Many stock newsletter services look good when you read their marketing literature, claims on their web sites, and print advertisements, especially when it comes to their performance claims. By knowing what to look for, you can keep from being disappointed. Below are 6 ways to tell if the stock newsletter you are investigating is more about marketing hype than actual stock market performance, and how confident the publisher REALLY is in what they are selling.
1. Prior Results One area to be concerned with is the period of time that an online stock newsletters performance claims covers. The historical results should cover years that have both bear and bull markets in them, as well as non-trending market periods, so you can examine how they profited in each type of scenario. Ideally, a stock newsletters performance outcome, whether only back tested or with real trading, should go back to at least the late 1990's. This will give you an idea of how the stock newsletter performs in raging bull and bear markets, as well as trend less markets. Clearly, the more track record data you can review, the better.
2. Do They Invest Their Own Money Into Their Newsletter's Stock Picks? Some online stock newsletter publishers invest in their stock picks with their own money, while others only publish paper traded model portfolios. Paper trading is the practice of using stock trade data based on a price that could have theoretically been received on a particular trading day (like a stock picks' opening or closing price), and using that price data to represent what a stock could have been bought or sold at. Two important problems with paper-traded portfolios are that they do not at all times take slippage and commissions into account. More to the point of trustworthiness - if an online stock newsletter publisher is not convinced enough to put their own cash into their recommendations, why should you be confident enough to invest your hard earned money into their recommendations?
3. Review Past Trades Stock picking newsletters are known for showing you pre-selected trade recommendations that outperformed the market in their marketing literature and on their web sites - you've undoubtedly seen many of these ads yourself. As an experienced investor, you know to look past this blatant marketing hype, and to look at their complete trading history. Any credible online stock newsletter should offer this data to prospective subscribers. Also, be sure that they don't only throw a bunch of individual trade data at you. They should offer that level of detail, as well as at least monthly tabulations of how ALL of their recommendations performed together in a portfolio (the way they would have you trade their recommendations). If they have multiple model portfolios, then each one should have performance data tabulated separately. One easy way to see if an online newsletter is more about marketing hype than real stock market trading performance is to see how easily you can obtain this data from them. They do have this data, and if it was at all compelling, it would be broadcasted all over their marketing material, website, and advertisements - not just a few trades that did well. Realistically, if they've spent a ton of money setting up expensive web sites, and sending out thousands of direct mail pieces, buying advertisements on the web, on TV, in magazines, etc., it would be pretty easy to include a table or a graph of how ALL of their recommendations have done since their system went live. If they refuse to give you this data, or give you a story about how the data is irrelevant because trade timing of subscribers is different than their own trade timing, it should set off warning bells - why won't they share it? (Probably because you wouldn't purchase their stock newsletter service if you saw the data).
4. Backtesting Results Many well-intentioned stock newsletter publishers begin as individual traders who have purchased historical stock data (fundamental and/or technical), and then created a trading system that works very well over this historical database. Then they go on to advertise the stock picks that their system generates via their stock investing newsletter. The issue with this is something called survivor bias, and the truly sad part about it is that the publisher of the service may not even recognize it exists in their system. So, how does survivor bias throw off systems that are based on historical back testing alone? Most stock market data providers sell a reasonably priced disk containing a decade or more worth of past stock data. Most of the time, the data on the disk is restricted to historical data on stocks that are presently traded. This means that stocks which are no longer traded are not in the database, only stocks that are surviving today are in the database. Why do some stocks no longer get traded? Some are acquired by other companies, some are taken private by shareholders, and many just go broke and go out of business. You can see how this impacts a back tested system - the results of the back testing do not take into account how the system would have dealt with companies that failed, they only take into account how they would have performed with stocks that were strong enough to survive until today. This may explain why so many stock newsletters get launched, and may have a brief record of outperforming the overall stock market, only to roll over and significantly underperform the stock market later on. If you are thinking about following a newsletter with great back tested results, MAKE SURE their data was not affected by survivor bias.
5. Risk Free Trials Many stock picking newsletters will give you a no cost trial period to try out their service. Take them up on this, so you can see if their trading method fits with yours. One problem with many stock newsletters is that they call for you to give them a credit card or some other form of upfront payment, before they will let you have your "free" trial. Many times they say you can give it a try for a month, and then they will begin billing you after that. This is more of a sales gimmick than a risk free trial, in that some percentage of people who sign up for the free trial and don't like the service will not remember to cancel their subscriptions, and will have their credit card billed (usually the publisher will give a pro-rated refund upon request). Once again, this gets back to the publishers belief in their product - if they are truly offering a value added service, they should not need your credit card information before you get to participate in their free trial. If it is a great value, you will buy it at the end of the trial period.
6. Timing of Performance Claims When it comes to evaluating stock newsletter claims, not only do you want the publisher making actual open market trades with their own money to substantiate their performance claims, you also want to identify when they made their trades relative to when you could have made your own trades on their recommendations. For example - an stock picking newsletter publisher recommends purchasing ABC stock, and communicates it to their subscribers through a website, email, fax, telephone hotline, snail mail, etc. Then, immediately after they've sent the recommendation to their followers, they go out and buy ABC stock in their online trading account. No issue there, right? WRONG! Depending on how they communicated with their subscribers, they could be buying ABC stock minutes, hours, or even days before their subscribers buy ABC stock. So here's the scenario - they purchase the stock prior to their subscribers, document the executed trade for their performance claims, and then their subscribers all pile into the stock and send the price up. When it comes time to sell, the publisher is also first in line to get out, just before their subscribers selling pushes the price of the stock down. Ideally, you want to find performance claims based on delayed entries and exits, so the publisher is in the market trading at the same time their subscribers could reasonably be trading the online stock picking services recommendations.
Tuesday, 31 August 2010
The Role of Brokers in Stock Trading
A stock broker is a middle man between the stock market and the stock trader. He facilitates the trades of the stock traders.
A peculiar feature of the stock market is that a trader can neither directly find the sellers if he wishes to buy a stock, nor buyers if he wishes to sell his stock. The whole process of buying and selling the stock takes place through offices of the stock brokers.
Broadly speaking, there are two types of stock brokers. They are full service stock brokers and discount stock brokers.
The full service stock brokers, as the name suggests, provide a complete range of brokerage services. They provide advice to their clients about which stocks to buy or sell. They advise the traders about when to buy or sell stock and how long to hold it.
Full service brokers provide education to their clients about the whole process of stock trading. You can read tutorials about the various aspects of stock trading, the stock trading lingo, bear and bull markets and so on.
The websites of the full service stock brokers have research tools and research facilities for the clients. These research tools consist of symbol finders, news flashes, charts for analytical and fundamental research. The stock brokers also send news letters to their clients about the latest stock market trends which help to predict the stock market movements.
All these facilities provided by the full service stock brokers come with a price. Full service stock brokers charge the highest commission rates in the industry.
If you are a new entrant to the stock market, you must opt for the services of a full service stock broker. As a "newbie", you do not possess the required knowledge, confidence and expertise in stock trading.
The second type of stock brokers is discount brokers. As the name suggests the discount brokers give discount on their commissions. Their commissions are lower than those charged by the full service brokers.
The reason why the discount brokers charge lower commission is that they do not offer trading advice and similar other facilities to their clients such as research and analysis tools.
A discount broker just performs a single task. He executes the trading orders of the clients, buying or selling orders and limits or stopping loss orders. There are no trading recommendations, no hot tips.
Those who seek the services of discount brokers are generally experienced traders. They know how to take their own trading decisions.
The least expensive brokers are the online stock brokers. Online stock brokers do not incur lots of overhead charges. They can, therefore, afford to charge lesser commissions on their services.
Since it is easier to set up online brokerage firms, many brokers have jumped into the market. There is a huge competition; therefore the commission rates are lower in online stock trading.
Stock brokers generally offer two types of accounts to their members.
One is 'cash account'. In cash account, you are offered no credit. You have to pay full amount when you buy a stock.
The other type of account is 'margin account'. You can buy a stock on margin. You do not have to pay the full price of the stock. The stock broker allows you to pay a certain percentage of the price of the stock. The remaining price is paid by the brokerage firm.
The amount of margin varies from broker to broker "but the margin must be protected by the value of the client's portfolio. If the portfolio falls below a specified amount the investor will have to add more funds or sell some stock."
It must, however, be noted that since margin accounts enable the investors to buy more stock, they may make greater profits or suffer higher losses. Margin accounts, therefore, are not recommended for the new and inexperienced traders.
How to choose a stock broker?
As is clear from the above discussion, you have to understand your personal qualifications in stock trading before you choose a stock broker. If you are an experienced stock trader and you need no hot tips and stock recommendations, you may opt for a discount trader.
If you are a new entrant to stock trading, you must do a thorough search on the internet before choosing a stock broker. Draw a list of features, facilities, services, minimum account deposits and commission rates that are offered by a number of stock brokers and do comparison shopping on each count.
A peculiar feature of the stock market is that a trader can neither directly find the sellers if he wishes to buy a stock, nor buyers if he wishes to sell his stock. The whole process of buying and selling the stock takes place through offices of the stock brokers.
Broadly speaking, there are two types of stock brokers. They are full service stock brokers and discount stock brokers.
The full service stock brokers, as the name suggests, provide a complete range of brokerage services. They provide advice to their clients about which stocks to buy or sell. They advise the traders about when to buy or sell stock and how long to hold it.
Full service brokers provide education to their clients about the whole process of stock trading. You can read tutorials about the various aspects of stock trading, the stock trading lingo, bear and bull markets and so on.
The websites of the full service stock brokers have research tools and research facilities for the clients. These research tools consist of symbol finders, news flashes, charts for analytical and fundamental research. The stock brokers also send news letters to their clients about the latest stock market trends which help to predict the stock market movements.
All these facilities provided by the full service stock brokers come with a price. Full service stock brokers charge the highest commission rates in the industry.
If you are a new entrant to the stock market, you must opt for the services of a full service stock broker. As a "newbie", you do not possess the required knowledge, confidence and expertise in stock trading.
The second type of stock brokers is discount brokers. As the name suggests the discount brokers give discount on their commissions. Their commissions are lower than those charged by the full service brokers.
The reason why the discount brokers charge lower commission is that they do not offer trading advice and similar other facilities to their clients such as research and analysis tools.
A discount broker just performs a single task. He executes the trading orders of the clients, buying or selling orders and limits or stopping loss orders. There are no trading recommendations, no hot tips.
Those who seek the services of discount brokers are generally experienced traders. They know how to take their own trading decisions.
The least expensive brokers are the online stock brokers. Online stock brokers do not incur lots of overhead charges. They can, therefore, afford to charge lesser commissions on their services.
Since it is easier to set up online brokerage firms, many brokers have jumped into the market. There is a huge competition; therefore the commission rates are lower in online stock trading.
Stock brokers generally offer two types of accounts to their members.
One is 'cash account'. In cash account, you are offered no credit. You have to pay full amount when you buy a stock.
The other type of account is 'margin account'. You can buy a stock on margin. You do not have to pay the full price of the stock. The stock broker allows you to pay a certain percentage of the price of the stock. The remaining price is paid by the brokerage firm.
The amount of margin varies from broker to broker "but the margin must be protected by the value of the client's portfolio. If the portfolio falls below a specified amount the investor will have to add more funds or sell some stock."
It must, however, be noted that since margin accounts enable the investors to buy more stock, they may make greater profits or suffer higher losses. Margin accounts, therefore, are not recommended for the new and inexperienced traders.
How to choose a stock broker?
