Understanding Exchange Traded Funds ETFs

Understanding the differences in Exchange Traded Funds and Mutual Funds will help you in your long term investment strategy.

Exchange Traded Funds:
*Are listed on the various stock exchanges and trade just like a stock
*They are priced continuously throughout the trading day
*ETFs can be sold short
*You pay a commission when buying and selling just like when buying an individual stock.

ETFs offer all of the advantages of a mutual fund without some of the disadvantages:

Diversification:
A typical ETF will hold many individual stocks within its portfolio.

Professional Management:
ETFs are managed by highly professional investment specialist that make the buy and sell decisions for their individual ETF portfolios.

Economies of Scale:
ETFs take advantage of their size to minimize transaction cost associated with buying and selling individual stocks within their respective portfolios.

Advantages over Mutual Funds:
With ETFs there are no minimum holding periods and no early redemption fees.

Types of Exchange Traded Funds:
*Growth oriented (Smaller growth stocks)
*Value oriented (Large cap value stocks)
*Income oriented (Bond funds or dividend paying stocks)
*Specific country focused (China, Singapore, Germany, etc.)
*Regional focused (Latin America, Europe, Asia, etc)
*Foreign exchange (Forex related vs. the U.S. Dollar)
*Specific market segments (energy, healthcare, consumer products, etc.)
*Precious Metals (Gold, silver, etc.)

How to build an Exchange Traded Funds ETF Portfolio
*You could buy and hold a diverse number of individual ETFs. While this would give you good diversification there is a better way to invest in Exchange Traded Funds to maximize your return on investment.
*The preferred alternative is to follow a time-tested system for buying and selling a portfolio of ETFs.

Rebound Trading Systems

With so many diverse ETFs to choose from it is important to have a sound system for building a portfolio of Exchange Traded Funds. The Rebound trading systems I have developed consistently out-perform the S&P 500 by a wide margin.

Stock Market Investing Or Corporate Careers

Many people are on a seemingly never end journey to earn a living. Most spend their entire life savings to go to school., get an education and get that so called “secure corporate job” that pays well and has benefits. There are numerous people doing years upon years of studying, taking testes, and spending countless dollars just to get the credentials to apply for a job that you may not get or even enjoy. So what makes so many people follow this model even though the chances of them actually succeeding are slim to none. It’s money.

People want to be able to provide for themselves and their families. The most traditional way of doing that is to go to school, get a secure job and hope you get paid well and get good benefits. Fortunately, that isn’t the only way to make a living. A wonderful alternative to make a living is to enter the stock market. By entering the stock market, you are working smarter not harder because you are making your money work for itself. This frees you up, giving yourself more of the most valuable commodity a person can have, time. You also don’t have to go to school for years to be eligible. As long as you are over eighteen years old, you can start and have some money. By entering the stock market, you also get paid well. Just how much? That would depend on what you do, but there is absolutely no limit to what you can earn. Warren Buffet, one of the most successful stock market investors was able to rake in tens of billions dollars in pure profits. By working at a corporate job you would be lucky to break one million dollars in your lifetime. Though the stock market doesn’t offer any benefits, it does offer great opportunity for growth. One can work at the same position at a corporate job for years. Even if you become extremely proficient at your job, its management who gets the final say on whether you get promoted or not. Not so with the stock market, because you are in the highest position. You are in charge of yourself, you command what you buy or sell, and you decide how many hours you work.

A common reason why many people don’t enter the stock market is due low initial funds. People just don’t have enough money to investing. In most cases, that is not true. You can start investing in a special type of stock called penny stocks. Penny stocks are very low priced stocks that wildly fluctuates in price. One day a penny stock can be worth twenty nine cents per share and the next day it can be worth four dollars per share. If you invested five hundred dollars you would have one thousand seven hundred and twenty four shares. If you sold those share a four dollars you would profit six thousand seven hundred and ninety six dollars in one day. However, I must warn you that penny stocks can become completely worthless as quickly as it can become valuable. So caution must be taken because there is risk when dealing penny stocks and the stock market in general, but it is even more risky to try to succeed in a corporate career.

Stock Market Investing Basics for Beginners

There are several important things you should consider before you begin investing in the stock market:

First off, pay off any credit card balances and other short term loans before even considering an investment in the stock market. Also, get in the habit of paying off your entire credit card balances every month. Paying credit card companies large interest on your balances is a sure way to prevent you from building long term wealth.

Second, maximize your contributions to your company sponsored 401K or 403B plan as well as your individual IRA. You will maximize your long term wealth by investing in tax deferred plans as opposed to taxable accounts. Some companies even match a portion of their employees' investments. Your money will compound tax free until you have to begin taking mandatory distributions which start at age 70 ½ under the current tax code. Compounding your money tax tree is the best way to invest in the stock market.

