02 March, 2011

GOOD ARTICLES TO UNDERSTAND

3/02/2011 08:36:00 PM

Why Take Partial Profits?

There are 5 challenges of a swing trading. All swing traders face these problems and should be overcome to be successful in the stock market.
Partial Profits can help to protect your profit and limit your risk in the stock market. More importantly it can heighten your confidences as a trader.

Now for all those who don’t know what partial profits are they are when you have a position that has given off a big win. You believe it can go higher and are not ready to sell it yet. You do want to see some of the money that you have made so you sell a portion of your position.

This may be 20% or 50% or whatever percentage of your total position you want to take off the table. Remember the less you sell the more aggressive you are being. There are many reasons why taking partial profits can help you.

1. It can help to make sure a trade was an overall win. If you have a winning position you can always sell some of your shares for a profit and tighten up your stop for the remaining shares (while still giving it room to move). This could insure that even if the trade goes against you now it will still be profitable overall.

2. It can let you stay in a position at least somewhat. By only selling a percentage of your position not only can you make sure the trade was profitable but you can also ride the trade out with the remaining shares. This way you may benefit from any future price movement in the stock.

3. It can satisfy your urge to take a profit. If this is the only reason you have for taking partial profits it is well worth it. As traders we all sometimes get the feeling that we should take profits on our positions, even if we do not have a good reason to do so. We just don’t want to turn the profitable trade into a losing trade. So taking some shares off the table when you have won can help to lighten our fear and help up to not worry as much about that position.

4. It lets you put the money elsewhere. Whether it is in your bank account or your next trade it is always a helpful to have some extra cash.

GOOD ARTICLES TO UNDERSTAND

3/02/2011 07:47:00 PM

Swing Trading Challenges

There are 5 challenges of a swing trading. All swing traders face these problems and should be overcome to be successful in the stock market.

1. Exiting winners early. Exiting a profitable trade early is tempting, especially if you have been on a losing streak lately. If you buy a stock at $40 with a target of $47 you can’t sell when the stock goes to $44. The main reason this is hard to do is because you know that a wining position can always turn around. You don’t make money until you exit the position. It is natural to want to get out when you are ahead. Even just a little. But you should remember a strong position can also stay strong. Remember letting your winners ride will go a long way.

2. Not keeping your losses short. For swing traders it is absolutely critical to cut your losses short. That is the only way you can make money when you are seeking short term profits. It will help keep your losses small by only taking trades that offer a 2/1 risk to reward.

3. Going for the extra quarter. In a swing trade you will sometimes find yourself trying to squeeze out the extra $.25, even if it has already hit your target. If you do you are taking a big risk. Getting out once you hit your target is reached can be a very good idea.

4. Getting stressed out during losing streaks. When you are dealing with the stock market you are bound to have your winning streaks and losing streaks. You can’t get around it. Don’t get stressed out by losing streaks, just remember to keep your losses small during bad times and let your winners run when you have them.

5. Not learning from your past mistakes. It is important to keep learning from your past trades. Every time you make a mistake in the market take that opportunity to learn. If you do it can help you to not make the same mistake again in the future. If you don’t you can make the same many times over.

GOOD ARTICLES TO UNDERSTAND

3/02/2011 07:28:00 PM

Keeping stock losses small

Keeping your stock losses small is a very important part of trading. Small losses can easily be overcome by larger winners. However many traders will let their losses run out of control.

Too many traders will not exit there trades once they start to turn against them. They will hold onto their stocks that go south and hope it turns around. They might even turn this short term trade into a long term trade. Bad idea! If you enter a trade as a short term deal you should not switch it to be a long term trade all of a sudden. That mistake can be the death of a trader.

There are several reasons why cutting your stock losses short can be a great thing.

1. Everybody is wrong sooner or later. I have never met a trader who is right 100% of the time, or anyone for that matter. Everyone will be wrong it is important to keep your losses small in that situation.

2. Small losses can be easily overcome by winning trades. If you keep your losses small they can easily be overcome by your winners. One large winner can easily offset several small losses.

3. Taking small losses lets me sleep at night. If I take small losses I quickly forget about it and move onto the next trade. If I don’t cut my losses short they can get bigger and make me worry. How many times have you seen a stock head against you and you decide to hold onto the position, only to end up regretting that decision later on? Letting your losses run can be hard on you mentally so why let it happen?

4. Taking small losses lets me come back. If I only lose 2% of my account on 1 bad trade it doesn’t hurt me that much and it lets me come back. However if I lose 50% of my account on 1 bad trade it is going to be very hard to come back.