As is clear from the above discussion, you have to understand your personal qualifications in stock trading before you choose a stock broker. If you are an experienced stock trader and you need no hot tips and stock recommendations, you may opt for a discount trader.
If you are a new entrant to stock trading, you must do a thorough search on the internet before choosing a stock broker. Draw a list of features, facilities, services, minimum account deposits and commission rates that are offered by a number of stock brokers and do comparison shopping on each count.
Stock Market - How to Use Fundamental Analysis to Make Trading Decisions
Stock Analyzing
Investors come in many shapes and forms, so to speak, but there are two basic types. First and most common is the more conservative type, who will choose a stock by viewing and researching the basic value of a company. This belief is based on the assumption that so long as a company is run well and continues turning a profit, the stock price will rise. These investors try to buy growth stocks, those that appear most likely to continue growing for a longer term.
The second but less common type of investor attempts to estimate how the market may behave based purely on the psychology of the market's people and other similar market factors. The second type of investor is more commonly called a "Quant." This investor assumes that the price of a stock will soar as buyers keep bidding back and forth (often regardless of the stock's value), much like an auction. They often take much higher risks with higher potential returns-but with much higher potential for higher losses if they fail.
Fundamentalists
To find the stock's inherent value, investors must consider many factors. When a stock's price is consistent with its value, it will have reached the target goal of an "efficient" market. The efficient market theory states that stocks are always correctly priced since everything publicly known about the stock is reflected in its market price. This theory also implies that analyzing stocks is pointless since all information known is currently reflected in the current price. To put it simply:
1. As usual, the earnings of a particular company are the main deciding factor. Company earnings are the profits after taxes and expenses. The stock and bond markets are mainly driven by two powerful dynamisms: earnings and interest rates. Harsh competition often accompanies the flow of money into these markets, moving into bonds when interest rates go up and into stocks when earnings go up. More than any other factor, a company's earnings create value, although other admonitions must be considered with this idea.
2. EPS (Earnings Per Share) is defined as the amount of reported income, per share, that the company has on hand at any given time to pay dividends to common stockholders or to reinvest in itself. This indicator of a company's condition is a very powerful way to forecast the future of a stock's price. Earnings Per Share is arguably one of the most widely used fundamental ratios.
3. Fair price of a stock is also determined by the P/E (price/earnings) ratio. For example, if a particular company's stock is trading at $60 and its EPS is $6 per share, it has a P/E of 10, meaning that investors can expect a 10% cash flow return.
Equation: $6/$60 = 1/10 = 1/(PE) = 0.10 = 10%
Along these same lines, if it's making $3 a share, it has a multiple of 20. In this case, an investor may receive a 5% return, as long as current conditions remain the same in the future.
Example: $3/$60 = 1/20 = 1/(P/E) = 0.05 = 5%
Certain industries have different P/E ratios. For instance, banks have low P/E's, normally in the range of 5 to 12. High tech companies have higher P/E ratios on the other hand, generally around 15 to 30. On the other hand, in the not too distance past, triple-digit P/E ratios for internet-stocks were seen. These were stocks with no earnings but high P/E ratios, defying market efficiency theories.
A low P/E is not a true indication of exact value. Price volatility, range, direction, and noteworthy news regarding the stock must be considered first. The investor must also consider why any given P/E is low. P/E is best used to compare industry-similar companies.
The Beardstown Ladies suggests that any P/E lower than 5 and/or above 35 be examined closely for errors, since the market average is between 5 and 20 historically.
Peter Lynch suggests a comparison of the P/E ratio with the company growth rate. Lynch considers the stock fairly priced only if they are about equal. If it is less than the growth rate, it could be a stock bargain. To put it into perspective, the basic belief is that a P/E ratio half the growth rate is very positive, and one that is twice the growth rate is very negative.
Other studies suggest that a stock's P/E ration has little effect on the decision to buy or sell stock (William J. O'Neal, founder of the Investors Business Daily, in his studies of successful stock moves). He says the stock's current earnings record and annual earnings increases, however, are vital.
It is necessary to mention that the value as represented by the P/E and/or Earnings per Share are useless to investors prior to stock purchase. Money is made after stock is bought, not before. Therefore, it is the future that will pay, both in dividends and growth. This means that investors need to pay as much attention to future earnings estimates as to the historical record.
4. Basic PSR (Price/Sales Ratio) is similar to P/E ratio, except that the stock price is divided by sales per share as opposed to earnings per share.
5. Debt Ratio shows the percentage of debt a company has as compared to shareholder equity. In other words, how much a company's operation is being financed by debt.
6. ROE (Equity Returns) is found by dividing net income (after taxes) by the owner's equity.
7. Price/Book Value Ratio (a.k.a. Market/Book Ratio) compares the market price to the stock's book value per share. This ratio relates what the investors believe a company (stock) is worth to what that company's accountants say it is worth per recognized accounting principles. For example, a low ratio would suggest that the investors believe that the company's assets have been overvalued based on its financial statements.While investors would like the stocks to be trading at the same point as book value, in reality, most stocks trade either at a value above book value or at a discount.
Stocks trading at 1.5 to 2 times book value are about the limit when searching for value stocks. Growth stocks justify higher ratios, because they grant the anticipation of higher earnings. The ideal would be stocks below book value, at wholesale prices, but this rarely happens. Companies with low book value are often targets of a takeover, and are normally avoided by investors (at least until the takeover is complete and the process begins anew).
Book value was more important in a time when most industrial companies had actual hard assets, such as factories, to back up their stock. Sadly, the value of this measure has waned as companies with low capital have become commercial giants (i.e. Microsoft). Videlicet, look for low book value to keep the data in perspective.
8. Beta compares the volatility of the stock to that of the market. A beta of 1 proposes that a stock price moves up and down at the same rate as the market overall. A beta of 2 means that when the market drops the stock is likely to move double that amount. A beta of 0 means it does not move at all. A negative Beta means it moves in the opposite direction of the market, spelling a loss for the investor.
9. Capitalization is the total value of all of a company's outstanding shares, and is calculated by multiplying the market price per share by the total number of outstanding shares.
10. Institutional Ownership refers to the percent of a company's outstanding shares that are owned by institutions, mutual funds, insurance companies, etc., which move in and out of positions in very large blocks. Some institutional ownership can actually provide a measure of stability and make contributions to the roll with their buying and selling, respectively. Investors consider this an important factor because they can make use of the extensive research done by these institutions before making their own portfolio decisions. The importance of institutions in market action cannot be overstated, and accounts for over 70% of the dollar volume traded daily.
Market efficiency is a marketplace goal at all times. Anyone who puts money into a stock would like to see a return on their investment. Nevertheless, as before-mentioned, human emotions will always drive the market, causing over- and undervalue of common stocks. Investors must take advantage of patterns using modern computing tools to find the stocks most undervalued as well as develop the correct response to these market patterns, such as rolling within a channel (recognizing trends) with intelligence.
Investors come in many shapes and forms, so to speak, but there are two basic types. First and most common is the more conservative type, who will choose a stock by viewing and researching the basic value of a company. This belief is based on the assumption that so long as a company is run well and continues turning a profit, the stock price will rise. These investors try to buy growth stocks, those that appear most likely to continue growing for a longer term.
The second but less common type of investor attempts to estimate how the market may behave based purely on the psychology of the market's people and other similar market factors. The second type of investor is more commonly called a "Quant." This investor assumes that the price of a stock will soar as buyers keep bidding back and forth (often regardless of the stock's value), much like an auction. They often take much higher risks with higher potential returns-but with much higher potential for higher losses if they fail.
Fundamentalists
To find the stock's inherent value, investors must consider many factors. When a stock's price is consistent with its value, it will have reached the target goal of an "efficient" market. The efficient market theory states that stocks are always correctly priced since everything publicly known about the stock is reflected in its market price. This theory also implies that analyzing stocks is pointless since all information known is currently reflected in the current price. To put it simply:
- The stock market sets the prices.
- Analysts weigh known information about a company and thereby determine value.
- The price does not have to equal the value. The efficient market theory is as the name implies, a theory. If it were law, prices would instantly adapt to information as it became available. Since it is a theory instead of law, this is not the case. Stock prices move above and below company values for both rational and irrational reasons.
- "Value Stocks" are those that are below market value, and include the bargain stocks listed at 50 cents per dollar of value.
- "Growth Stocks" are those with earnings growth as the primary consideration.
- "Income Stocks" are investments providing a steady income source. This is primarily through dividends, but bonds are also common investment tools used to generate income.
- "Momentum Stocks" are growth companies currently coming into the market picture. Their share prices are increasing rapidly.
1. As usual, the earnings of a particular company are the main deciding factor. Company earnings are the profits after taxes and expenses. The stock and bond markets are mainly driven by two powerful dynamisms: earnings and interest rates. Harsh competition often accompanies the flow of money into these markets, moving into bonds when interest rates go up and into stocks when earnings go up. More than any other factor, a company's earnings create value, although other admonitions must be considered with this idea.
2. EPS (Earnings Per Share) is defined as the amount of reported income, per share, that the company has on hand at any given time to pay dividends to common stockholders or to reinvest in itself. This indicator of a company's condition is a very powerful way to forecast the future of a stock's price. Earnings Per Share is arguably one of the most widely used fundamental ratios.
3. Fair price of a stock is also determined by the P/E (price/earnings) ratio. For example, if a particular company's stock is trading at $60 and its EPS is $6 per share, it has a P/E of 10, meaning that investors can expect a 10% cash flow return.
Equation: $6/$60 = 1/10 = 1/(PE) = 0.10 = 10%
Along these same lines, if it's making $3 a share, it has a multiple of 20. In this case, an investor may receive a 5% return, as long as current conditions remain the same in the future.
Example: $3/$60 = 1/20 = 1/(P/E) = 0.05 = 5%
Certain industries have different P/E ratios. For instance, banks have low P/E's, normally in the range of 5 to 12. High tech companies have higher P/E ratios on the other hand, generally around 15 to 30. On the other hand, in the not too distance past, triple-digit P/E ratios for internet-stocks were seen. These were stocks with no earnings but high P/E ratios, defying market efficiency theories.
A low P/E is not a true indication of exact value. Price volatility, range, direction, and noteworthy news regarding the stock must be considered first. The investor must also consider why any given P/E is low. P/E is best used to compare industry-similar companies.
The Beardstown Ladies suggests that any P/E lower than 5 and/or above 35 be examined closely for errors, since the market average is between 5 and 20 historically.
Peter Lynch suggests a comparison of the P/E ratio with the company growth rate. Lynch considers the stock fairly priced only if they are about equal. If it is less than the growth rate, it could be a stock bargain. To put it into perspective, the basic belief is that a P/E ratio half the growth rate is very positive, and one that is twice the growth rate is very negative.
Other studies suggest that a stock's P/E ration has little effect on the decision to buy or sell stock (William J. O'Neal, founder of the Investors Business Daily, in his studies of successful stock moves). He says the stock's current earnings record and annual earnings increases, however, are vital.
It is necessary to mention that the value as represented by the P/E and/or Earnings per Share are useless to investors prior to stock purchase. Money is made after stock is bought, not before. Therefore, it is the future that will pay, both in dividends and growth. This means that investors need to pay as much attention to future earnings estimates as to the historical record.
4. Basic PSR (Price/Sales Ratio) is similar to P/E ratio, except that the stock price is divided by sales per share as opposed to earnings per share.
- For many analysts, the PSR is a better value indicator than the P/E. This is because earnings often fluctuate wildly, while sales tend to follow more dependable trends.
