Managing Your Own Investment Strategy

When considering jumping into the stock game, you may be tempted to just turn over your money to a so called expert. Since this is their job, no doubt they will protect your money and offer you the best advice, right? However, the fact is that stock managers make a profit whether you are losing or not, so their main priority really isn’t to protect you.

But there is another way. You could mange your own investment strategy. You will obviously take great care to protect your assets.

There’s several things to pay attention to to make sure that this is happening.

First, you may have head or read about a bear and bull market, but may not know exactly what that implies.

The stock market is monitored on a month to month and an annual basis. Each year, the graph is marked at the low point of the year and the high point of the year.

A bull market occurs when the market rises above the one year average and one year high.

The bear market is the opposite, when the current numbers are below the one year average and one year low. Being aware of this is critical to managing your portfolio. 

The bull and bear are really the foundation marks for deciding on how to proceed with your money management strategies.

If you are going to be successful in the stock market then you must be aware of the risks and be able to adjust accordingly. It is highly recommended that you subscribe to a reliable stock report that lets you monitor your investments on a monthly basis. It isn’t necessary to watch the market on a daily basis, because the fluctuations tend to obscure the stock market trend.

After about three months, you should start picking out the trends and be able to make some decisions. Then create a benchmark to see how well you are doing. As an example, compare your success against the S&P 500.

If you see that a bear market is in play, you should think about transferring your funds into a lower risk portfolio, such as a money market, and wait out the storm.

If you see a bull market forming, then consider moving you money into more growth oriented mutual funds.

Certainly, there are other things that you need to know to manage your own money. However, understanding basic investment strategy and the way that the stock market performs can be a great start to managing your money on your own.

As you become more experienced, you’ll start to develop a feel for the process and have a better understanding of the many nuances that occur within the market.

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The In's and Out's of Exchange Traded Funds

In the investing world, exchange traded funds (ETFs) are the latest and greatest. Although they have actually been around for more than ten years it is not until recently that the explosion of ETFs has occurred.

ETFs are a group of stocks that trade on the stock exchanges as if they are one stock. Generally in the past they have tracked a particular index such as the Dow Jones Industrial Average or the NASDAQ-100. Recently, however, they are forming ETFs that have a particular characteristic in common: they invest in a particular region or sector of the market, or have a certain market capitalization.

There are many advantages of ETFs over open and closed mutual funds. They can have a low cost of obtaining since you are paying a commission just like when you purchase individual stocks. If you use a discount brokerage, you can buy for very little money. The ongoing maintenance fees for an ETF are also minimal compared to actively managed mutual funds, and in some cases lower than index mutual funds.

Because ETFs trade like stock they have liquidity. With a simple phone call you can buy or sell. ETF exchange traded funds are priced every 15 seconds and trade continually throughout the day. This is not like mutual funds because mutual funds are only bought and sold at the end of the day. Since the ETF will be held in a brokerage account, it is easily traded.

Tracking an index means less selling within the fund. This makes for a tax efficient fund. ETFs rarely declare a capital gain. You choose when to sell and, as a result, you determine when you pay the taxes.

Index and actively managed funds retain a portion of their investable assets in cash. This is used to pay someone who is selling their fund. Since ETFs trade like individual stocks on the open market there is no need to retain a portion in cash.

There is no room for style drift in an ETF. In a managed fund, they might say it’s a large cap fund, but in reality they might chase performance by investing in small or mid cap funds. ETFs are required to maintain a 99% correlation with the index or basket of stocks that it represents.

Regarding ETF trading strategies, because ETFs trade like individual stocks you have the additional features of stock. ETFs can be sold short or on margin. For buying and selling, they can have buy, limit and stop loss orders. Put and call options can be purchased and sold using ETFs.

There are some disadvantages to exchange traded funds as well. They are not an appropriate investment to use with dollar cost averaging. If you have to pay a $10.00 fee each month when you make that $50 or $100 investment it can be difficult to make up that fee.

With the explosion of ETFs you have to watch what the fund is using as its underlying stocks. Sometimes it can be such a narrow focus that you really are not achieving diversification.

Because trading can be easy, you can get sucked into risky strategies. If you take part in market timing or short term trading, it can result in big losses. Puts and calls, or buying on margin when buying and selling ETFs, is riskier than buying and holding.

Exchange traded funds are the right choice under certain circumstances. For your main holding, you can use a broad index ETF. This can be complemented with ETFs that are targeted to provide weighting in a sector, region or type of market capitalization. As always know what you are investing in and be sure that it fits in your portfolio.