GOOD ARTICLES TO UNDERSTAND

3/02/2011 07:19:00 PM

What it takes to be a successful trader

Someone who wants to be a successful trader must adapt a few trading traits. These traits are critical to the success of any stock market trader.

1. Controlling your emotions. This is an important part of trading. How many times have you gotten into a stock because everyone was making money with it. You were afraid of missing the opportunity so you jump in only to see the stock crash to the ground. Emotions control most traders and will often lead to a hefty loss of capitol.

2. Don’t give up after a few losses. Trading is abundant with both wins and losses every successful trader has them. If you have one or two bad trades that does not mean that you should stop trading all together. The key is keeping your losses small.

3. Cutting your losses short. This is one of the most important parts of trading. Losses are nothing to be scared of; they come with the territory when trading. The trick is to cut your losses short and let your winners run to make up for any loss you may experience.

4. Manage your positions. The best trader in the world will go broke if they did not use proper position sizing. You only want to risk a small part of your account for any one trade about 2-5%. This way if you are wrong it is not the end of the world. You will still have capitol to make future trades with if you are wrong.

5. Learn from every loss. It is important to learn something from every loss you encounter. If you don’t you will just end up losing again on a similar trade in the future. There is an old saying, “Those who do not study the past are doomed to repeat it”.

6. Never lower your stop loss. It is natural to want to lower your stop if your stock pulls back, after all no one wants to exit a position at a loss. But lowering your stops can often lead to bigger losses then you need, remember cutting your losses short is the best thing you can do when trading.

GOOD ARTICLES TO UNDERSTAND

3/02/2011 07:15:00 PM

Benefits of using Technical Analysis

Using technical analysis can be a great way to make money in the stock market. There are a number of reasons for this.

1. Technical Analysis allows you to keep your losses short and let your winners run. A good majority of trading is all about cutting your losses short, without capitol you can’t make any money. Technical Analysis allows you to enter trades where you risk very little if you are wrong and make out big if you are right.

2. Technical analysis is founded on price movement. Supply and demand is the force behind the stock market making it move up or down. If a stock has great Fundamentals, but no one wants to buy the stock it is not going to head up. Using price patterns is the most accurate way to determine how fear and greed are affecting the markets.

3. Technical Analysis allows you to make short term trades. That allows you to take advantage of compound interest. Someone who can consistently make 5% a month will far outperform someone who can consistently make 20% a year.

4. I can’t compete using Fundamental Analysis. Fundamental Analysis can be a great way to make money in the stock market but it is hard for the average person to compete. This is especially true when you consider big corporations with billions to invest in. They can afford to spend big money to figure out the fundamentals. It is impossible for the average investor to know as much as they do so why compete with them.

5. Technical Analysis allows you to find the big corporations. If a stock is in an uptrend with high volume it is safe to say someone with big money is investing in that company. Someone who most is investing billions into the company feels confident to put their money there so why not take advantage of that and trade that stock with them.

GOOD ARTICLES TO UNDERSTAND

3/02/2011 07:09:00 PM

Having a Trading Plan

Having a trading plan is the only way anyone can make money in the stock market. You simply cannot succeed unless you have one. Too many people will go buy a stock with no plan on when they will get out of it, or what they will do in different situations. They have false hope that if you buy a stock it is going to go up and that is going to make you money.

Sometimes it does that but it is not always going to do what you expect. It can also go down and you lose money. You must be prepared for all situations if you want to be successful.

There are 3 main questions that all traders should answer before they get into any position.

1. Why am I getting in? Are you getting into it because you truly believe that the company is a good buy, or are you getting in because you heard some guy with a suit on the 10 o’clock news say he likes the stock? You don’t know who he is or what his plan is for the trade is.

2. What will I do if the stock goes my way? Yes this is important, If the stock does go up what do you do? Do you have a target where you would get out at, or are you going to follow the stock up with stop orders. There are too many traders who buy a stock watch it go from $50 to $80 then watch it fall back down to $30. Knowing when to get out is critical to a stock market trader.

3. What will I do if the stock goes against me? No ever expects a trade to go against them. But it does happen, no matter how good you are. Perhaps the most important part of trading is knowing when to cut your losses short and letting your winners ride. You might want to have a stop level that you get out at. This would be the most you are willing to risk on 1 trade.