- PSR may be also be a more accurate measure of value because sales are more difficult to manipulate than earnings. The credibility of financial institutions have suffered through the Enron/Global Crossing/WorldCom, et al, debacle, and investors have learned how manipulation does go on within large financial institutions.
- The PSR by itself is not very effective. It is effectively used only in conjunction with other measures. James O'Shaughnessy, in his book What Works on Wall Street, found that, when the PSR is used with a measure of relative strength, it becomes "the King of value factors."
5. Debt Ratio shows the percentage of debt a company has as compared to shareholder equity. In other words, how much a company's operation is being financed by debt.
- Remember, under 30% is positive, over 50% is negative.
- A successful operation with ascending profitability and a well marketed product can be destroyed by the company's debt load, because the earnings are sacrificed to offset the debt.
6. ROE (Equity Returns) is found by dividing net income (after taxes) by the owner's equity.
- ROE is often considered to be the most important financial ration (for stockholders) and the best measure of a company's management abilities. ROE gives stockholders the confidence they need to know that their money is well-managed.
- ROE should always increase on a yearly basis.
7. Price/Book Value Ratio (a.k.a. Market/Book Ratio) compares the market price to the stock's book value per share. This ratio relates what the investors believe a company (stock) is worth to what that company's accountants say it is worth per recognized accounting principles. For example, a low ratio would suggest that the investors believe that the company's assets have been overvalued based on its financial statements.While investors would like the stocks to be trading at the same point as book value, in reality, most stocks trade either at a value above book value or at a discount.
Stocks trading at 1.5 to 2 times book value are about the limit when searching for value stocks. Growth stocks justify higher ratios, because they grant the anticipation of higher earnings. The ideal would be stocks below book value, at wholesale prices, but this rarely happens. Companies with low book value are often targets of a takeover, and are normally avoided by investors (at least until the takeover is complete and the process begins anew).
Book value was more important in a time when most industrial companies had actual hard assets, such as factories, to back up their stock. Sadly, the value of this measure has waned as companies with low capital have become commercial giants (i.e. Microsoft). Videlicet, look for low book value to keep the data in perspective.
8. Beta compares the volatility of the stock to that of the market. A beta of 1 proposes that a stock price moves up and down at the same rate as the market overall. A beta of 2 means that when the market drops the stock is likely to move double that amount. A beta of 0 means it does not move at all. A negative Beta means it moves in the opposite direction of the market, spelling a loss for the investor.
9. Capitalization is the total value of all of a company's outstanding shares, and is calculated by multiplying the market price per share by the total number of outstanding shares.
10. Institutional Ownership refers to the percent of a company's outstanding shares that are owned by institutions, mutual funds, insurance companies, etc., which move in and out of positions in very large blocks. Some institutional ownership can actually provide a measure of stability and make contributions to the roll with their buying and selling, respectively. Investors consider this an important factor because they can make use of the extensive research done by these institutions before making their own portfolio decisions. The importance of institutions in market action cannot be overstated, and accounts for over 70% of the dollar volume traded daily.
Market efficiency is a marketplace goal at all times. Anyone who puts money into a stock would like to see a return on their investment. Nevertheless, as before-mentioned, human emotions will always drive the market, causing over- and undervalue of common stocks. Investors must take advantage of patterns using modern computing tools to find the stocks most undervalued as well as develop the correct response to these market patterns, such as rolling within a channel (recognizing trends) with intelligence.
The ABC's of Successful Stock Option Trading
Short of having a crystal ball, picking winners when stock option trading is
not as hard as many people would have you believe. In the first place, when
considering purchasing or selling stock options, you need to conduct
extensive research on the underlying stock yourself, or rely on someone else
to do it for you - someone you trust. Many factors must be considered.
Among these are:
1. The stock's past history and movement.
2. Expected earnings reports of the stock's parent company.
3. Volatility and volume of shares traded daily.
4. Any current news concerning the company's growth or profitability.
5. The price of the option with respect to how you think the stock will
perform. If you do not feel the stock's movement will handily offset the
cost of the option, plus the trading fees, then buying or selling the option
would be fruitless.
6. Supply and demand of the underlying stock. (Industry group market
action.)
Once you have decided upon which stock to pick, you next need to decide
whether you believe the stock's price is likely to rise or fall. (With
stock options you can make money in either direction.)
By purchasing a Call option:
1. You expect the price of the underlying stock to rise, so you can
then purchase it at the lower strike price, making a profit in the transaction.
2. You have the right to control 100 shares of stock for a fraction of
the cost of purchasing the stock outright.
3. You are managing your risk by limiting the downside to the premium
paid for the option. The major downside to buying any option is time decay.
Your option expires within a finite period of time. If the underlying stock
price behaves as expected, you will not need to be concerned about
execution.
Having shown you the benefits of buying Calls over the risks of
purchasing the stocks outright, we must emphasize the fact that buying
short-term Calls has its associated risks as well. A Call buyer, especially
a short-term Call buyer, is severely limited by the time-decay factor. The
nearer to the expiration of an option, the less the option is worth, and the
less time is remaining for the option to become profitable. Within the
leverage used by gambling casinos (the house), the concept of short-term
Call buying is completely understood, as well as exploited, as gamblers are
considered short-term Call buyers.
Example: Consider your long-term Put, or Call, as a 6 to 8 month license to operate a
casino. It allows you to capture short-term premiums; money that gamblers
continuously give to you in attempting to beat the odds by speculating they
will make profits on very risky bets. They feverishly feed the slot
machines, ante up at poker, double-down on blackjack, or spin the roulette
wheel. The odds are overwhelmingly against these short-term buyers. You, as
the casino owner, continuously capture these short-term premiums, easily
offsetting the expense of the license to operate the casino, then earning
substantial, clear profits in the following months. They know the odds are
with the casino owner, but they still take the enormous gamble on the slim
chance they will hit a jackpot. The lottery works in the same manner.
On one side of the position, the transaction is definitely gambling, while
on the other, the casino is simply engaging in business. Would you rather
bet on the remote chance of a gambler's rare, limited success, or rake in
the steady, routine premiums captured from operating a successful business?
Yes, occasionally a gambler does beat the odds to enjoy a limited, windfall
return on his bet. For the casino owner, that is simply part of the cost of
doing business. But we all know where the true, long-term profits lie. 30%,
40%, 50% and more, are common, and in short periods of time. The odds are
with the short-term option seller, not the buyer.
When you choose a stock for short-term Call buying, you not only must
carefully consider the proper stock for the type of option you are
purchasing, you must also decide which direction the stock will move, then,
that movement must occur within a specified, very limited period of time.
Many investors have gone broke by attempting to make those same decisions.
In short, time is not on the side of the short-term option buyer. It is on
the side of the option seller.
Summary:
1. Buying stocks is risky.
2. Buying short-term options is less risky, but still risky.
3. Selling short-term options is the least risky, especially with a hedge, or insurance.
By selling a Call option:
1. You expect the underlying stock price to fall, so the option will not be
exercised, but expire, worthless.
2. You can capture the entire premium that was paid to you, as profit. If the
underlying stock price rises, you are obligated to sell 100 shares of stock
at the lower strike price. If you do not already own those shares, you would then
have to buy them at a higher market value, then sell them at the strike price, in order
to meet your obligation. This situation is called a "Naked," or "Uncovered" position, and
is extremely dangerous. Anytime you sell a Call option you should consider
buying the same option with a slightly lower strike price, and longer
expiration date. This will reduce your profit potential, but will also
reduce your risk considerably. (Remember the parallel twins, Risk and Reward
- If you want to reduce risk, you must also give up some degree of potential
rewards. You may wish to lower your cost basis in the stock, to the extent
of the premium received.
By purchasing a Put option:
1. You expect the price of the underlying stock to fall, allowing you
to sell stock at the higher strike price, and thereby earning a profit.
2. This option is also used in a combination strategy as a hedge
against selling Puts. We will explore that strategy later, in detail.
3. Buying Put options could also be used as a hedge, or insurance,
against the possibility of a price drop in stock you already own. Consider
the following:
You own 100 shares of ABC stock, and are concerned that the stock price
could suddenly fall. You purchase a Put option on the same stock, with a
strike price at current market value. If your stock falls in price, you
would have the right to exercise your option and sell 100 shares of ABC
stock at the higher strike price. The premium you paid for the option could
be far less than the loss you would have incurred without that insurance. In
this instance buying Puts acted as a hedge against the possibility of a
price decrease in the stocks you already own. If the price of the underlying
stock increases, your loss is limited to the premium you paid for the
option. The option acts as an insurance policy against possible loss.
Selling a Put option without an opposing hedge -"Naked"
You expect the price of the underlying stock to increase, causing the
Put option you sold to expire worthless. You can then capture the entire
premium paid to you, as profit. If the underlying stock price were to fall
below the strike price, then you would be obligated to purchase the stock at
the strike price, or pay the difference between the strike price and the
stock price, if you do not want to own the stock. Your upside is limited to
the premium received for selling the option. Your downside is potentially
unlimited to the base value of whatever you could sell the stock for on the
open market, or to the difference between the strike price and the stock
price. This is a "Naked," or "Uncovered" position, and should never be
allowed to occur, unintentionally. Without the implementation of combination
strategies, the main objective of the Put seller is to hope the option
expires, allowing him to capture the entire option premium as profit.
Nearing expiration, if the stock price moves below the strike price,
changing the option's value to ITM, and highly vulnerable to exercise, then
the option seller must move quickly to buy back the option, perhaps
lessening his profit potential, while also managing his risk. Even so, a
small loss would be better than having to buy 100 shares of stock at
inflated prices. Also, the loss can be immediately compensated for by
simultaneously selling another Put expiring in the following month. We use
OPM (Other People's Money) to buffer downside risks, while buying more time
for the stock price to rise.
Stock Option Trading, when done properly, can drastically reduce, or even
eliminate, these two stumbling blocks to stock market success. In the first
place, A trader of stock options never is not required to own the underlying
stock in which an option is based. He or she can design a trade in such a
way that downside risk is limited to the cost of the option, which in itself
is a fraction of the cost of the stock. We capitalize on traders and
speculators greed to get rich who purchase overvalued short term options bid
up to inflated levels by an excess of demand over supply, by being the house
or casino owner and capturing the inflated premium from the players or
buyers. We buy reinsurance at a low cost by purchasing a longer term ( 5 to
6 months) out of the money option to sell the stock at a fixed price no
matter how low it may drop. We buy this reinsurance ( puts ) to create a
profitable hedge and sell overvalued puts repeatedly, month by month to
bring the cost of our hedge down to zero and a credit so that we can enjoy a
free ride capturing this inflated premium income. This strategy is known as
diagonal put spreads and you do not need to pick a winner to profit.
not as hard as many people would have you believe. In the first place, when
considering purchasing or selling stock options, you need to conduct
extensive research on the underlying stock yourself, or rely on someone else
to do it for you - someone you trust. Many factors must be considered.
Among these are:
1. The stock's past history and movement.
2. Expected earnings reports of the stock's parent company.
3. Volatility and volume of shares traded daily.
4. Any current news concerning the company's growth or profitability.
5. The price of the option with respect to how you think the stock will
perform. If you do not feel the stock's movement will handily offset the
cost of the option, plus the trading fees, then buying or selling the option
would be fruitless.
6. Supply and demand of the underlying stock. (Industry group market
action.)
Once you have decided upon which stock to pick, you next need to decide
whether you believe the stock's price is likely to rise or fall. (With
stock options you can make money in either direction.)
