Creating Your Own Investment Strategy

When think about leaping 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.

Being aware and managing your own investment strategy is the best way to make sure that your funds are actually making you money.

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. And on the yearly graph, we can both the high point and low point that the market has reached.

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. Knowing how this cycle works is essential to your investment strategy. 

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

Most people who are successful in the stock market are aware of the risks and manage those. You should definitely be subscribing to a reliable stock report that lets you track your funds on a monthly basis. You should avoid looking at things day by day, however, because the fluctuations make it harder to see the stock market trend.

After about three months, you should start seeing 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 performance 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.

When a bull is developing, move to funds with a higher return like the S&P stock funds.

Obviously, there is much more to the successful self management of your money. But a knowledge of the basis strategies and the workings of the stock market are the first steps to assuming control of your own investment strategy.

As you gain experience, you’ll become much more adept at understanding and recognizing the ebbs and flows of the market.

The Basics of ETF Trading

Basics of ETF Trading

In the investing world, exchange traded funds (ETFs) are the latest and greatest. Although they’ve been available for more than 10 years, it wasn’t until recently that the popularity of ETFs took off.

ETFs trade on the stock exchange as if they were 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 putting together ETFs that have a characteristic in common: they invest in a region or sector of the market, or have a certain market capitalization.

Exchange traded funds have many advantages over 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 different from mutual funds that are only bought and sold at the end of the trading day. Since the exchange traded fund will be kept in a brokerage, it can be traded easily.

Tracking an index means less selling within the fund. This is a fund that is very tax efficient. It is rare that an ETF declares a capital gain distribution. This means you determine when the taxes will be paid on the gain by choosing when you will sell.

Index and managed funds keep some of their assets that are investable 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 an actively managed mutual fund, the fund can say it is a large cap fund, but may chase performance by investing in small or mid caps at times. Exchange traded funds are required to keep a 99% correlation with the index or collection of stocks that it represents.

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

There are of course disadvantages to ETFs as well. They are not ideal for 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 popularity of ETFs, you have to be careful as to what the fund is using as its foundation of 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. Buying and selling ETF puts and calls, or buying on margin, is speculating and is riskier than buying and holding.

Exchange traded funds are the right choice under certain circumstances. You can use a broad index ETF as a core holding. This can be complemented with ETFs that are targeted to provide weighting in a sector, region or type of market capitalization. As always, be smart and invest slowly.

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.

How to Develop a Trading Edge

Unless you’re capable of developing an attitude that doesn’t allow for failure to be an option, you’re not going to be able to develop a trading edge and trading psychology.

No matter how many times I stress the importance of developing a trading plan, only you are able to convince yourself. However, I will go as far as saying that unless you do, you won’t develop an effective plan because you won’t be willing to sacrifice the amount of time and effort required.

Additionally, I also highlight the fact the majority of people who are new to trading, end up failing. This I feel helps traders to realize that unless they develop a trading edge, they too will become one of the masses who never experience success trading.

Practically anyone involved with presenting trading education, will at some point mention that the vast majority of traders end up failing. In fact, only about 20% of those who play the markets actually end up making money. When I say you need to separate yourself from the majority, I mean you need to separate yourself from the 80% who fail.

Is it simply a cliche, saying that only 20% of traders are successful while the remaining 80% fail? I certainly know that I for one am unable to back this up with solid evidence.

To the best of my knowledge there are simply no audited reports to back this up so the integrity of such a statement is questionable.

Just recently, after delivering a presentation, someone mentioned that I had included this so called “cliche” in my presentation but the interesting thing was, he also didn’t think the figures were 100% accurate.

After much discussion we concluded that the 80% group actually consists of two groups. The top 20% of traders become highly successful while the bottom 20% fails completely. In the middle we have the 60% who while they don’t fail, they also don’t make any significant gains. It is this group of 60% together with the bottom 20% which make up the 80% group I mentioned earlier.

That 60% group in the middle of the scale can’t really be classified as failing because they don’t fail as such. The question however is, what is it exactly that spurs others on to entering the top 20%?