GOOD ARTICLES TO UNDERSTAND

3/02/2011 06:52:00 PM

Trading in a bear market

When it comes to a bear markets everyone is always complaining. They all seem to be asking the same question, is it over yet? But there are many ways in which trading and especially learning to trade during a bears market can help you.

1. Stocks tend to go down at a faster rate then they go up. I realize that the majority of you don’t see that like a good thing but think about this. If a stock is moving in a direction you can make money from it. When stocks go up you can buy stocks and calls. When they go down you can shorting stocks and entering puts.

If a stock heads down 50% in and you shorted you would have made money. It would be like buying a stock and having it go up 50%. It is the same thing only shorting makes money when prices go down. The speed at which stocks can fall is the main reason why many professional traders prefer to trade in a bears market.

2. The second reason is that bears markets and volatile markets occur regularly. If you are just getting into the stock market it can be to your benefit to learn in a bears or volatile market.

The reason for this is that it paints a more realistic picture of how the market can behave. There are too many stories of people who enter the market when it is bullish and make a lot of money only lose it all when the markets crash. Always Remember in a bulls market everyone is a genius.

3.A related point is the importance to always use proper risk management. In a bears market you will never forget that, but in a bulls market you may wonder away from that ideal causing you to pick up a very bad trading habit.

I am sure that not everyone will agree with me but bears markets are not as bad as their reputation would have you think. They are a natural cycle and come to remind people that the market isn’t just a place where you buy a random stock and expect it double.

GOOD ARTICLES TO UNDERSTAND

3/02/2011 06:52:00 PM

What is trend trading?

There are two types of trend traders. The most common is the uptrend trader. This type of trading is based on finding strong up trending stocks making higher highs and higher lows. When the stock pulls back and makes a lower low it is said to be a buying signal. Successful traders will stay in a trend trade until the stock pulls back significantly or starts to make lower highs and lower lows. It is also normal for traders to have a stop loss order so it the stock goes down to a certain level it will sell the stock automatically.

The other type of trend trader is a down trend trader. These traders are not as common, but still exist. This type of trend trading is based on finding weak stocks that are making lower lows and lower highs. When the stock makes a lower high it is said to be a sell or short signal.

Like up trending stocks it is normally a good idea to ride the stock until the trend reverses or has a big move in the opposite direction that stops you out.

It is very important for this type of trading to know how strong the trend of a given stock is. There are various different ways to determine this. The adx indicator is one of the most popular ways to do that.

GOOD ARTICLES TO UNDERSTAND

3/02/2011 06:36:00 PM

The secret of the swing trader

A swing trader is a trader who looks to profit from short movements in the market. Instead of holding a stock through its ups and downs they play each swing and maximize the profit they can pull out by doing so.

These traders will use technical analysis to determine when to get into and when to get out of a stock. Technical analysis often gives signals that make it easier to determine the short term movements of a given security. It also makes it easier to determine how big the moves will be giving them a precise target.

A swing trader will often have both profitable and unsuccessful signals. To get around this they will use a strategy of cutting their losses short and letting their winners ride. The general rule that most follow is called the 2/1 risk reward system.

This means that every trade they take must give of at least $2 if they are right for every $1 that they risk. This allows them to be wrong several times and still make money in the long run. Even if they were only right 40% of the time they could still make huge returns on their money because of the great risk reward system they use.

The best thing about swing trading is that it actually works to generate large profits in the stock market. There are many traders today who take advantage of this trading system in the market every day.

GOOD ARTICLES TO UNDERSTAND

3/02/2011 06:21:00 PM

What is backtesting?

Backtesting your trading system can be a good idea to determine the strengths and weaknesses of your system. It is a very important tool you must use to create a working system.

This strategy is basically trading past stock movements in order to predict how your trading system will work in the future markets. This takes into consideration that history repeats itself, and the markets will behave in the future in the same predictable way they have always behaved.

Critics of this strategy will say that “past performance does not guarantee future results”. Many people believe that the best way to test a trading system is to paper trade it in the actual market. That way it not only gives you a feel for how your system will work in today’s market, but it will also let you see how you will actually trade it.

While paper trading might be a great way to test a system, all systems should be backtested. Unlike paper trading, backtesting gives you the opportunity to experience how your system will do in different market situations.

It will help you get understanding of how your system will work during other market time periods. This way it can help you save a lot of money. Instead of trading a system that was working in the old market but not in the new market, you will already know ahead of time what to expect.

I have found that in order to tell whether your system will actually work well or not, it should be both backtested and paper traded.

GOOD ARTICLES TO UNDERSTAND

3/02/2011 06:11:00 PM

What are market bears?