Decide your stock market investing time horizon:

Now you need to consider your stock market investing time horizon and what kind of trader you'd like to be. Consider the following:

1.Scalpers: This group tries to "scalp" small profits by buying or selling frequently throughout of the day.
2.Day Traders: Similar to scalpers, this group might buy and sell the same stock as many as 50 times in one day. They try to exploit the volatility in the market.
3.Swing Traders: These traders buy and hold their positions for several weeks or several months before selling.
4.Long Term Traders: This group buys and holds their investments for many years.

For beginners, it would not be wise to try to invest in the stock market by scalping or day trading. My Rebound Trading Systems are "swing trading" systems which enable the investor to invest in the best performing segments of the stock market and then continually upgrade their holdings as market conditions change.


Look at all your investment options:

Everyone should have some money allocated to the fixed income market such as Corporate Bonds, U.S. Treasury Bonds or Notes, or CD (Certificates of Deposit). If you are in a high tax bracket, Municipal Bonds are a good alternative because the interest paid is not subject to federal income tax. Depending on your age, the percentage of your total investments allocated to fixed income should range between 20 and 40%.

Investors can invest in a mutual fund directly with the Mutual Fund Family. However, it is far better to purchase mutual funds from a discount brokerage firm that handles many different families of mutual funds. (T.D. Ameritrade, Charles Schwab, and Scottrade, are three good alternatives.) This enables the investor to trade or upgrade their mutual fund holdings between various mutual fund families by placing the order with their discount broker. Mutual Fund or ETF Trading can be done online with a very user friendly trading platform.


Tips of investing in the Stock Market:

1.Select a Broker:
Once you are ready to start investing in the stock market, you will need to set up an account with a stock broker. There are full service brokers and discount brokers. One attractive alternative is to have an auto-trade broker who will place the trades on your behalf.

a. Full Service Brokers
Full service brokers will make recommendations on what to buy. However, the individual brokers are limited to what they can recommend based largely on the firm's research recommendations. They are unable to sell you a no-load mutual fund. They sell only loaded funds that carry a large front end commission or large commission when you sell. You can develop an on-going relationship with a full service broker since you will be placing all of your trades that broker. The commissions at full service brokerage firms are significantly higher than those at a discount broker. Full service brokers include: Smith Barney, Merrill Lynch, and A.G. Edwards.

b.Discount Brokers
With a discount broker you make your own buy and sell decisions. You will be free to buy no-load mutual funds, individual stocks, and exchange traded funds. The commissions will be significantly lower than the commissions at a full service broker. While you can place your trades by telephone, you will find it much more convenient to place your trades on the discount broker's trading platform. These trading platforms are user friendly and facilitate the trading process. You can download the necessary forms to open an account and wire transfer your money to your new account. Unless you feel you need "hand holding" and are willing to pay higher commissions, I recommend you consider trading with a discount broker. Discount brokers include: T.D. Ameritrade, Charles Schwab, and Scottrade.

c.Auto-Trade Broker
If are unable or not interested in placing your own trades, an Auto-Trade Broker is a good alternative. Your commission charges will be a bit higher that with a discount broker but you will not have to check your email each evening and place your own trades. The Auto-Trade Broker gets the trading signals at the same time as the subscriber and places the trades on the behalf of the subscriber. You can always see the value of your portfolio as well as the individual holdings on the Auto-Trader's trading platform. For those who never want to miss a trade and not have to worry about placing the individual trades, an auto-trade broker is a good alternative.


2.Know the Minimum Account Size Requirement
You can purchase an Exchange Trade Fund or no-load mutual fund with as little as $1,000 to $2,500. However this would not give you much diversification. I recommend a minimum investment of $5,000 in each investment. That would equate to a minimum portfolio sized of $25,000 to $35,000 depending on which system you decide to trade. These systems could be traded with half that amount but the commission charges as a percent to the total portfolio value will naturally be higher.


3.Become Educated
I've developed a Mutual Fund Trading System that helps me buy and sell No-Load Mutual Funds and Exchange Traded Funds at a success rate that routinely beats the performance of the S&P 500. I study the market and put a lot of time and effort into my fund portfolio recommendations so you don't have to. All you need to do is buy the funds I tell you I'm buying, and sell the funds I tell you I'm selling. It is really that easy. I do not play favorites and hold on to funds that have been good to me in the past. I hold funds that make money and sell funds that don't. And I tend to be conservative in my selections because I buy the same funds I recommend to you. When fully invested I hold seven funds in the portfolio.

