Three Tips For Effective Stock Investing

Contrary to popular belief, the stock market is not a black hole. There are many investors who make significant profits investing in stocks, mutual funds, exchange traded index funds and more.

To avoid the dreaded investing black hole and conquer the stock market, remember these 3 essential tips:

1. Become Resourceful and Knowledgeable

The key to successful stock investing is to know absolutely anything and everything about the company and the factors that affect its overall performance. There are two outstanding resources to check out before investing in the stock market:

a. Newspapers: find out updated information about the country and regional economy from newspapers. These conditions greatly influence the well-being of the stock market. Besides news about the economy, news about society, weather and politics can also have an influence on stock investments.

b. Internet: online resources provide valuable information such as "How To Be The Next Warren Buffet". Search engines make it simple to find exactly what you want by simply typing a word and gathering the related information that comes up. It's important you spend some time on the company's website to learn more about them, their financial health, etc.

2. Analyze Prospects Carefully

Info gathered from the Internet can be a lot to process and is sometimes inaccurate. Every website you consider must be carefully reviewed for validity. Pay attention to the details and if you don't find reliable info to back up a particular claim, move on to another website. use bookmarks while researching. Skim through each link on the list and bookmark the useful ones for reading later. When you have 3 or 4 sites bookmarked, you are ready to star conducting detailed stock mark research.

3. Patience is Important

It's important you're patient along with having a strategy. If you do not need the profit immediately, hold on for a longer period of time. Historically, stock investments gain an average of 10 to 12 percent over a 10 year period. If you stick it out and hold onto your stocks for that long, there's a good chance you'll realize this return.

When you keep these 3 essential stock market investing tips in mind, your research will make you a more effective stock market investor.

Is Trend Following The Right Strategy for You?

The technique of trend following goes against the old Wall St.  Philosophy of buy low and sell high.  It takes advantage of the market whether the present trend is up or down.  Traders using the trend following strategy begin trading after a trend is established.  Other traders attempt to foretell what the market will do, trend followers wait for the market to do it.  The dimensions of the trading account and the volatility of the issue are the primary determining factors in how much to invest. 

Click here to see a trend following strategy that generated 48% return last year.

Most trend followers invest in sophisticated software that can be programmed to exit if the trend changes suddenly.  Then the traders keep waiting and see if the trend reasserts itself before reinvesting.  This is about following the already established pattern of certain stocks. 

The single most vital indicator for a trend follower is cost.  He may take other factors into account, but price is the ruling factor.  The timing of the trade is the second significant factor, while it is less important than the amount of the trade.  Before the trader buys, he’s got an exit plan ready knowing when he’ll sell whether the trade is rewarding or not.  The software allows for a stop loss to be set when the loss reaches the maximum acceptable amount. 

Before entering a trade, most trend disciples will test it on their software so they can evaluate the probable risks and gains.  The software is programmed with numerous factors relating to the particular trade.  The trader then decides if he should make the trade under consideration. 

One issue with trend following is the impact that unforeseen events can have on the market.  Political upheavals, natural disasters and other events can effect the market in both positive and negative ways.  When Hurricane Katrina cause large damage to grease rigs and pipelines in New Orleans, the cost of oil and gas skyrocketed in the expectation of dearths.  Although no severe shortages happened, speculators and trend followers, in both the exchange and the commodities market, kept the cost of oil raised for months after the event.   

By definition, all stock exchange investing is speculative.  Following trends is a selected system for utilising swings and roundabouts in the market and using them to your own advantage.  Unlike hot stocks, which involve holding stocks for extremely brief periods, hours or days, trend following involves keeping stock for longer periods, though the basic principle is reasonably similar.  In trend following one might hold the stock for a week or a month depending on the trend. 

I you do not have a plan and the right data when you enter the market, you will almost certainly lose money.  Learn all you can and employ trend following together with other proven methodologies and you will make the most of your investment greenbacks.

Learn how you can apply trend following to ETFs and generate great returns with low volatility.

Play The Market With Hot Stocks

The strategy in the exchange has traditionally been buy low sell high.  The strategy of hot or momentum stocks is buy high and sell higher.  The idea is to watch for stocks that a rising in worth, buy them and then sell when they stabilize or start to lose value.  By trading this way, you do not have to hang onto the stock as long.

Find out what hot stocks are worth buying today.

The benefit of purchasing stocks this way is the short turn around time.  Your money isn’t tied up waiting for an undervalued stock to rise.  The old method is still good, but adding hot stocks trading to your investment planning will help grow your money quicker. 

Hot stocks are excellent for day traders.  If you watch the market trends closely you can choose from stocks that are on the rise.  The most important trick is not to become greedy.  Decide before buying the stock the maximum time you intend to hold it before selling.  Whether or not the stock is still rising, sell according to your time table.  Take your profits and get out. 