Market bears are people who believe that the stocks will go down in the near future. These traders are favored during a bears market. During a bulls market, however though they may find it harder to make money by playing the downside. Bulls are favored in a bulls market.

There are a number of reasons why someone would choose to be bearish on a given stock.

1. Maybe the stock is worth more than what it should be. This can be a dangerous way to be bearish if the only reason you are bearish is because the stock is high. Traders who top pick should expect to lose money. If the stock has fallen a little bit and you still see room for it to fall that could be a better trade.

2. Maybe the stock is in a downtrend. If a given stock is in a downtrend then it makes sense to be bearish on it. The “trend is your friend”. Many traders will make a fortune shorting stocks when they are in a downtrend.

3. Maybe we are in a recession. If we are in a recession than being short would normally be a good idea. After all in a recession stocks tend to fall. Market bears must still limit their risk and get in with technical indicators. In a bears market limiting your risk can be even more important.

There are many ways to make money when the stocks go down. Many traders will start off by shorting stocks. This is the simplest and least leveraged way to trade a stock on the downside.

Other traders will use more advanced trading techniques with more leverage. For example a trader might buy a put. This would help him make much more on his money than simply shorting the stock would. The downside to this is when you buy a put you are taking a big risk. You could potentially lose all of the money you put into the trade.

Some traders prefer to be bearish because markets tend to go down faster than they go up. These market bears believe money will actually come faster in a bears market then it would in a bulls market.

This has some truth to it. Jessie Livermore who is considered the stock markets most successful bear made $100 million dollars in the market during the great depression. Some people believe that he is the best trader who ever lived.

GOOD ARTICLES TO UNDERSTAND

3/02/2011 05:59:00 PM

What is a bears market?

A bears market is classified as 2 consecutive down quarters. Basically it occurs when the majority of stocks are going down. The bears market gets its name from the animal the bear. When it attacks it swops its claws downward.

Many investors with their buy and hold strategies come to hate this markets. Traders will be indifferent. They will see it as necessary correction. They will simply adjust their strategy to take advantage of the downside.

There are a number of ways in which a stock trader can make money in a bulls market. The first and easiest to do is shorting. When you short a stock you are betting that it will go down. You do this by selling the stock now and buying it back later.

Other traders will take advantage of more complex strategies such as buying a put or selling calls. There are still many ways to make money in a bears market.

In fact many traders will actually prefer to be bearish on the market. These market bears believe that money can come faster in a by playing the downside then it will come in by playing the upside. This is because stocks have a tendency to go down faster then they go up. Fear is the main reason for this.

A bears market is a natural occurrence that will happen once every few years. It will normally last somewhere around 18 month. This is not to say it will not last longer, or shorter. Some may only last 3 month while others could last 3 years.

This market is full of bottom pickers. It is said that as soon as people start to believe we are in a recession the bottom has already formed. No one can really predict where the bottom will occur. But many will try.

GOOD ARTICLES TO UNDERSTAND

3/02/2011 05:54:00 PM

What is a bulls market?

A bulls market occurs when the overall trend of the market is upward. It gets its name from the animal the bull. A bull attacks by thrusting its horns upward. The same way stocks go up in a bulls market.

The indexes such as the S&P, NADAQ, and the Dow Jones are good market direction indicators. If the Indexes are in an uptrend the market is bullish. Also the volatility indexes are normally at their lows.

During a Bulls market the majority of stocks go up. This is why most traders prefer bulls markets over Bears market, which is when the majority of stocks head downward. Also this is when the long term investors will make the most money. Bulls markets represent optimism and growth expectation.

This is not to say that there are no bearish stocks in a bulls market. In fact many traders will still keep bearish watch list during this time.

A market crash will normally signal the end of a bulls market and the beginning of a bears market. Although many people are late to realize when a bulls market ends and when a bears market begains.

Fortunately for all those bullish traders , a bulls market will normally last longer than a bears market will. Just remember in this time period shorting stocks can be tricky at times.

GOOD ARTICLES TO UNDERSTAND

3/02/2011 05:31:00 PM

What is compound interest?

The power of Compound interest is what makes the stock market the best investment strategy out there. Compound interest is the process of making continuous small percentage gains off of your money. These small gains turn into larger gains over time.

For example if you invested $10,000 at 30% a year for 20 years you would have made $1,900,496. All this money would have come from that little investment of $10,000. That is the power of the stock market. If you take the time to learn how to trade well how many millions of dollars could it mean for you?