By purchasing a Call option:
1. You expect the price of the underlying stock to rise, so you can
then purchase it at the lower strike price, making a profit in the transaction.
2. You have the right to control 100 shares of stock for a fraction of
the cost of purchasing the stock outright.
3. You are managing your risk by limiting the downside to the premium
paid for the option. The major downside to buying any option is time decay.
Your option expires within a finite period of time. If the underlying stock
price behaves as expected, you will not need to be concerned about
execution.
Having shown you the benefits of buying Calls over the risks of
purchasing the stocks outright, we must emphasize the fact that buying
short-term Calls has its associated risks as well. A Call buyer, especially
a short-term Call buyer, is severely limited by the time-decay factor. The
nearer to the expiration of an option, the less the option is worth, and the
less time is remaining for the option to become profitable. Within the
leverage used by gambling casinos (the house), the concept of short-term
Call buying is completely understood, as well as exploited, as gamblers are
considered short-term Call buyers.
Example: Consider your long-term Put, or Call, as a 6 to 8 month license to operate a
casino. It allows you to capture short-term premiums; money that gamblers
continuously give to you in attempting to beat the odds by speculating they
will make profits on very risky bets. They feverishly feed the slot
machines, ante up at poker, double-down on blackjack, or spin the roulette
wheel. The odds are overwhelmingly against these short-term buyers. You, as
the casino owner, continuously capture these short-term premiums, easily
offsetting the expense of the license to operate the casino, then earning
substantial, clear profits in the following months. They know the odds are
with the casino owner, but they still take the enormous gamble on the slim
chance they will hit a jackpot. The lottery works in the same manner.
On one side of the position, the transaction is definitely gambling, while
on the other, the casino is simply engaging in business. Would you rather
bet on the remote chance of a gambler's rare, limited success, or rake in
the steady, routine premiums captured from operating a successful business?
Yes, occasionally a gambler does beat the odds to enjoy a limited, windfall
return on his bet. For the casino owner, that is simply part of the cost of
doing business. But we all know where the true, long-term profits lie. 30%,
40%, 50% and more, are common, and in short periods of time. The odds are
with the short-term option seller, not the buyer.
When you choose a stock for short-term Call buying, you not only must
carefully consider the proper stock for the type of option you are
purchasing, you must also decide which direction the stock will move, then,
that movement must occur within a specified, very limited period of time.
Many investors have gone broke by attempting to make those same decisions.
In short, time is not on the side of the short-term option buyer. It is on
the side of the option seller.
Summary:
1. Buying stocks is risky.
2. Buying short-term options is less risky, but still risky.
3. Selling short-term options is the least risky, especially with a hedge, or insurance.
By selling a Call option:
1. You expect the underlying stock price to fall, so the option will not be
exercised, but expire, worthless.
2. You can capture the entire premium that was paid to you, as profit. If the
underlying stock price rises, you are obligated to sell 100 shares of stock
at the lower strike price. If you do not already own those shares, you would then
have to buy them at a higher market value, then sell them at the strike price, in order
to meet your obligation. This situation is called a "Naked," or "Uncovered" position, and
is extremely dangerous. Anytime you sell a Call option you should consider
buying the same option with a slightly lower strike price, and longer
expiration date. This will reduce your profit potential, but will also
reduce your risk considerably. (Remember the parallel twins, Risk and Reward
- If you want to reduce risk, you must also give up some degree of potential
rewards. You may wish to lower your cost basis in the stock, to the extent
of the premium received.
By purchasing a Put option:
1. You expect the price of the underlying stock to fall, allowing you
to sell stock at the higher strike price, and thereby earning a profit.
2. This option is also used in a combination strategy as a hedge
against selling Puts. We will explore that strategy later, in detail.
3. Buying Put options could also be used as a hedge, or insurance,
against the possibility of a price drop in stock you already own. Consider
the following:
You own 100 shares of ABC stock, and are concerned that the stock price
could suddenly fall. You purchase a Put option on the same stock, with a
strike price at current market value. If your stock falls in price, you
would have the right to exercise your option and sell 100 shares of ABC
stock at the higher strike price. The premium you paid for the option could
be far less than the loss you would have incurred without that insurance. In
this instance buying Puts acted as a hedge against the possibility of a
price decrease in the stocks you already own. If the price of the underlying
stock increases, your loss is limited to the premium you paid for the
option. The option acts as an insurance policy against possible loss.
Selling a Put option without an opposing hedge -"Naked"
You expect the price of the underlying stock to increase, causing the
Put option you sold to expire worthless. You can then capture the entire
premium paid to you, as profit. If the underlying stock price were to fall
below the strike price, then you would be obligated to purchase the stock at
the strike price, or pay the difference between the strike price and the
stock price, if you do not want to own the stock. Your upside is limited to
the premium received for selling the option. Your downside is potentially
unlimited to the base value of whatever you could sell the stock for on the
open market, or to the difference between the strike price and the stock
price. This is a "Naked," or "Uncovered" position, and should never be
allowed to occur, unintentionally. Without the implementation of combination
strategies, the main objective of the Put seller is to hope the option
expires, allowing him to capture the entire option premium as profit.
Nearing expiration, if the stock price moves below the strike price,
changing the option's value to ITM, and highly vulnerable to exercise, then
the option seller must move quickly to buy back the option, perhaps
lessening his profit potential, while also managing his risk. Even so, a
small loss would be better than having to buy 100 shares of stock at
inflated prices. Also, the loss can be immediately compensated for by
simultaneously selling another Put expiring in the following month. We use
OPM (Other People's Money) to buffer downside risks, while buying more time
for the stock price to rise.
Stock Option Trading, when done properly, can drastically reduce, or even
eliminate, these two stumbling blocks to stock market success. In the first
place, A trader of stock options never is not required to own the underlying
stock in which an option is based. He or she can design a trade in such a
way that downside risk is limited to the cost of the option, which in itself
is a fraction of the cost of the stock. We capitalize on traders and
speculators greed to get rich who purchase overvalued short term options bid
up to inflated levels by an excess of demand over supply, by being the house
or casino owner and capturing the inflated premium from the players or
buyers. We buy reinsurance at a low cost by purchasing a longer term ( 5 to
6 months) out of the money option to sell the stock at a fixed price no
matter how low it may drop. We buy this reinsurance ( puts ) to create a
profitable hedge and sell overvalued puts repeatedly, month by month to
bring the cost of our hedge down to zero and a credit so that we can enjoy a
free ride capturing this inflated premium income. This strategy is known as
diagonal put spreads and you do not need to pick a winner to profit.
Monday, 30 August 2010
Is Penny Stock Investing Worth it?
Merchandising in stocks is a very prevalent manner of investing and
has been around since the 12th century. You may
have heard investing in penny stocks is full of risk, notwithstanding
Investing in any company in general is precarious
business, even so if you are going to be trading in the penny
market you have to make yourself prehensile
about every company to steer clear of the imposition, rip offs, pump and
dumps, and other schemes to alienate you from your
agonizing earned chips. Without a bare understanding of the stocks
you will be investing in you will make
boundless mistakes out of confoundment and absence of direction.
By designation any stock trading under $5.00 is
envisioned a penny stock are in many instances labeled as immensely
precarious securities.
Most penny stocks are accustomedly traded on either the
'OTCBB' exchange (over the counter bulletin confiture) or on
what is called the 'Pink Sheets'. OTC markets can be part
of the NASDAQ which is the National Association
of Securities Dealers Automated Quotation. OTCBB stocks
combine national, regional, and foreign equity
issues, warrants, units, American Depository Receipts and
Direct Participation Programs. OTC quotation
services (OTCBB, Pink Sheets) assist quotation of
unlisted securities. OTCBB issuers that become
disregardful in their necessary regulatory filings will have
their securities withdrawn from the OTC Bulletin
Accelerated. There are generally inexhaustible potency for the
growth of ample sufficiency and this is inordinately mesmerizing
to OTC BB investors.
While there is an abstractionism to investing in penny stock companies
I have found that it is more favorable to
invest in companies that are still awaiting their future
than companies which have already matured what
the future holds for them and are now in decline. Accordingly my
advantage in penny stock investing! howbeit, When
it comes to investing in penny stocks, there is no doubt
that there is a huge insubstantially. Albeit, with a familiarization
of solid information, you are ordained to make the greatest
preferences available when it comes to penny stock
investing affluence.
When investing in penny stocks you have the possibility to
dramatically increase your profits, in any case, you
can just as impartially loose your assets quickly. The bottom
line is, though, if you are in the business of
penny stock investing, you ought to know who has your back.
There are multitudinal things to contemplate when it
comes to penny stock investing or any kind of investing for
that matter. First and foremost, is the cost
related such as broker fees or commissions. Because of the
phase penny stock, you may think that the cost
of investing is miniature even so nothing can can be further from
the truth. Some brokers indeed charge you
more and ask for a big capacity in your account before
you're accorded to invest in penny stocks. This cost
ought to be taken into consideration when it comes to your
investing gambit as well as what your long term
goals are.
You can mitigate most of the cost associated in penny stock
investing by self-managing your own account.
Nonetheless, If you are new to the world of investing and acquire
the systematics, expenses, fees, and writ the
least bit confusing it is nobility to utilize the services of a
stock broker that is going to engagement with you
every step of the way and enlighten the way things labor at
least for the first multitudinal trades you make.
One of the centermost aspects to investing wisely with penny
stocks is to know which kinds of penny stocks are the
right ones for you as well as which sort of a broker is
excellent fitted for penny stock investing.
As a consequence, I will deal in generalities down a few of the centermost things to
bring to mind and exploit with when it comes to
finding or selecting the absolute broker for penny stock
investing.
What you will appreciate is that majority of brokers are
principal broker dealers in this become public of penny
stock investing. Nonetheless, one of the essential things you
requisite to begin with is investing in the acceptable
broker. Some brokers have unpractical restrictions about
penny stock investing which makes it very
extravagant to invest in penny stocks. So be sure to locate out
what their terms are as far as penny stock
investing before you employ their service.
You can also assume that there are things constituting steps
that you can convey to guard that the penny stocks
that you are investing in are the safest types of penny
stocks procurable. With penny stock
investing, you can observably see why it is significant to have
someone that you can trust to bolster you with
funding your transactions. As a consequence, it can be tricky for
the everyday person to verify if the penny
stock they are adjudging investing in is a ample idea or
not. Because of the high gambles associated with
investing in the stock market, bounteous investors are looking
for a way of investing their hard cash in a lower
riskiness that still rewards you with pretty ample returns over
time.
There is a culture pattern to the business that consists of assorted little
steps that, when followed customarily, can lead to
flourishing investing. It is my true fixed opinion that those
with less than one year's behold investing in
individual stocks ought to not even think about investing in
penny stocks, principally if you haven't found
your rhythm with the mid- and large-cap universe albeit.
Third, I never, ever waste my time looking at those
penny stock companies that are hyped in the multitudinal junk
emails I get from websites and promoters that are
dedicated to penny stock investing. With penny stocks do
not think for a minute that the game has changed.
Often these promoters have clearly nothing at stake in
the penny stock company they are promoting.
Most assuredly, they are paid by the penny stock companies to recommend
and circularize them.
Apply vigilance when investing in Penny Stocks. Sometimes it's
discerning not to be the early bird when stock
investing, instead wait and see what the day will bring
before you take exertion. Study the financials of a
penny stock company. Much penny stock companies will have a
negative balance albeit it's the flow of boodle
and how they put to use their finances that matters the much. The
great investing opportunities are finding companies
that manage to reinvent themselves with huge leaders and
auxiliary products. Apply a devoted absolute interest in the
effectiveness of the penny stock company you're interested in
and obtain out about their track record as this
will help stipulate what they can achieve/accomplish with
the company. Additionally, you ought to only invest
do-re-mi that you are expectant to lose.