Fast Profits With Hot Stocks

There is a new game in the stockmarket nowadays called hot stocks.  This goes against the normal Wall St.  Recommendation of buy low and sell high.  The new hot stocks strategy is to buy high and sell even higher.  The way it works is that you purchase stocks that are rising in price and sell them while they’re still rising.  The time between the buy and the sale is short. 

Find out what hot stocks are worth buying today.

Rather than purchasing undervalued stocks and waiting weeks or months for them to rise in worth, with the hot stocks approach, you buy stocks that are rising in value .  Instead of holding the stocks, you wait only a short while and sell them when their value is higher than the price you paid.  You turn a fast profit. 

This approach works very well for day traders.  You must have your finger on the market’s pulse.  When you see a stock that’s rising in price gradually, you purchase the stock.  Have a time limit set for holding the stock before you purchase.  You can even sell the stock the same day as you bought.   

If you chance to pick a stock that starts to stagnate or drop in price, sell it straight away, even if you have to take losses.  Never think the stock will recover and you’ll get your investment back.  If it drops lower you can lose even more.  The idea is to maximise your gains and keep your losses to a minimum. 

In many cases, you may sell the stock only hours after you purchased it.  To use this idea effectively, you have got to constantly observe your stock prices and keep on top of the market’s trends.  Hot stocks are a high risk gamble that occasionally does not pay off.  Learn from your losses and celebrate your gains.  If you can a profit on 2 stocks and lose on one, you are still before the game.   

Don’t put all your money into hot stocks.  This is just a method to earn a profit in the stock exchange.  Investors should have a portfolio with solid stocks from different areas of business to protect their investments.  Don’t neglect your long-term investments in favor of hot stocks.  Some of your profits from hot stocks should be put into long tern investments. 

The idea with hot stocks is to get in and get out.  Even if the stock continues to go up after you sell, it isn’t money out of your pocket.  Remember it might just have easily dropped and cost money.  Buy, watch the price and sell when you have a decent return on your investment.  Don’t be greedy.   

If you are paying a brokerage for your investments, hot stocks isn’t an option for you.  Brokerage charges can swiftly swallow your profits.  Look into online stock services that charge a set weekly or monthly charge for unlimited trades.  Trans action charges can be very pricey.  Let your brokerage firm handle your long term investments, look after your hot stocks yourself.  

The stockmarket is a way to grow your investments.  Hot stocks is one way to make reasonable profits in a short amount of time.  When investing your money always use more than one system and make sure that at least part of your money is in a safe, if low yield, financial instrument.  Never gamble on the market with money you cannot afford to lose.  Remember the old Wall St.  Saying” often you eat the bear, and sometimes the bear eats you.” Good luck!

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How to Develop a Trading Edge

First and foremost, you need to realize that only a small percentage of traders are successful at developing an trading psychology and the only reason for them being successful, is because they have learnt how to deal with the aspect of failure.

Developing a trading plan is of fundamental importance as far as trading is concerned. What’s of even greater importance though is that you the trader, manages to convince yourself 100% of the importance of a trading plan. Unless you believe your trading success rests solely on a trading plan, you’ll simply not be willing to invest enough time to develop one.

Likewise, I also emphasize the importance of separating oneself from the larger majority. In other words, one needs to find a trading edge. Remember, the vast majority who decide to trade will end up failing and unless you have an edge, you’ll end up joining them.

You’ve more that likely heard and read that on average; only 20% of people entering the markets are successful and actually make money from trading business. So, when you here me making references to the majority, it’s the group of 80% that I’m referring to.

So, where do these figures come from and how can we be so sure that only 20% of traders make money? I know I don’t have any evidence to back such a statement. In fact, when I first considered it, I was of the opinion that it’s no more than a popular cliche.

Frankly, I can see how such a statement could be backed by evidence unless of course there are accurate audits and precise statistical data.

I’ve spent a considerable amount of time mulling over these figures so it came as a welcome surprise when I became involved in a discussion with someone else who also doubted the accuracy of them.

Interestingly enough, we both agreed that as with other professions, traders fall into one of three categories. On one end of the scale you have the top 20% who are highly successful while on the other end of the scale; you have 20% who fail completely. This in turn leaves us with 60% of traders in between, and this is the group who don’t really fail, but they also don’t make any noticeable achievements either. So, now we can see how the 80% group is made up.

Clearly, the largest percentage of traders falls within the 60% group where they just tend to go with the flow. What is it then that drives others further, thus allowing them to enter the top 20% group?

Given what I do for a living, I firmly believe that most people fear failure to such an extent, that they’re in turn reluctant to take risks. I also believe that far too many people perceive failure to be an entirely negative experience when in fact it need not be.

