are tried and true. Some systems are strictly about exchanging one currency for another, while others exchange currency as well as invest in stock from around the world. Following a trading system is a wise way to break into forex trading.

While a forex investor will be able to create their own forex trading systems as they learn about trading through book study, courses, workshops, and personal experience, most begin their investing following a mechanical system devised by an experienced forex trader. These mechanical systems are built around forex signals that a successful trader has come to recognize. Many of these professional forex trading systems are built into automated computer programs that will indicate to a trader when it is wise to sell or purchase a currency. Experienced traders will sell these systems to beginning forex traders so that they too can make a profit with forex.

Automated forex trading systems are popular because they are known to help beginners earn money while simultaneously teaching them how the market works. The systems, based on how stock exchange works, are constructed around the actions of global investors, companies, and currencies. They are reactive, judging how stocks and currencies will grow or shrink when they act a certain way. Though it isn’t always certain, systems assume that when a commodity does a particular action, it will follow trends other commodities have done in the past. The stock market calls traders who rely on these trends momentum players. Momentum players rely on their systems to always be true, otherwise they will face a financial loss. Be wary of fully automated forex trading systems. Though they offer a way to get into forex, the course of the forex market can’t be accurately predicted by a computer program. Your own intuition and insight are necessary to make worthwhile trades.

Automated forex trading systems are not the only type of trading systems available. There are also discretionary systems available. These systems allow more freedom. Though they show signals of when to buy and sell stocks and currencies, they allow personal judgment, intuition, and experience to play a more dominant role in trading than automated forex trading systems do.

As stated above, there are traders that will give or sell their forex trading systems to beginning traders as they learn the market for themselves. New investors can pick apart systems to discover why they work. It helps quicken the understanding of the forex market. In time, a successful investor will be able to create their own systems in hopes of gaining even larger profits.

By: Peter Flemming

Stock Trading Software

admin — Fri, 26 Mar 2010 17:45:04 +0000

When it comes to stock trading software, there are many programs to choose from. Whether you are a professional trader or a trader with few skills, there are certain things you should look for in your stock trading software depending on where you want to trade.

The Forex stock trading software is made to let you work your way through the Forex market. The Forex or foreign exchange is the place to look for currencies worldwide. The different currencies are being exchanged daily with one another from small portions to large amounts. This is the world’s largest amount of transactions, as on a daily basis more than three trillion dollars are exchanged in this manner. When you decide to trade on Forex, you are allowing all of your investments to be changed from one currency to another currency. If the currency drops from bad economy, your investment is still safe because you can choose another stronger currency. Currency pairs are commonly used such as USD and Euro.

With this being said, Forex can be confusing if you do not know what you are doing with all the conversions and currencies. Finding a stock trading software that allows education and utilization of Forex is indeed something all traders should do. There are free stock trading software programs that offer technical analysis online, remember you are taking part in electronic trading and will be using the electronic automated stock exchange. So finding a software program that works well with real time updates is essential. Another crucial selling point you should look for in your stock trading software is a price to earnings ratio option. This is the most popular of stock analysis metrics, and is normally found in most high end software programs.

Financial stock trading software programs are used to complete analysis and comparison as well as charting of the stock market to help you make an informed decision. There are many high end stock trading software programs that can be downloaded for free on the internet that will help you to balance your portfolio as well as give analysis of different brokerages and other financial businesses. Most all programs will also offer you the opportunity to create and test investment strategies while setting your goals for income requirements. These options are important for those who are just starting out in the investment world, as well as those who are well seasoned traders so everyone can benefit from these points.

One common denominator between free and fee based stock trading software programs is that they all will help you adhere to the golden rule of trading: buy low and sell high. Many of these programs will have artificial intelligence built right in so that even when you are not looking, the software will alert you to stocks that go low and have the potential to rise again in the very near future. An automated helper right on your computer, looking out for your financial interests: what more could you ask for?

By: Stephen V Hill