Much penny stocks are high-gamble investments with decline
dealing volumes and finite attention from investors.
Nevertheless some penny stocks are of higher liability than
others. Pink Sheets are the majority chancy with no
reporting requirements. Yet these dangerous, pink sheet stocks
give you incredible leverage. The leverage you
get with the super subs makes up for them being more fatal.
You may have heard investing in penny stocks is
venturous. Yes, it is riskful, but High risk means high reward.
Trafficking penny stocks, while inherently precarious,
has some unique benefits. They do dole out the probability to
rise 100%, 200%, or even 1000% in a short period
of time.
To win in trafficking penny stocks, you ought to obtain the
stocks that have the first-class potential, fewest quantify of
"red flags", and you have got to also have a game plan that will
let you lock in solid profits and cheapen gamble.
Also, if you purchase or sell shares of a abject-volume stock, you
run the danger of affecting the price alleged to
excess demand or supply. This is an advanced technique that
has strict requirements and higher risks. Alleged
to the volatility in penny stocks, considerable sums of savings can
and have been made by investors willing to draw from
the insubstantially. One must also know that the liability's are just as
immeasurable as the potential for growth. Factually,
I would say the risks of loss is much considerable than the
potential for develop which is why it is certainly
critical to only invest with "imperil capital". A major riskiness
in penny stocks is that they are frequently times
de-listed from the OTC BB and are unable to get listed on
additional exchange or even re-instated on the OTC
BB. Yet with exceedingly ample research and alleged diligence and
the company's experience and structure
matter-of-factly unlimited bountifulness can be gained with miniaturized
insecurity.
Much of the time the riskiness inherent with penny stocks can
be finite or mitigated by you knowing what you
are doing and knowing how to make it a better investment
casualness. With the correct tools and the absolute
familiarity, you gigantically minimize the risk. The more
wisdom and behold you get, the less liability you
incur. Taking the time to read and research will gigantically
minimize penny stock investing gambles. If you do
not have the disposition for peril then Stay cast out of these
dicey penny stock investments. See in retrospect, most
people fail when it comes to penny stocks as the insubstantially are
high and they don't do their home labor or
research before jumping the gun or a highly promoted penny
stocks. If you know anything about the standard
stock market, then you know that the amount of insecurity that
something carries is something that is defined by
several things. In fact, every stock can be seen from a
different risk vantage point from one lender to the
after. With that said, you can deduce that there are some
penny stocks that are less fatal than others. In
short, you need to ascertain that what you invest in has the
danger grit that you can indulge or afford.
The blissful news is that penny stocks do extend some
flexibility in what riskiness that they provide. So, to pack
up, here is what you require to do to stipulate just what your
grade of insubstantially embracement is. Pin down the
amount of insecurity that you are willing to appropriate on any penny
stock that you invest in. Employment with your
financial planner or adviser to verify if the amount of
gamble is a practical accommodation for your own financial
goals in the long term and short term. nail down what danger
extent you are comfortable with and the model of
penny stocks that fits those needs. When you convey the time
to really labor out what your financial gamble
fortitude is, you will be better applicable to selecting the
appropriate kind of penny stocks that you can invest in.
The reality is that having the advantageous inclusion of safety and
insubstantially is the biggest factor in investing in
penny stocks.
has been around since the 12th century. You may
have heard investing in penny stocks is full of risk, notwithstanding
Investing in any company in general is precarious
business, even so if you are going to be trading in the penny
market you have to make yourself prehensile
about every company to steer clear of the imposition, rip offs, pump and
dumps, and other schemes to alienate you from your
agonizing earned chips. Without a bare understanding of the stocks
you will be investing in you will make
boundless mistakes out of confoundment and absence of direction.
By designation any stock trading under $5.00 is
envisioned a penny stock are in many instances labeled as immensely
precarious securities.
Most penny stocks are accustomedly traded on either the
'OTCBB' exchange (over the counter bulletin confiture) or on
what is called the 'Pink Sheets'. OTC markets can be part
of the NASDAQ which is the National Association
of Securities Dealers Automated Quotation. OTCBB stocks
combine national, regional, and foreign equity
issues, warrants, units, American Depository Receipts and
Direct Participation Programs. OTC quotation
services (OTCBB, Pink Sheets) assist quotation of
unlisted securities. OTCBB issuers that become
disregardful in their necessary regulatory filings will have
their securities withdrawn from the OTC Bulletin
Accelerated. There are generally inexhaustible potency for the
growth of ample sufficiency and this is inordinately mesmerizing
to OTC BB investors.
While there is an abstractionism to investing in penny stock companies
I have found that it is more favorable to
invest in companies that are still awaiting their future
than companies which have already matured what
the future holds for them and are now in decline. Accordingly my
advantage in penny stock investing! howbeit, When
it comes to investing in penny stocks, there is no doubt
that there is a huge insubstantially. Albeit, with a familiarization
of solid information, you are ordained to make the greatest
preferences available when it comes to penny stock
investing affluence.
When investing in penny stocks you have the possibility to
dramatically increase your profits, in any case, you
can just as impartially loose your assets quickly. The bottom
line is, though, if you are in the business of
penny stock investing, you ought to know who has your back.
There are multitudinal things to contemplate when it
comes to penny stock investing or any kind of investing for
that matter. First and foremost, is the cost
related such as broker fees or commissions. Because of the
phase penny stock, you may think that the cost
of investing is miniature even so nothing can can be further from
the truth. Some brokers indeed charge you
more and ask for a big capacity in your account before
you're accorded to invest in penny stocks. This cost
ought to be taken into consideration when it comes to your
investing gambit as well as what your long term
goals are.
You can mitigate most of the cost associated in penny stock
investing by self-managing your own account.
Nonetheless, If you are new to the world of investing and acquire
the systematics, expenses, fees, and writ the
least bit confusing it is nobility to utilize the services of a
stock broker that is going to engagement with you
every step of the way and enlighten the way things labor at
least for the first multitudinal trades you make.
One of the centermost aspects to investing wisely with penny
stocks is to know which kinds of penny stocks are the
right ones for you as well as which sort of a broker is
excellent fitted for penny stock investing.
As a consequence, I will deal in generalities down a few of the centermost things to
bring to mind and exploit with when it comes to
finding or selecting the absolute broker for penny stock
investing.
What you will appreciate is that majority of brokers are
principal broker dealers in this become public of penny
stock investing. Nonetheless, one of the essential things you
requisite to begin with is investing in the acceptable
broker. Some brokers have unpractical restrictions about
penny stock investing which makes it very
extravagant to invest in penny stocks. So be sure to locate out
what their terms are as far as penny stock
investing before you employ their service.
You can also assume that there are things constituting steps
that you can convey to guard that the penny stocks
that you are investing in are the safest types of penny
stocks procurable. With penny stock
investing, you can observably see why it is significant to have
someone that you can trust to bolster you with
funding your transactions. As a consequence, it can be tricky for
the everyday person to verify if the penny
stock they are adjudging investing in is a ample idea or
not. Because of the high gambles associated with
investing in the stock market, bounteous investors are looking
for a way of investing their hard cash in a lower
riskiness that still rewards you with pretty ample returns over
time.
There is a culture pattern to the business that consists of assorted little
steps that, when followed customarily, can lead to
flourishing investing. It is my true fixed opinion that those
with less than one year's behold investing in
individual stocks ought to not even think about investing in
penny stocks, principally if you haven't found
your rhythm with the mid- and large-cap universe albeit.
Third, I never, ever waste my time looking at those
penny stock companies that are hyped in the multitudinal junk
emails I get from websites and promoters that are
dedicated to penny stock investing. With penny stocks do
not think for a minute that the game has changed.
Often these promoters have clearly nothing at stake in
the penny stock company they are promoting.
Most assuredly, they are paid by the penny stock companies to recommend
and circularize them.
Apply vigilance when investing in Penny Stocks. Sometimes it's
discerning not to be the early bird when stock
investing, instead wait and see what the day will bring
before you take exertion. Study the financials of a
penny stock company. Much penny stock companies will have a
negative balance albeit it's the flow of boodle
and how they put to use their finances that matters the much. The
great investing opportunities are finding companies
that manage to reinvent themselves with huge leaders and
auxiliary products. Apply a devoted absolute interest in the
effectiveness of the penny stock company you're interested in
and obtain out about their track record as this
will help stipulate what they can achieve/accomplish with
the company. Additionally, you ought to only invest
do-re-mi that you are expectant to lose.
Much penny stocks are high-gamble investments with decline
dealing volumes and finite attention from investors.
Nevertheless some penny stocks are of higher liability than
others. Pink Sheets are the majority chancy with no
reporting requirements. Yet these dangerous, pink sheet stocks
give you incredible leverage. The leverage you
get with the super subs makes up for them being more fatal.
You may have heard investing in penny stocks is
venturous. Yes, it is riskful, but High risk means high reward.
Trafficking penny stocks, while inherently precarious,
has some unique benefits. They do dole out the probability to
rise 100%, 200%, or even 1000% in a short period
of time.
To win in trafficking penny stocks, you ought to obtain the
stocks that have the first-class potential, fewest quantify of
"red flags", and you have got to also have a game plan that will
let you lock in solid profits and cheapen gamble.
Also, if you purchase or sell shares of a abject-volume stock, you
run the danger of affecting the price alleged to
excess demand or supply. This is an advanced technique that
has strict requirements and higher risks. Alleged
to the volatility in penny stocks, considerable sums of savings can
and have been made by investors willing to draw from
the insubstantially. One must also know that the liability's are just as
immeasurable as the potential for growth. Factually,
I would say the risks of loss is much considerable than the
potential for develop which is why it is certainly
critical to only invest with "imperil capital". A major riskiness
in penny stocks is that they are frequently times
de-listed from the OTC BB and are unable to get listed on
additional exchange or even re-instated on the OTC
BB. Yet with exceedingly ample research and alleged diligence and
the company's experience and structure
matter-of-factly unlimited bountifulness can be gained with miniaturized
insecurity.
Much of the time the riskiness inherent with penny stocks can
be finite or mitigated by you knowing what you
are doing and knowing how to make it a better investment
casualness. With the correct tools and the absolute
familiarity, you gigantically minimize the risk. The more
wisdom and behold you get, the less liability you
incur. Taking the time to read and research will gigantically
minimize penny stock investing gambles. If you do
not have the disposition for peril then Stay cast out of these
dicey penny stock investments. See in retrospect, most
people fail when it comes to penny stocks as the insubstantially are
high and they don't do their home labor or
research before jumping the gun or a highly promoted penny
stocks. If you know anything about the standard
stock market, then you know that the amount of insecurity that
something carries is something that is defined by
several things. In fact, every stock can be seen from a
different risk vantage point from one lender to the
after. With that said, you can deduce that there are some
penny stocks that are less fatal than others. In
short, you need to ascertain that what you invest in has the
danger grit that you can indulge or afford.
The blissful news is that penny stocks do extend some
flexibility in what riskiness that they provide. So, to pack
up, here is what you require to do to stipulate just what your
grade of insubstantially embracement is. Pin down the
amount of insecurity that you are willing to appropriate on any penny
stock that you invest in. Employment with your
financial planner or adviser to verify if the amount of
gamble is a practical accommodation for your own financial
goals in the long term and short term. nail down what danger
extent you are comfortable with and the model of
penny stocks that fits those needs. When you convey the time
to really labor out what your financial gamble
fortitude is, you will be better applicable to selecting the
appropriate kind of penny stocks that you can invest in.