Years ago when I first started with a trading education, an instructor once said that I should never see failure as failure, but instead, we should rather see failure as an opportunity to improve ourselves. Let’s face it, when you experience failure in a certain area, you’ll be particularly vigilant the next time round in order to avoid making the same errors.

An ideal attitude towards failure can be seen in the likes of Thomas Edison who himself experienced many failures along the road to success. Interestingly enough, Thomas once said that instead of failing, he’s simply discovered thousands of ways which don’t work.

Having come to the conclusion that so many people fear failure, Thomas Edison later added that a large percentage will give up, without actually realizing just how close they are to success.

Of course no trader should be willing to storm ahead blindly but there’s a fine line between caution and the fear of failing. I often have to remind myself that I only live once, in order to give myself that extra bit of encouragement for taking a risk. Of course, I then have to do whatever is necessary in order to prevent myself from worrying about my decision.

If this article leaves you with just one thing, I hope it will encourage you to cast off those shackles which keep you restricted to the middle 60% group. While I certainly don’t advocate throwing caution to the wind, please don’t allow yourself to be intimidated by a fear of failing. Take some risks and face your fears, and you’ll be much more likely to get into the top 20%.

The Hidden Secret of a Perfect Trade Entry

I think most professional traders already know the secret of a perfect trade entry, but it’s the newbies who insist on searching for the Holy Grail of trading. Well, you need look no further because the secret of a perfect trading entry is that there’s simply no such thing as a perfect trading entry. Unfortunately, you’re never going to find that perfect magical indicator that tells you when to get in and when to get out.

As I’ve just mentioned, while the pros are aware of it already, those who are new to trading need to accept the fact that a “perfect” indicator does not exist.

What is it that drives people to believing that it does exist?

According to dr van tharp who is himself a much respected trading guru, the reason lies in the fact that many novice traders believe that if they’re actually involved in the selection and entry into a trade, they somehow have some measure of control over the market. He also goes on to compare this phenomenon with the behaviour of many people who play the national lottery. Of course the lottery players he’s referring to are those who favour choosing numbers which are relevant to their personal lives, such as birthdays, anniversaries, and etc.

These people choose these numbers because they believe the numbers are ideal, thus giving them a greater chance of winning. Of course, their combination of numbers has the same chance of winning as any other combination would have, but the difference is, there’s a certain degree of emotional attachment involved. This tends to impart a feeling of power and/or control over the final outcome and this is the exact same reason why traders want to do the same with their trade entry.

What you need to realise is, you are in total control of your circumstances when you enter into a trade. Only you can decide whether or not you should proceed or back away. On the other end of the scale, once you’ve actually entered into a trade, you have absolutely zero control over the way the market behaves.

Contrary to what you may currently believe, the amount of money you make on a trade depends primarily on how much you put into a trade and when you exit the trade, and not when you enter it.

Let’s try and shed a bit of light on this by looking at an example:

You’ve decided to buy some stock and according to the trading system you use, you should buy at $10 and exit at $12. Now let’s consider two scenarios. In the first one you have $1000 and in the second you have $5000.
1) You purchase 100 $10 shares with your $1000. When they reach the $12 mark you sell and as a result, you rake in $200 in profit.
2) With your $5000 you are able to purchase 500 $10 shares. Here again, once they hit $12 per share you sell. This time your profit stands at $1000.

So, as you can see in the example above, the amount of money you make is determined primarily by how much you invest initially, and not by your trade entry. This is in fact the very foundation of good money management.

How to Get the Most Out of Your Trading Capital using Trader Money Management

As most traders will tell you, there’s no such thing as a set amount of capital when you start trading although it should be mentioned, the more you have to start off with, the easier it’s going to be. But generally it all depends on trader money management.

You’ll tend to find that it’s the brokerage you need to be aware of as the vast majority of brokers charge a set fee. Obviously, the more capital you start with, the more affordable the fee will be for you.

The advantage of a large fund becomes apparent when we for example take two traders, each using the same broker and each facing the same fees. While one trader has $1000 to trade with, the other has $10,000. If they are both being charged a fee of $100 per trade, the trader with $1000 would need to make at least 10% in order to break even. The trader with $10K on the other hand, would only need to make 1% in order to break even.

Essentially, all I’m saying is that those who start out with a small fund are at a slight disadvantage.

Likewise, the size of your float is going to have a direct impact on which system of trading you use.

In my opinion, short term trading systems such as day-trading are far better suited to those with a slightly larger float. Those with a smaller float should rather consider a long term trading system because not only does such a system allow for you to continue with your regular job, but such a system also involves considerably less broker fees. As time goes on and you gain some experience, then by all means start experimenting with short term systems.