The power of compound interest gets even greater if you add money to your account consistently too. Let’s say that not only did you invest $10,000 at 30% interest for 20 year, you also added $5,000 a year to your account. Now you would have made $5,996,571. Again this came from your original $10,000.

Sounds too good to be true? It's true, that’s the great part. Why do you think the richest man in the world today is a stock investor? Because compound interest works.

Einstein once said “The most powerful force in the universe is compound interest”. Isn’t that a force we should all have working for us. Yes!

Here is a free compound interest calculator. Play around with it.

GOOD ARTICLES TO UNDERSTAND

3/02/2011 05:28:00 PM

Why learn just a few Stock Strategies?

Focusing on just a few stock strategies can be beneficial, especially to someone who is just starting to learn to trade the stock market.

Some of you may be thinking you need to learn many different strategies. You believe that the more strategies you have the more money you will make. That is not true a good 2-3 different strategies should be all you need.

Think about the math there are 1000s of different oscillators and probably 1000s more possible strategies out there. If you tried to make all of them work you would get no were except a migrane. It would be chaos. If you focused on just 1 or 2 of the strategies for your trading system you could become very profitable.

In fact some of the most profitable traders in history only focused on a few strategies for each market trend. They became experts on reading the market and how best to enter into a trade on the system of their choice. The money poured in just because they knew how to read and play their system. This makes me wonder why some people believe that if you want to be a good stock trader you must know, EVERYTHING, about a company. (Most of the people who believe this have never traded stocks by the way.) We do not trade a stock because of the company, we trade the stock because we can read the trend and play with the trend
When you are trading stocks become a specialist. It will make you a much better trader. Trying to master too many different strategies at once will overwhelm you. Your trading will suffer.

GOOD ARTICLES TO UNDERSTAND

3/02/2011 05:23:00 PM

What is Top Picking?

Top Picking is when a person sells a stock because it is too high. In this case they believe a given stock is overvalued. This directly goes against the trend. As a result top picking is one of the easiest ways to lose all your money in the market. DON’T DO IT.

I realize that this goes against human nature that when items are cheap buy them and when they are expensive sell them. In the case of the stock market a stock is never too expensive. They can always go up in price. In fact most stocks will be worth more in 10 years then they are now.

The other day a new trader wanted to know if he should sell a stock that just hit a new high. He figured that the stock was so high that it was bound to go lower, afraid not. Actually, when a stock hits a new high it is considered a breakout and a bullish indicator.

If you had shorted RIMM when it hit a new high of $35 you would have lost money. If you shorted it a year later when it hit a new high of $67 you would have lost money. And if you shorted it when it hit a new high of $92 you would have lost money, get the picture.

Basically what it comes down to is, don’t short stocks that are going up. It will just hurt you. You might get lucky, everybody does. But eventually you will lose all your money doing that.

02 March, 2011

Why Take Partial Profits?

Swing Trading Challenges

Keeping stock losses small

What it takes to be a successful trader

Someone who wants to be a successful trader must adapt a few trading traits. These traits are critical to the success of any stock market trader.

Benefits of using Technical Analysis

Having a Trading Plan

Trading in a bear market

When it comes to a bear markets everyone is always complaining. They all seem to be asking the same question, is it over yet? But there are many ways in which trading and especially learning to trade during a bears market can help you.

What is trend trading?

The secret of the swing trader

What is backtesting?

Backtesting your trading system can be a good idea to determine the strengths and weaknesses of your system. It is a very important tool you must use to create a working system.

This strategy is basically trading past stock movements in order to predict how your trading system will work in the future markets. This takes into consideration that history repeats itself, and the markets will behave in the future in the same predictable way they have always behaved.

While paper trading might be a great way to test a system, all systems should be backtested. Unlike paper trading, backtesting gives you the opportunity to experience how your system will do in different market situations.

It will help you get understanding of how your system will work during other market time periods. This way it can help you save a lot of money. Instead of trading a system that was working in the old market but not in the new market, you will already know ahead of time what to expect.

I have found that in order to tell whether your system will actually work well or not, it should be both backtested and paper traded.

What are market bears?

What is a bears market?

What is a bulls market?

What is compound interest?

Why learn just a few Stock Strategies?

What is Top Picking?

Top Picking is when a person sells a stock because it is too high. In this case they believe a given stock is overvalued. This directly goes against the trend. As a result top picking is one of the easiest ways to lose all your money in the market. DON’T DO IT.

ELLIOT

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