The reality is that having the advantageous inclusion of safety and
insubstantially is the biggest factor in investing in
penny stocks.
How To Trade Stocks Without Emotions
I am a software engineer by profession. But my real passion is following the stock market and trading stocks and options. I record couple of hours of CNBC every day and watch it in the night while working out. I have been trading stock for more than ten years. I am no great stock trader but I have been making money consistently over the years.
The biggest enemy to successful stock trading is your own emotions. You read a lot of books then try stock trading. You loose some or gain some money depending which cycle of of the market you entered. After going through a couple bull and bear market cycle you become a kind of pro. That is if you have any interest, energy and most importantly some money left to trade.
It has been said many many times that the key to successful trading is cutting losses. If you are a reasonably informed person you will have many profit making trades. But a time comes when you buy a stock, it goes down a little. You are hoping that it will come back up. But it dosn't keeps going down to 25%. Then you thinking I should have sold it at 10% but now that it has come down so much let me hold a little longer. Very soon the stock's value is half of what you paid. You forget the ego and dump the stock. You made a good decision. Next year you see this stock crossing your price. You feel down a bit? You should not. This where the emotion comes into play. Based on the situation a year back it was a good decision to take that loss, so you made a good decision but you don't feel good right now.
I have made similar mistakes many times. I buy this stock, it goes down. Then comes back up. As soon as the stock crosses my buying price I sell it and feel great that I made money on that trade. In next few days the stock goes up another five percent. I feel like an idiot. I buy another stock, this one goes up 2 bucks and I hold onto it. Next day it falls three dollars. Now guess how I feel.
How to avoid this kind of problem? Set up rules for yourself and stick to those rule.
Here are the rules I have followed over years. Read on and these might help you as well.
1) Buy strong stock from a good sector when they clearly (a) breakout. The clear breakout will weed out a weak market. Double sure the breakout on a closing basis. The only other times to buy it will be when it is down (b) 15% (25 to 30% for a speculative stock) or it (c) closes positively after a long down turn. By long I mean couple of weeks. Spend time on it before buying, when in doubt stay out.
2) If a good stock from a good sector hits new high but unable to breakout then the market might be in a corrective mood.
3) Always, always avoid buying cheap stocks. That includes a stock that is near the support level during a good market. Avoid stocks under $20 and definitely penny stocks.
4) When dealing with speculative stocks always start with 10% or less of your money and put more money as the stock goes higher. Putting too much money on such stocks makes it difficult to take loss at the technically right prices (selling at right price means a huge loss when a lot of those shares are bought and also it becomes difficult to simply hold those stocks in such a situation). If the share goes down then holding upto down 25% is not illogical as long as the position is small.
5) Day trade only when market seem to be on a strong bullish course. Keep the day trade only when it is strongly on the upside. Best thing is not to day trade and save time for better things.
6) Use the knowledge. Use the hunches. Do not sell the hunch stock easily.
7) Never, never use a limit order to sell. Have patience before selling a profiting stock.
If the logical stop is close to mkt price then put the stop.
8) When a stock is bought and it just goes no where, hold it for at least two weeks. New moves usually take place within two weeks.
9) Do not sell all positions same day, particularly when in doubt. Buys need to be spread out. More
stocks to be bought as the price goes up. Similarly selling also has to be gradual. I have lost potential gains by selling all my positions the same day.
10) Don't sell a stock to buy at a lower price.
11) Don't put more than 25% on any stock to begin with. More money can be added later.
Rules and mistakes:
1) If day trading, close the trade same day unless it is strongly on plus side. All the major losses for
this year has come from keeping a day trade in loss. I lost about $25000 from day trading AMZN
and NSOL and keeping them. Another big loss was on day trading RCNC of $8000. Now I am
having a loss of $10000 from HWP. I initially wanted to day trade on it. Then I changed my
mind and kept it. There was a rumor of bad news on HWP and I ignored that. A stock with bad
news can go down any length. Same about a stock with sector trouble. As of now I have about
$33000 loss this year from day trading and a net profit of a mere $25000. Best is to avoid day
trading all together.
2) Buy strong stocks when they are down. Do not buy them when they have some negative news or the sector has some problem. Don't buy when the breakout is in doubt(LU).
3) If good part of portfolio is down don't keep another losing position(JBL). Such situation might be because the market is not healthy. Also don't get into a stock without following it even if it is a new high or breakout.
4) So far this year I made money when I traded CSCO, SUNW and IBM. Lost often on LU,
DELL, YHOO.
5) Another problem was to sit tight on a stock that is in money. Previously one stock went up
then came down and I lost money and that instills fear that this one also will go down. If only I kept my SUNW shares I would have 46k profit on it now. This has been the biggest problem
with me followed by #1. A little bit patience goes a long way.
Lack of patience and taking small profits. Another recent (11/99) example has been NOK.
6) Spend some time before starting a trade. It is never too late to enter a trade. Spending time will
eliminate emotional factors and facts will take precedence.
7) Trade with logic and facts. Eliminate hope and emotion.
8) Look for a clear breakout. Don't jump on it just because it hit a new high. If it is new high keep watching it. It may be worthwhile to put some money on it if it goes down due to market correction. Observation has been that in a strong market they breakout and in a weak market they just make a new high and then go down. Buying breakout only is the best thing. If a good stock from a good sector hits new high but unable to breakout then the market might be in a corrective mood. So far I have experienced three such times. PCLN in Aug hit new high to 94. I bought it then PCLN went to 60 due to market correction. When market came back it broke out and hit 160 but I sold it for a miniscule profit. When the stock comes back vigorously simply keep the stock. The same happened with SUNW and I took a profit of $250 when the stock came back. Now in Oct. history repeated itself with JBL. Bought at $56. This time however I sold at 49 and JBL is now at 62. After loosing money only I am realizing what has been happening. During such time take the money off or go short. As for shorting do it only when market is weak and the sector is out of favor. During such time it is good enough to be just out of market.
9) Never put a limit sell order. I can remember only the sell of NSOL where I sold at high price. In
all other cases the price always went up beyond the price where I sold. However putting a limit order to buy after a breakout has been generally successful. On two occasions (DAL & AXP) I put a limit buy order overnight but next day there were some bad news (broker downgrade). I got a fill and the stock kept going down.
10) There has been times when I knew that such and such thing will happen. Recent example was
QCOM. It had resistance at 230 then after earning it touched 250. Clear breakout. I instinctively knew the stock will go to 300. But I didn't even think of buying it. The stock hit 300 in a week. When I know something I should act on it. When these breakouts happened I felt I should have bought earlier, buying now is useless. How wrong it is. When to buy ? Breakout breakout breakout.
11) Last one month (11/99) it has happened couple of times that I sold one and then sold all other
stock holdings on impulse. This has to be avoided. The original plan on each stock has to be
stuck to.
12) Take action based on what is likely to happen rather than what has happened before.
It has been a problem to act on beliefs. When (10/1999) DOW and SP500 were trailing I knew NASDAQ
Had to fall. I did not act on this hunch. I should have shorted BMCS which warned and went down. Instead I bought 500 JBL simply because it hit a new 52-week high and broke out on a three month chart. I didn't see it had a resistance there on the longer chart. The decision to buy JBL took less than 5 seconds. I didn't follow it and didn't even know which sector it was in.
I bought LU when I was holding HWP in loss. I lacked confidence. I has a hunch on NT but I never traded NT b4. I was probably afraid of trading NT because of unfamiliarity.
It has been a problem not to follow my own hunch and not sticking to my original plan. How many times I heard "make a strategy and stick to it". In mid summer all chip stocks were hitting new highs and INTC was trading at 55 (high 71). I knew instinctively that INTC will hit at least 71. I didn't get into it. INTC hit 87 in couple of months. Similarly I failed to pick AMAT on a previous chip rally.
The lesson from this year has been to be in the right sector. The hot sector can do well even in a choppy market and it is not so difficult to identify that sector. It has been difficult to sticking to the plan and carrying it out. Last one month (Oct,99) has been devastating for me having lost about 10k.
Last years lesson was not to overtrade which is among few of the things that I successfully achieved.
Memorable lines from Reminiscences of a stock operator :
A trader should have hope and fear. He should fear that the loss will become bigger and hope that
the profit will increase.
Derive conclusion from facts. Do not try to fit facts into your hopes.
When I lost money it never bothered me because I always thought that I learned something.
Knowing something is one thing and acting on it is another.
Weakness :
1) Inability to sit over the stock that is in the money. Sometime the rule to not to let a profit go into loss
conflicts with this. But I should always keep the stock when it is reasonably above my buying price.
2) Not sticking with the original plan.
3) Inability to pick market bottoms and sell tops.
4) Going for stocks that has lagged. Avoid the laggards.
Strength:
1) Spotting the right stock and getting in at the right price.
2) Spotting the right sector and moving out of dead stocks.
3) Timing small, volatile stocks correctly.
4) Speculating on small stocks. To correctly apply technical analysis on small stocks from the right sector. Although taking small profits has been a perennial problem.
Two most important rules
1) Never keep a losing day trade.
2) Buy only the breakout or when a strong stock dips more than 10 %.
The biggest enemy to successful stock trading is your own emotions. You read a lot of books then try stock trading. You loose some or gain some money depending which cycle of of the market you entered. After going through a couple bull and bear market cycle you become a kind of pro. That is if you have any interest, energy and most importantly some money left to trade.
It has been said many many times that the key to successful trading is cutting losses. If you are a reasonably informed person you will have many profit making trades. But a time comes when you buy a stock, it goes down a little. You are hoping that it will come back up. But it dosn't keeps going down to 25%. Then you thinking I should have sold it at 10% but now that it has come down so much let me hold a little longer. Very soon the stock's value is half of what you paid. You forget the ego and dump the stock. You made a good decision. Next year you see this stock crossing your price. You feel down a bit? You should not. This where the emotion comes into play. Based on the situation a year back it was a good decision to take that loss, so you made a good decision but you don't feel good right now.
I have made similar mistakes many times. I buy this stock, it goes down. Then comes back up. As soon as the stock crosses my buying price I sell it and feel great that I made money on that trade. In next few days the stock goes up another five percent. I feel like an idiot. I buy another stock, this one goes up 2 bucks and I hold onto it. Next day it falls three dollars. Now guess how I feel.
How to avoid this kind of problem? Set up rules for yourself and stick to those rule.
Here are the rules I have followed over years. Read on and these might help you as well.
1) Buy strong stock from a good sector when they clearly (a) breakout. The clear breakout will weed out a weak market. Double sure the breakout on a closing basis. The only other times to buy it will be when it is down (b) 15% (25 to 30% for a speculative stock) or it (c) closes positively after a long down turn. By long I mean couple of weeks. Spend time on it before buying, when in doubt stay out.
2) If a good stock from a good sector hits new high but unable to breakout then the market might be in a corrective mood.
3) Always, always avoid buying cheap stocks. That includes a stock that is near the support level during a good market. Avoid stocks under $20 and definitely penny stocks.
4) When dealing with speculative stocks always start with 10% or less of your money and put more money as the stock goes higher. Putting too much money on such stocks makes it difficult to take loss at the technically right prices (selling at right price means a huge loss when a lot of those shares are bought and also it becomes difficult to simply hold those stocks in such a situation). If the share goes down then holding upto down 25% is not illogical as long as the position is small.