If you selected a hot stock that turns out not to be so hot, shed it straight away even if you have to sell unable.  Holding on to the stock after it starts to drop could bring an even bigger loss.  The stock market is a bet and often you lose.  Minimize your losses.

In several cases, you can sell the stock only hours after you bought it.  To use this idea effectively, you have got to continually monitor your stock costs and keep a lid on 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 may a profit on two stocks and lose on one, you’re still ahead of the game.   

Anyone who is trading seriously in the market should use more than one methodology.  Hot stocks are great, but they’re frequently high risk.  Your portfolio should be diversified, with proven stocks from different business sectors.  This helps offset losses and protects your investments.  Hot stocks should be part of your investment plan.

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 may just have simply dropped and cost cash.  Buy, watch the price and sell when you have a good return on your investment.  Do not be greedy.   

Many backers employ a broker to buy and sell stocks.  Hot stock investing isn’t designed to be used with a broker.  If you have got to pay a broker’s fee for each exchange, hot stocks could cost more than you are making from them.  Online services for purchasing and selling stocks are better suited to this investment system.  Look into ways to duck brokerage charges if you intend to add hot stocks to your investments.   

The stock market is a way to grow your investments.  Hot stocks is one way to make reasonable profits in a short period of time.  When investing your money always use more than one method and make sure that at least part of your money is in a safe, if low yield, money instrument.  Never bet on the market with money you can’t afford to lose.  Remember the old Wall St.  Saying” occasionally you eat the bear, and occasionally the bear eats you.” Good luck!

Check out the best stock newsletter in 2008.

Mutual Fund Investing

Mutual Fund Investing Facts

Do you understand Mutual Fund Investing?. You may be a savvy investor in the stock market or not, but you’ve probably heard the term Mutual Fund. A few years back knowing nothing about the workings of stock investing was more common. That can lead to losing some of your hard-earned money in the markets.

Mutual funds are collections of stocks and bonds owned by a group of people rather than one individual investor. This will make it a more advantageous since it allows investors to buy with less money than it would take to purchase the same amount on their own and it spreads the risks among groups of people.

The performance of a mutual fund depends mainly on the efficiency of fund managers who manages a portfolio of stocks on behalf of investors. Making informed decisions, choosing a rated and well-performing fund manager is critical to your financially future in the green mutual funds market. So its critical you understand the basics points of Mutual Funds Investing.

Its true that there is really is no strategy invented in investing that is completely safe and without risks. Mutual funds, however can have lower risks than many other investment options, that makes them attractive for those who lack the skills in investment markets. Fact is, mutual funds have much better rates of return than the average savings account and the risks are minimal in this type of investment, compared to other riskier options.

There are basically three types of mutual funds with some variations on each.

  • Money market funds. These funds are great for the long-term investor who have a slow and steady approach to investing that are better than leaving your money in interest-paying savings account.
  • Equity funds that provide slow growth over time with a little income along the way. 
  • Fixed income funds that are created to provide a current income over time. This is great for those who have retired or investors that are extremely conservative.

Diversification is one of the key ingredients of a healthy portfolio and energy mutual funds will help you get diversified in a broader way. If you’re young and just beginning your career and in no real hurry for retirement, this is the one of the best ways to invest your money for the long term. But with most mutual fund investing you do not have the high payoffs that many investors will seek to include for their retirement planning.

What To Do If A Trade Goes Against You

Trade Goes Against You

Expecting a miracle? It probably will not happen. This article is written to deal with trying to trade out of a losing position, NOT to ignore stop losses. Ignoring stops is the surest way in the world to take all the money in your account and just flush it down the toilet. I am serious. While that might help you in the short run eventually there is a 100% chance you will have a massive loss, like 50% or more on your money lost that is invested in the trade if you don’t use a stop. In addition, you will accumulate a portfolio of losing positions and have no more money to trade with. Every huge loss starts with the trader refusing to take a small loss – often times as a result of taking a loss or a stopout and then watching the stock turn in their favor. So the thinking is “They are not gonna get me this time”.  This is how traders learn to trade with bad habits.

The first thing to realize, there are 4 reasons losses that can happen when you are in a day trading or swing trading.

1. Timing is off on the entry
2. The direction you think the stock will move is just wrong
3. News items come out and move stock or index against you
4. Your price target to exit is too far away

We will address these one by one.

1. Timing is off on the entry

If your entry timing is off, this usualy means the price will move a bit in your favor, then against you within the first 5 to 10 minutes. The amount the price moves against you will be way more than any profit so far, but it does not go to the stop area either. This can be identified by the price hesitating and moving up and down, just below your price for long or just above for short. It should not make a beeline against you and it should not go right near your stop in the first few minutes.