Unfortunately, the majority of people I come into contact with tend to see failure in a negative light although it need not always be a negative experience. Likewise, the majority of people I deal with are so intimidated by failure, that they are simply unwilling to take any risks.

Contrary to what many believe, failure is in a sense, the very highway to success. It’s what makes success possible in the first place. Each time we encounter failure resulting from one or more errors we made, we’ll take significant steps in order to avoid repeating those same errors in the future. This is exactly why in the last paragraph; I mentioned that failure need not always be a bad thing.

“I have never failed but I have learnt of thousands of ways which don’t work”. These were the wise words once spoken by Thomas Edison and as we all know, in the end he succeeded in achieving his goal even though he encountered failures along the way.

Another interesting point made by Thomas Edison, is the fact that many people who throw in the towel as a result of fearing failure, do so at a point when they are just about to be successful in their trading business.

We’ve all heard the sayings regarding life being too short and just how precious time is and to be honest, I say these to myself everyday. Having said that, this usually happens just prior to me taking a slightly higher risk that normal and of course I then need to live my life without loosing sleep over my decisions.

Essentially, you need to discard your fears of failing if you really want to experience success although having said that, I am certainly in favor of exercising due caution. If you can apply some of what you’ve just read, to your trading experience, there’s every probability that you’ll soon manage to get into the 20% that experience great success.

Dont Overlook Back Testing With Your Trading Systems

To avoid trading in the dark, you need to master the art of back test.  Your wife and kids will be proud of your trading, if you use the back test. You don’t want to be the one who invests more than he can afford, and then crashes and burns. Like I have said previously, one of my favorite aspects of trading is that you can test your plan or system without fronting any money, which is called back testing.

The back test as an area is not given much importance by most traders. The  important of  psychology and money management has been highlighted by many trading coaches.  All you have to do is look around on the World Wide Web to see the vast array of information. While there is a large amount of information available both online and offline, it is often overlooked. The additional attention has, however, been at the expense of the back test; consequently, the least appreciated and least understood area of trading is back testing.

Back tests have an influence in many areas, including both financial and psychological ones. It has a direct impact on a trader’s exits, entries, management of money and psychological impact in the following areas:

– When you do entries and exits use the information you have discovered by testing your systems performance to make the proper changes to get the end product you desire.

– Money management – back testing helps you to evaluate different money management schemes to know which one suits your system best.

– The Psychology Behind It – As per the book, psychology helps build your confidence by weighing the weaknesses and strengths; thereby, building your ability to effectively perform, in your trade.

No matter what technical method you use (volatility break outs, moving averages, or any different trading method) you will need to analyze it fully to be confident with the process.

Without the use of back testing, traders become suspicious and start questioning the working of their own trading systems. Due to problems in their trading system, many get lured to the bad decisions giving in to temptations of latest fad topics or doing rounds in the chat forums. As well, they will toss their system and replace it with the newest, biggest thing thinking its a shortcut to success.

Things which seem to good to be true will attract traders who are dissatisfied with their trading system for the only reason; the trader has not tested his system.  Therefore, confidence in the developed system is not what it be in order to lead to success.

Back testing allows a trader to verify their system’s effectiveness and shows where a person’s trading skill is at its best.

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.

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

Contrary to what some may believe, there is no “perfect amount” to start trading with although the more you have, the easier it is because there are some fixed costs involved with trading. Mostly it depends on how you do the trader money management.

While some may disagree, brokerage is not something one should overlook. Remember, most brokers charge a flat rate, irrespective of the size of your fund.

Let’s just say for example, there are two traders who want to enter a trade. One has $1000 in their fund while the other has $10,000. If these two traders both choose the same broker and that broker charges $100 per trade, the trader with $10,000 will only need to make 1% in order to break even after paying the broker fee. The other trader however, has to make 10% in order to cover the broker fee.

Yes, you can start trading with a small fund but you just need to be aware of the fact that those with a larger fund tend to have the advantage.

Yet another factor determined by float size, is the trading system you choose to use.