5) Day trade only when market seem to be on a strong bullish course. Keep the day trade only when it is strongly on the upside. Best thing is not to day trade and save time for better things.
6) Use the knowledge. Use the hunches. Do not sell the hunch stock easily.
7) Never, never use a limit order to sell. Have patience before selling a profiting stock.
If the logical stop is close to mkt price then put the stop.
8) When a stock is bought and it just goes no where, hold it for at least two weeks. New moves usually take place within two weeks.
9) Do not sell all positions same day, particularly when in doubt. Buys need to be spread out. More
stocks to be bought as the price goes up. Similarly selling also has to be gradual. I have lost potential gains by selling all my positions the same day.
10) Don't sell a stock to buy at a lower price.
11) Don't put more than 25% on any stock to begin with. More money can be added later.
Rules and mistakes:
1) If day trading, close the trade same day unless it is strongly on plus side. All the major losses for
this year has come from keeping a day trade in loss. I lost about $25000 from day trading AMZN
and NSOL and keeping them. Another big loss was on day trading RCNC of $8000. Now I am
having a loss of $10000 from HWP. I initially wanted to day trade on it. Then I changed my
mind and kept it. There was a rumor of bad news on HWP and I ignored that. A stock with bad
news can go down any length. Same about a stock with sector trouble. As of now I have about
$33000 loss this year from day trading and a net profit of a mere $25000. Best is to avoid day
trading all together.
2) Buy strong stocks when they are down. Do not buy them when they have some negative news or the sector has some problem. Don't buy when the breakout is in doubt(LU).
3) If good part of portfolio is down don't keep another losing position(JBL). Such situation might be because the market is not healthy. Also don't get into a stock without following it even if it is a new high or breakout.
4) So far this year I made money when I traded CSCO, SUNW and IBM. Lost often on LU,
DELL, YHOO.
5) Another problem was to sit tight on a stock that is in money. Previously one stock went up
then came down and I lost money and that instills fear that this one also will go down. If only I kept my SUNW shares I would have 46k profit on it now. This has been the biggest problem
with me followed by #1. A little bit patience goes a long way.
Lack of patience and taking small profits. Another recent (11/99) example has been NOK.
6) Spend some time before starting a trade. It is never too late to enter a trade. Spending time will
eliminate emotional factors and facts will take precedence.
7) Trade with logic and facts. Eliminate hope and emotion.
8) Look for a clear breakout. Don't jump on it just because it hit a new high. If it is new high keep watching it. It may be worthwhile to put some money on it if it goes down due to market correction. Observation has been that in a strong market they breakout and in a weak market they just make a new high and then go down. Buying breakout only is the best thing. If a good stock from a good sector hits new high but unable to breakout then the market might be in a corrective mood. So far I have experienced three such times. PCLN in Aug hit new high to 94. I bought it then PCLN went to 60 due to market correction. When market came back it broke out and hit 160 but I sold it for a miniscule profit. When the stock comes back vigorously simply keep the stock. The same happened with SUNW and I took a profit of $250 when the stock came back. Now in Oct. history repeated itself with JBL. Bought at $56. This time however I sold at 49 and JBL is now at 62. After loosing money only I am realizing what has been happening. During such time take the money off or go short. As for shorting do it only when market is weak and the sector is out of favor. During such time it is good enough to be just out of market.
9) Never put a limit sell order. I can remember only the sell of NSOL where I sold at high price. In
all other cases the price always went up beyond the price where I sold. However putting a limit order to buy after a breakout has been generally successful. On two occasions (DAL & AXP) I put a limit buy order overnight but next day there were some bad news (broker downgrade). I got a fill and the stock kept going down.
10) There has been times when I knew that such and such thing will happen. Recent example was
QCOM. It had resistance at 230 then after earning it touched 250. Clear breakout. I instinctively knew the stock will go to 300. But I didn't even think of buying it. The stock hit 300 in a week. When I know something I should act on it. When these breakouts happened I felt I should have bought earlier, buying now is useless. How wrong it is. When to buy ? Breakout breakout breakout.
11) Last one month (11/99) it has happened couple of times that I sold one and then sold all other
stock holdings on impulse. This has to be avoided. The original plan on each stock has to be
stuck to.
12) Take action based on what is likely to happen rather than what has happened before.
It has been a problem to act on beliefs. When (10/1999) DOW and SP500 were trailing I knew NASDAQ
Had to fall. I did not act on this hunch. I should have shorted BMCS which warned and went down. Instead I bought 500 JBL simply because it hit a new 52-week high and broke out on a three month chart. I didn't see it had a resistance there on the longer chart. The decision to buy JBL took less than 5 seconds. I didn't follow it and didn't even know which sector it was in.
I bought LU when I was holding HWP in loss. I lacked confidence. I has a hunch on NT but I never traded NT b4. I was probably afraid of trading NT because of unfamiliarity.
It has been a problem not to follow my own hunch and not sticking to my original plan. How many times I heard "make a strategy and stick to it". In mid summer all chip stocks were hitting new highs and INTC was trading at 55 (high 71). I knew instinctively that INTC will hit at least 71. I didn't get into it. INTC hit 87 in couple of months. Similarly I failed to pick AMAT on a previous chip rally.
The lesson from this year has been to be in the right sector. The hot sector can do well even in a choppy market and it is not so difficult to identify that sector. It has been difficult to sticking to the plan and carrying it out. Last one month (Oct,99) has been devastating for me having lost about 10k.
Last years lesson was not to overtrade which is among few of the things that I successfully achieved.
Memorable lines from Reminiscences of a stock operator :
A trader should have hope and fear. He should fear that the loss will become bigger and hope that
the profit will increase.
Derive conclusion from facts. Do not try to fit facts into your hopes.
When I lost money it never bothered me because I always thought that I learned something.
Knowing something is one thing and acting on it is another.
Weakness :
1) Inability to sit over the stock that is in the money. Sometime the rule to not to let a profit go into loss
conflicts with this. But I should always keep the stock when it is reasonably above my buying price.
2) Not sticking with the original plan.
3) Inability to pick market bottoms and sell tops.
4) Going for stocks that has lagged. Avoid the laggards.
Strength:
1) Spotting the right stock and getting in at the right price.
2) Spotting the right sector and moving out of dead stocks.
3) Timing small, volatile stocks correctly.
4) Speculating on small stocks. To correctly apply technical analysis on small stocks from the right sector. Although taking small profits has been a perennial problem.
Two most important rules
1) Never keep a losing day trade.
2) Buy only the breakout or when a strong stock dips more than 10 %.
Saturday, 28 August 2010
Stock Market Trading Strategy - Day Trading For Beginners
Day Trading For Beginners
The stock market can be a chaotic and intimidating place, especially for the inexperienced investor. While you may have grand plans of investing in the perfect company and stock that will pay you dividends for the rest of your life, it's important for you to realize that most of the trading, and the profit, come in the form of a stock market strategy called day trading. If don't have a good idea of what day trading is, it is the short term practice of buying a stock with plans of selling it in the same day. In order to be profitable, day traders must have a strong stomach and a keen eye for spotting stocks that are about to break out.
If you're going to be a successful day trader, it's important for you to have a solid understanding of the way this practice operates, and to be aware of the best stock market strategy for executing it. The two most important things that a day trader looks for are liquidity and volatility. When these two factors are present in just the right way, a day trader knows that there is a significant opportunity to make a profit.
Liquidity is important to a day trader's stock market trading strategy because it provides assurances that the investor will be allowed to acquire and unload a stock at an excellent price. Liquidity can usually be detected by the volume of shares that are being traded. The second thing that a day trader looks for is volatility, which gives them a good idea of the daily price range in which they'll be operating. The higher the volatility is, the more the margin for both profit and loss increases. Those that don't have a stomach for risky investing would probably be best advised to stay away from day trading altogether.
Another essential part of the day trading stock market trading strategy is to be able to read and interpret stock charts quickly and accurately. Many day traders rely on something called intraday charts, which are often candlestick charts that show entry and exit points as they form throughout the day. It's important that you are able to notice spikes in volume, as well as support and resistance levels. While technical analysts usually look for these things over long periods of time, the day trader might look at them every hour or even more often if trading is fierce.
The stock market can be a chaotic and intimidating place, especially for the inexperienced investor. While you may have grand plans of investing in the perfect company and stock that will pay you dividends for the rest of your life, it's important for you to realize that most of the trading, and the profit, come in the form of a stock market strategy called day trading. If don't have a good idea of what day trading is, it is the short term practice of buying a stock with plans of selling it in the same day. In order to be profitable, day traders must have a strong stomach and a keen eye for spotting stocks that are about to break out.
If you're going to be a successful day trader, it's important for you to have a solid understanding of the way this practice operates, and to be aware of the best stock market strategy for executing it. The two most important things that a day trader looks for are liquidity and volatility. When these two factors are present in just the right way, a day trader knows that there is a significant opportunity to make a profit.
Liquidity is important to a day trader's stock market trading strategy because it provides assurances that the investor will be allowed to acquire and unload a stock at an excellent price. Liquidity can usually be detected by the volume of shares that are being traded. The second thing that a day trader looks for is volatility, which gives them a good idea of the daily price range in which they'll be operating. The higher the volatility is, the more the margin for both profit and loss increases. Those that don't have a stomach for risky investing would probably be best advised to stay away from day trading altogether.
Another essential part of the day trading stock market trading strategy is to be able to read and interpret stock charts quickly and accurately. Many day traders rely on something called intraday charts, which are often candlestick charts that show entry and exit points as they form throughout the day. It's important that you are able to notice spikes in volume, as well as support and resistance levels. While technical analysts usually look for these things over long periods of time, the day trader might look at them every hour or even more often if trading is fierce.
Stock Trading Strategies - The Best Way to Maximize Your Profits
Stock trading strategies will take on various forms that investors will use when making technical analysis of the markets. These strategies are at the heart of any stock trading system that is used in the stock market. Whatever strategy you employ it should look at the specifics that are necessary for entering and exiting any trades and at the same time include risk and money management as well.
With careful study of the stock market investors can implement a strategy and a trading plan that will work for them. With this kind of market research the investor can make educated trades and at the same time keep emotions in check as these can sometimes get in the way of successful decisions. As time goes by it is possible to fine tune your strategy as the markets change but it is always a good idea to hold with your tried and trusted strategies and plans as much as you possibly can.
The obvious goals when setting your strategies and plans in place is to maximize your profit whilst at the same time minimize your risks. You have to know what the risk tolerance each of your investors finds acceptable. With this knowledge the investor is then able to determine the most favorable number of shares with which to trade at any given time, and also the best entry and exit points. Investors have to be made aware that the higher risk investments bring about the biggest profits yet those with a lower risk element may only turn a small profit but this will for the long term. Only the individual investor can make the decision on what works best for them.
Any successful trader will have one rule to which there is no exception in their stock trading strategies, and that rule is to have their portfolio divided up in three different ways. The portfolio will be divided into percentages that will seek a predetermined percentage for high risk, high return stocks, the same will stand for medium and low risk investments. This percentage will vary from investor to investor always bear in mind though, that if an investor has the bulk of their available funds in high risk stocks they should seriously consider spreading their investment as this is seen as very risky.
Another type of stock trading strategy is known as stock screening. This is when the person trading will screen the whole world of securities looking for favorable stocks in which to trade. A lot of traders use what is known as moving averages in their screening technique, this very simple technique is best suited to markets and stocks that trend well. Other traders may look for stocks that are ready to make a breakout after a pullback.