The easiest way to deal with this happening is to assume that your timing is going to be off. Enter long or short only one half to two-thirds the actual size you want in a position where you think the timing is right. To make sure this never happens, do not use market orders. Place a limit slightly below the current market quote, most of the time you will have no trouble getting filled. Obviously you need to be aware of the trade type – if it’s a breakout and you don’t think you will get filled if you don’t use market, then for sure just go in. Most trades will not just run immediate, including breakouts. Once you receive a fill back, make sure you place an initial stop loss for that position. Wait a few minutes and see what the stock price does. If it runs in your favor immediately, well then your timing was perfect – trade what you have OR look for the remainder on a small dip.

Most of the time the best deal is to stick with day trading what you have. If the stock moves against you more than for you in the first 5 minutes, but is not a beeline against you (meaning it looks like the trade will stop out etc), then put in an order to add at the low of this 5 minutes (for long) or the high (for shorts). If you are an aggressive trader, you can put in some additional orders and press bets above the high for longs or below the low for shorts. If you are not able to get filled on your better price add shares, the press bets additional shares will usually work out because this means there is not much selling. If the price moves so that you can add at a better price, then make sure you cancel the press bets add shares. If you get filled on your additional shares, you can move your stop down slightly but increase to include all shares OR just place a separate stop on teh add. If you get the press bets add, move your initial stop up to just below that low of the 5 minutes, and make sure you increase the shares.

2. You are dead wrong on the direction

This often happens to even the most seasoned traders. You try a breakout that fails, you try to catch a turn at the bottom of a downtrend, you think a stock will follow another stock with bad news down … the common element is you are dead wrong. Usually these types of trades will be self evident from the get go – meaning within a few minutes its already far further against you than it ever went for you AND it does not oscillate. By this I mean the upside is severely limited (for longs) or downside limited (for shorts). This means it can move easily one direction, but really, really struggles in the direction you bet.

Usually if you see this happening, the only chance you have is to try to double down near your stop. You are looking to risk another 15c to 20c on double size, betting it will turn in your favor before you stop out. If you want to attempt this, care must be taken to use discipline. Do not try to force making money on the trade. The thinking is to try to minimize the loss by catching a turn near the stop area, with minimal risk on the add. If you can cut the loss in half or even get to even, get out. Move on to the next trade.

If you doubled down and actually caught the turn, you would want to move the stop up on all to just below the turn. When the price moves halfway back from your secondary add position to the price of your first entry, sell the additional shares so you are left with only your original position. On the additional shares you want to keep you stop to just below that entry. The theory is the side that was pushing the price so far against you finally got washed out, so give the rest a shot. Because you made a bunch back with the added shares, if you get stopped you will lose less than if you did not do that. It is your call to decide if that is the best thing or to just exit all of the position with a minor loss and move on.

3. News events happen in real time and can cause the stock or index to move against you sharply

This is arguably a tough situation. Not only do you have to be able to read and analyze the news very quickly, you must decide what impact it will have on the stock price. The call is would this type of news cause the stock price to go far enough to hit the stop level? If the answer is probably yes, exiting at market before the stop will save you money. If you think there is a chance the news would not stop you out, the plan is to exit the position on a counter move the other way. Most of the time there is no good way to add shares to trade out of a news play where you get caught. Occasionally the market will react in way A, but a few minutes later they realize they are wrong (or someone made a bad assessment, and the market is changing its mind) and react in way B. If you can uncover and notice that this will probably happen, the add point is the high of the bar where the news came out. Most of the time that will run any stops and trap traders playing the news as a quick trade, forcing them out.

4. Your price target to exit is too far away

This is common to. You have to kind of guess based on how the stock has been trading, localized volatility, and support resistance points where a price move might go to. It is very common to think it can move to A, but it struggles to get to even half of A. Usually these types if you don’t monitor them real close will turn into losing trades. The main reason is a scale up seller (for long bets) or scale down buyer (for short bets) is betting the other direction and absorbing a lot of the volume.

Most chart setups will attract trader attention and the more obvious a trade looks but does not work or really struggles, the bigger th indication is to get out immediately. Some of these can result in a huge move the other way because they trap lots of short term money in the stock trying to trade whatever setup happened. There is no real method to add to work your way out of it, you really just need to pay attention. If the stock appear
s weak (meaning it should be going up but its not) and you think you should exit – usually this is the right thing to do. Your instincts are telling you something important – for the trade setup, the stock is not trading like it. Getting out is the best solution because you are looking to avoid your stop getting hit and saving a bigger loss. Also realize if you exit early, and then see it was a mistake, you can always get back in with a click of the button.

Do not expect to make money on every trade, its simply not possible – you have to pick your battles. If you sense something is off or wrong and you are at a loss, take the loss and move on. Sticking around and trying to always make money will actually result in bigger losses eventually. You can think of the God rule (just a catchphrase) – When a trade goes wrong, (God) gives you one chance to get out – it’s up to you to realize the chance and take it.

Newer Entries »