I know that many people start saving money before they actually start trading and of course there’s nothing wrong with planning ahead. On the other hand, there are those who max out their credit cards in order to start trading and for the most part, I certainly don’t advise this course of action. Sure, if you’ve got the necessary trading experience then yes, you can loan money from the bank, just as many others do in order to start a regular business. Remember though, the more money you invest, the bigger the results will be. Win and you win big, but if you loose, you’ll also loose big. The best advice I can give, would be that you start out slowly rather than risking your life savings only to loose everything in trade loss.

Of course it goes without saying that your focus should be on your trading, without the added burden of debt from credit cards. Max out your credit cards for the sake of trading and you can be rest assured that you biggest concern will be the card repayments, rather that good trading. In Don Miller’s “Trading Markets World Meet the Traders”, he sums it up nicely by advising new traders to focus on good trading rather than making money. Furthermore, it’s generally accepted that unless you have enough money to live off for at least two years, you shouldn’t consider trading as a full-time business.

Take a bit of advice from the professionals and start trading part-time only. This way you’ll be gaining some experience and at the same time you’ll start to see some returns coming in.

Short and long-term trading systems:

Short-term systems involve trades of 1-30 days and they involve taking part in more trades. While the number of wins will be higher, short-term systems demand a lot of time as well as a high level of skill and expertise.

Long-term systems involves trades of a month or longer, hence the need for fewer trades. While this means less wins, it also means you require less capital and it’s all round a better system for those who lack trading experience.

Essentially, the amount of money you have available will determine how much trading capital you start with. Of course, the tools you choose to use and the amount of risk you’re willing to take will also have an impact on how much capital you choose to start with. As I’ve mentioned earlier, there’s no “ideal amount” to but instead, decide how much you’re starting out with and then keep it aside as an individual business.

As a personal bit of advice, I would suggest you have at least $10,000 to start off with, and remember, your trading venture is just like any regular business so please treat it that way.

Establishing A Day Trading Plan

How imperative is it to carry out a day trading plan?

Why do you require a trading plan?

This article will explore numerous significant aspects of why you should maintain a trading plan, as well as the crucial elements of your trading plan.

A trading plan is of high magnitude to your trading success. Trading is a business, and the majority of businesses should have a plan. Fastidious planning is essential to your success. In fact, strategic plan developmentdevelopment will do you well in business as well as in trading.

If you don’t have a trading plan, your trading decisions could be habitually based on hunches and emotions – and chances are you will not accomplish trading success, over the long term.

By trying to trade without a trading plan – costly mistakes are inevitable. Emotional decisions are the generally destructive issue for a trader. Do not allow your emotions to dictate your trading routine.
It is not necessary to have a intricate trading plan, keep your trading plan plain. Have a written trading plan, as the procedure of writing things down can be critical to your accomplishment as a trader.

After spending many trading days paper trading your system, you are more easily able to set out and arrange a trading plan.

A trading plan must take account of not only your goals but must also specify how you intend to achieve them.

Steady procedures can only be achieved through a meticulous written trading plan. Traders must trust their trading plans, and remain true to their trading plan.

A day trading plan must include a few basic issues such as your trading goals and objectives. A trading plan must consist of your entries, profit targets and stop loss.

Entering into a trade is one of the earliest decisions you formulate when trading. However, this is also on of the least important……

A trading plan ought to also encompass position size. How much are you prepared to lose on one trade? The smaller the percentage of your trading account committed to any one trade, the larger the chance of your being winning. You want to be aware of the highest amount at risk for each trade. You additionally need to identify the maximum amount you are prepared to go down for the day before you stop trading. Protecting your investment, or money management, is without a doubt an enormously crucial ingredient of success.

The goal is not only to yield money, but also to be able to keep on making riches consistently for an extended period of time.

When in a successful trade, be tolerant and entirely benefit from the victory. The proverbial trading axiom is, “cut your losses short and let your profits run”.

A trading plan ought to identify precise goals to accomplish in a set time.

Having a written trading plan gives one an edge over nearly all others and as the failure percentage of traders is so great, how can you afford not to take a written trading plan.

A written trading plan will not assure you success, but not having one will pretty much guarantee failure.

The basis to any day trading plan is how well it performs over time.

Have you paper traded your system for a decent period of time? This would yield confidence to conquer every single setup. If you have a few stopouts in a row, which is inevitable to take place at some stage, you continue to take each and every one of the trades. Will your system perform in the long term?

You have tried your system and tested it and you are on cloud nine to go live with it. Now is the moment in time to write out your day trading plan.

 

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