Stock market strategies need to take in a lot of considerations before being implemented and there are just too many to cover in just this one article. Continued education and research on stock market trends is a must if you want to stay successful, there are very many different tools and resources you can choose from it's just a matter of finding the one that works best for you and your clients.
With careful study of the stock market investors can implement a strategy and a trading plan that will work for them. With this kind of market research the investor can make educated trades and at the same time keep emotions in check as these can sometimes get in the way of successful decisions. As time goes by it is possible to fine tune your strategy as the markets change but it is always a good idea to hold with your tried and trusted strategies and plans as much as you possibly can.
The obvious goals when setting your strategies and plans in place is to maximize your profit whilst at the same time minimize your risks. You have to know what the risk tolerance each of your investors finds acceptable. With this knowledge the investor is then able to determine the most favorable number of shares with which to trade at any given time, and also the best entry and exit points. Investors have to be made aware that the higher risk investments bring about the biggest profits yet those with a lower risk element may only turn a small profit but this will for the long term. Only the individual investor can make the decision on what works best for them.
Any successful trader will have one rule to which there is no exception in their stock trading strategies, and that rule is to have their portfolio divided up in three different ways. The portfolio will be divided into percentages that will seek a predetermined percentage for high risk, high return stocks, the same will stand for medium and low risk investments. This percentage will vary from investor to investor always bear in mind though, that if an investor has the bulk of their available funds in high risk stocks they should seriously consider spreading their investment as this is seen as very risky.
Another type of stock trading strategy is known as stock screening. This is when the person trading will screen the whole world of securities looking for favorable stocks in which to trade. A lot of traders use what is known as moving averages in their screening technique, this very simple technique is best suited to markets and stocks that trend well. Other traders may look for stocks that are ready to make a breakout after a pullback.
Stock market strategies need to take in a lot of considerations before being implemented and there are just too many to cover in just this one article. Continued education and research on stock market trends is a must if you want to stay successful, there are very many different tools and resources you can choose from it's just a matter of finding the one that works best for you and your clients.
How to Triple Your Investments on Tomorrow's Stock Picks
Despite what the economy looks like, now is actually one of the better times to begin investing with many stocks at bottomed out all time low prices and are ripe for the picking. Many traders without experience or time to put towards analytical work to find the stocks rely on analytical stock pickers to do that work for them and find the best of tomorrow's stock picks to trade ahead of the curve. Here is how this technology works so that you can do just that to triple your investments in the stock market overnight on tomorrow's stock picks.
These programs rely on mathematical algorithms to anticipate market behavior and highlight undervalued stocks which form the basis of its picks. They are adept at picking up on the factors which lead to breakout trends in individual stocks and simply apply that information to the current market around the clock to find the best of tomorrow's stock picks.
The most obvious and notable advantage of using this technology is of course the fact that all of the analytical work is done for you so that all you've got to do is invest accordingly by the information which you receive in your e-mail. Another notable advantage is that because all the analytical work is done for you, it takes the risky part out of your hands so that no emotions have a chance of factoring in and polluting your trades.
Some of these programs only look for the winning factors in penny stocks, making their picks potentially that much more valuable because it obviously takes a great deal less outside trading influence to affect the price of a penny stock.
Take the first pick which I received from one such penny stock specific stock program. I received the tip late Sunday night via my e-mail and I knew exactly what to invest in and what sort of appreciation to expect and over what time period, as well. This enables you to set your stop loss accordingly to the you can set and forget.
The stock was initially valued at $.15 when the market opened Monday morning and I placed an order for 1000 shares of that particular stock. Over the course of that first day, it appreciated to $.31 per share, more than doubling in that time and climbing 105% in value. Being invested in a highly volatile penny stock which is moving in your favor is one of the best feelings you can imagine, particularly if you're just following the recommended stock pick.
Over the course of that second day, I checked in on its performance every half hour or as often as I could as it continued to climb, finally topping off at $.48 per share. At the time of this article I've made money on 22 of 24 stock picks which it generated for me and I suggest that you take whatever profits you made and reinvest much of it in subsequent tomorrow's stock picks so that you don't have to worry about risking anything beyond your initial investment.
These programs rely on mathematical algorithms to anticipate market behavior and highlight undervalued stocks which form the basis of its picks. They are adept at picking up on the factors which lead to breakout trends in individual stocks and simply apply that information to the current market around the clock to find the best of tomorrow's stock picks.
The most obvious and notable advantage of using this technology is of course the fact that all of the analytical work is done for you so that all you've got to do is invest accordingly by the information which you receive in your e-mail. Another notable advantage is that because all the analytical work is done for you, it takes the risky part out of your hands so that no emotions have a chance of factoring in and polluting your trades.
Some of these programs only look for the winning factors in penny stocks, making their picks potentially that much more valuable because it obviously takes a great deal less outside trading influence to affect the price of a penny stock.
Take the first pick which I received from one such penny stock specific stock program. I received the tip late Sunday night via my e-mail and I knew exactly what to invest in and what sort of appreciation to expect and over what time period, as well. This enables you to set your stop loss accordingly to the you can set and forget.
The stock was initially valued at $.15 when the market opened Monday morning and I placed an order for 1000 shares of that particular stock. Over the course of that first day, it appreciated to $.31 per share, more than doubling in that time and climbing 105% in value. Being invested in a highly volatile penny stock which is moving in your favor is one of the best feelings you can imagine, particularly if you're just following the recommended stock pick.
Over the course of that second day, I checked in on its performance every half hour or as often as I could as it continued to climb, finally topping off at $.48 per share. At the time of this article I've made money on 22 of 24 stock picks which it generated for me and I suggest that you take whatever profits you made and reinvest much of it in subsequent tomorrow's stock picks so that you don't have to worry about risking anything beyond your initial investment.
Friday, 6 August 2010
Earnings Season Reveals Much About Stocks
The earnings season is upon us and given the dire circumstances of the economy, investors are taking a hard look at what stocks are reporting.
Earnings tell investors how much the company earned or lost for its owners (shareholders) in the past quarter, which ended March 31.
How do you judge earnings in the middle of the worst economy since the Great Depression?
Investors may have different approaches to this problem.
Some may factor in the state of the economy and lower expectations accordingly.
This is a good strategy, but you must be careful. Some companies may use the bad economy to hide what would have been a poor performance even in good times.
One way to put some perspective to earnings is to compare the company to its peers.
For example, if a sector was down 25% for the quarter, it would not be unreasonable to expect leaders of the sector to do better than that, although they may still be down.
Companies that matched (approximately) the sector’s performance could be judged as successful for the quarter.
Companies that seriously lag their sector’s performance reveal a level weakness that is dangerous in this environment.
Long-term investors will want to consider why a company is lagging behind its sector. The reasons may prove beneficial in the long run, if detrimental in the short run.
For example, a company may be expanding to grab market share from weaker companies. The short-term impact on earnings may pay handsome dividends when the economy begins moving again.
Unfortunately, weak companies may be in that position because of unwise decisions in the past, such as taking on too much debt or betting the economic growth cycle would never end.
So, the short answer during economic turmoil is the same as it always is: Look for strong companies to not fall behind their peers.
Earnings tell investors how much the company earned or lost for its owners (shareholders) in the past quarter, which ended March 31.
How do you judge earnings in the middle of the worst economy since the Great Depression?
Investors may have different approaches to this problem.
Some may factor in the state of the economy and lower expectations accordingly.
This is a good strategy, but you must be careful. Some companies may use the bad economy to hide what would have been a poor performance even in good times.
One way to put some perspective to earnings is to compare the company to its peers.
For example, if a sector was down 25% for the quarter, it would not be unreasonable to expect leaders of the sector to do better than that, although they may still be down.
Companies that matched (approximately) the sector’s performance could be judged as successful for the quarter.
Companies that seriously lag their sector’s performance reveal a level weakness that is dangerous in this environment.
Long-term investors will want to consider why a company is lagging behind its sector. The reasons may prove beneficial in the long run, if detrimental in the short run.
For example, a company may be expanding to grab market share from weaker companies. The short-term impact on earnings may pay handsome dividends when the economy begins moving again.
Unfortunately, weak companies may be in that position because of unwise decisions in the past, such as taking on too much debt or betting the economic growth cycle would never end.
So, the short answer during economic turmoil is the same as it always is: Look for strong companies to not fall behind their peers.
Basic Steps in How Stock Trading Works
Trading stocks. You hear that phrase all the time, although it really is wrong – you don’t trade stocks like baseball cards (I’ll trade you 100 IBMs for 100 Intels).
You don’t need to know all of the technical details of how you buy and sell stocks, however it is important to have a basic understanding of how the markets work. If you want to dig deeper, there are links to articles explaining the technical side of the markets.
Yet, at the end of the day, the markets workout all the trades and get ready for the next day. Here is a step-by-step walk through the execution of a simple trade on the NYSE.
For the individual investor, you frequently can get almost instant confirmations on your trades, if that is important to you. It also facilitates further control of online investing by putting you one step closer to the market.
You still need a broker to handle your trades – individuals don’t have access to the electronic markets. Your broker accesses the exchange network and the system finds a buyer or seller depending on your order.
Trade = Buy or Sell
To “trade” means to buy and sell in the jargon of the financial markets. How a system that can accommodate one billion shares trading in a single day works is a mystery to most people. No doubt, our financial markets are marvels of technological efficiency. Yet, they still must handle your order for 100 shares of Acme Kumquats with the same care and documentation as my order of 100,000 shares of MegaCorp.You don’t need to know all of the technical details of how you buy and sell stocks, however it is important to have a basic understanding of how the markets work. If you want to dig deeper, there are links to articles explaining the technical side of the markets.
Two Basic Methods
There are two basic ways exchanges execute a trade:- On the exchange floor
- Electronically
Exchange floor
Trading on the floor of the New York Stock Exchange (the NYSE) is the image most people have thanks to television and the movies of how the market works. When the market is open, you see hundreds of people rushing about shouting and gesturing to one another, talking on phones, watching monitors, and entering data into terminals. It could not look any more chaotic.Yet, at the end of the day, the markets workout all the trades and get ready for the next day. Here is a step-by-step walk through the execution of a simple trade on the NYSE.
- You tell your broker to buy 100 shares of Acme Kumquats at market.
- Your broker’s order department sends the order to their floor clerk on the exchange.
- The floor clerk alerts one of the firm’s floor traders who finds another floor trader willing to sell 100 shares of Acme Kumquats. This is easier than is sounds, because the floor trader knows which floor traders make markets in particular stocks.
- The two agree on a price and complete the deal. The notification process goes back up the line and your broker calls you back with the final price. The process may take a few minutes or longer depending on the stock and the market. A few days later, you will receive the confirmation notice in the mail.
Electronically
In this fast moving world, some are wondering how long a human-based system like the NYSE can continue to provide the level of service necessary. The NYSE handles a small percentage of its volume electronically, while the rival NASDAQ is completely electronic. The electronic markets use vast computer networks to match buyers and sellers, rather than human brokers. While this system lacks the romantic and exciting images of the NYSE floor, it is efficient and fast. Many large institutional traders, such as pension funds, mutual funds, and so forth, prefer this method of trading.For the individual investor, you frequently can get almost instant confirmations on your trades, if that is important to you. It also facilitates further control of online investing by putting you one step closer to the market.
You still need a broker to handle your trades – individuals don’t have access to the electronic markets. Your broker accesses the exchange network and the system finds a buyer or seller depending on your order.
Conclusion
What does this all mean to you? If the system works, and it does most of the time, all of this will be hidden from you, however if something goes wrong it’s important to have an idea of what’s going on behind the scenes.
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