If you’re starting out with a relatively small fund then I’d advise you to look at a long term trading system rather than a short term system like day-trading. Of course, while there are many reasons for me saying this, the most important benefit is that a long term system can be managed with great success even while you continue working in your regular job. As you gain experience and become more confident, then yes, start experimenting with a short term system.

If you want to start trading after having saved up a large sum of money then fine. After all, there’s nothing wrong with planning ahead. However, if you’re considering borrowing the money then you need to be extremely careful about trade loss. Remember, investing a huge sum of money in a property is not the same as trading, and before you consider taking such a risk, you really need to gain some experience first. Whatever you do, don’t be tempted to fund your trading with credit cards. Instead, gain some experience and then if need be, you can always loan money from the bank.

As Don Miller mentions in Trading Markets World Meets the Traders, new traders should focus on good trading rather than making money and for this reason, funding your trading with credit cards is a bad idea. Why? Because you’ll end up spending most of your time worrying about the repayments and far too little time worry about good trading. In fact, unless you have enough money set aside, you shouldn’t even consider giving up your regular job and when I say “enough money”, I mean it should be enough to support you for at least two years.

Part-time trading is ideally the way to go for beginners because it won’t place excessive strain on your finances and apart from that, you’ll have the peace of mind knowing you still have a steady income while you’re learning the ropes.

Short-term trading systems and long-term trading systems:

Short-term systems where trades are typically from one to thirty days require a great amount of expertise and experience, not to mention the fact that they’re extremely time consuming as well. In this case, traders seek to accomplish a high number of wins by taking part in more trades.

Long-term systems require considerably less skill that short-term systems. For the most part, those involved in a long-term system focus less on multiple trades and frequent wins, but more on capital growth instead.

As I mentioned earlier in this article, nobody can say what an ideal starting amount is because it depends on a wide range of factors. These include, but are not limited to, the amount of money you have available, how much risk you can cope with, and which sort of market you’re looking at. However much you decide to start with, set that money aside as a stand-alone business. Doing it this way will help to prevent you digging into profits which in itself results in one loosing focus.

While there isn’t an “ideal amount”, I recommend you have at least $10K set aside as a trading capital. Don’t forget, this is also a real business so it should be treated as such.

Stock Trading Golden Rules

To be successful in stock market, you need to prepare few guidelines. If you follow these guidelines consistently, you will make money with stocks. Obviously you will most likely lose your money if you break your own rules. So my suggestion is to follow these rules no matter what.  People might suggest you to go for Stock trading software as an easier route.  However sticking to your own share trading rules will certainly be worth during the long run, it is the discipline that will help you make big profits. So look at these rules  before you enter the stock trading.

Stock Trading Guideline No 1: Be an Expert at a trading style.
Different people will have different stock trading styles. Do not try to do them all. You keep improving and practicing at the one style of share trading that is most suitable for you. Do not hop from one trading style to another. You should master one trading style  rather than trying to make poor attempts at implementing numerous method.

Stock Trading Guideline No 2: Never risk over three percentage of your total portfolio on any single share.
Protecting your primary investment is vital if you want to be in stock trading for long time.  Keep in mind that you are not trying to acquire the firm, you are just trading their stocks to make profit.

Share Trading Guideline No 3: If market goes against you, cut your losses at maximum of 15%
A very important rule. Many traders commit the mistake of holding a losing trade while smart people will minimize their loses and move on. The most important rule here is to place stop losses and reduce your losses if your assumptions went incorrect. Stick to your stop loss point and analyze the performance of your stock.

Stock Trading Guideline No 4: Always set price targets.
Before share trading have price targets. Don’t be too greedy and try to get the most out of rising share price. A stock price can rise steeply too quickly and can also fall too drastically.

Stock Trading Rule No 5: Don’t break the rules.
Like I mentioned before you must stick to the rules to attain money in share market.

Similar guidelines are applicable in foreign exchange market as well. You have automatic forex trading robots like Forex Megdroid, though sticking the rules is the key to success.

Newer Entries »