Stock Market Key Terms – II

Stock is ownership. A business is divided up into shares of stock and parts of the company (the shares) are sold to investors to raise money.
A holder of stock (a shareholder) has a claim on a part of the corporation's assets and earnings. In other words, a shareholder is an owner of a company. Ownership is determined by the number of shares a person owns relative to the number of outstanding shares.
For example, if a company has 1000 shares of stock outstanding, and one person owns 100 shares, that person would own and have claim to 10% of the company's assets.
Stock Signals
These are recommendation given by the experts about any stock. Various types of recommendations are given below:
Strong Buy: Very high recommendation given by the analyst to purchase a specific security.
Buy: A recommendation to purchase a specific security. "Buy" is better than neutral but worse than strong buy.
Buy and Hold: A passive investment strategy in which an investor buys stocks and holds them for a long period of time, regardless of fluctuations in the market. An investor who employs a buy-and-hold strategy actively selects stocks, but once in a position, is not concerned with short-term price movements and technical indicators.

Hold: An analyst recommendation to neither buy nor sell a security. Exact definitions vary by brokerage, but generally this rating is better than sell and worse than buy. The hold rating is right in the middle of the rating system. It means that if you own a security you still shouldn't sell, but you also shouldn't buy the security if you don't own it already. Also known as neutral.
Sell: A recommendation to sell a particular security. This rating is generally worse than neutral, but better than strong sell.
Stop Limit Order
An order placed with a broker to buy or sell at a specified price (or better) after a given stop price has been reached or passed. This is essentially a combination of a stop order and a limit order into one order and allows the investor to better control their entry or exit price of a security.
A stop order is an order that becomes executable once a set price has been reached and is filled at the current market price. A limit order is one that limits the entry or exit price to a set price or better. By combining the two orders it prevents the stop order from being executed at the market price which could be much different then what the investor originally wanted by putting a limit on the price.
For example lets assume that ABC Inc. is trading at $40 and an investor has put in a stop-limit order to buy at $45. If the price of ABC Inc. moves above $45 the stop order to buy the security becomes executable but because there is also a limit order attached it limits the price that the shares can be purchased to $45 or less.
In terms of buying a stock it allows investors to buy when the stock has upward momentum behind (moving from $40 to $45).
Stop-Loss Order
An order placed with a broker to sell a security when it reaches a certain price. It is designed to limit an investor's loss on a security position. This is sometimes called a "stop-market order".
In other words, setting a stop-loss order for 10% below the price you paid for the stock would limit your loss to 10%.
It's also a great idea to use a stop order before you leave for holidays or enter a situation in which you will be unable to watch your stocks for an extended period of time.
Under performed
An analyst recommendation that means a stock is expected to do slightly worse than the market return. Also known as market under perform moderate sell, or weak hold.
Exact definitions vary between brokerages

Tips From Insider Selling

Insider buying either bodes well for the stock or is a neutral event at worst. Insider stock buying is rarely a negative event. But how about insider selling? When an insider sells his stock, the event can either be neutral or negative. Insider selling is usually a little tougher to figure out because insiders may have many different motivations to sell stock that have nothing to do with the company’s future prospects.

Just because the president of the company is selling 5,000 shares from his personal portfolio, that doesn’t necessarily mean you should sell, too. Insiders may sell their stock for a couple reasons -

_They may think that the company won’t be doing well in the near future, a negative sign for you,

_Or they may simply need the money for a variety of personal reasons that have nothing to do with the company’s potential.

Some typical reasons why insiders may sell stock include the following:

_To diversify their holdings. If an insider’s portfolio is heavily weighted with one company’s stock, a financial advisor may suggest that he balance his portfolio by selling some of that company’s stock and purchasing other securities.

_To finance personal emergencies. Sometimes an insider needs money for medical, legal, or family reasons.

_To buy a home or make another major purchase. An insider may need the money to make a down payment or perhaps to buy something outright without having to take out a loan.

How do you find out about the details regarding insider stock selling?

Although insiders must report their pertinent stock sales and purchases to the SEC, the information isn’t always revealing. As a general rule, consider the following questions when analyzing insider selling:

_How many insiders are selling? If only one insider is selling, that single transaction doesn’t give you enough information to act on. However, if many insiders are selling, you should see a red flag. Check out any news or information that is currently available.

_Are the sales showing a pattern or unusual activity? If one insider sold some stock last month, that sale alone isn’t that significant an event. However, if ten insiders have each made multiple sales in the past few months, those sales are cause for concern. See whether any new developments at the company are potentially negative. If massive insider selling has recently occurred and you don’t know why, consider putting a stop-loss order on your stock immediately.

_How much stock is being sold? If a CEO sells 5,000 shares of stock but still retains 100,000 shares, that’s not a big deal. But if the CEO sells all or most of his holdings, that’s a possible negative. Check to see whether other company executives have also sold stock.

_Do outside events or analyst reports seem coincidental with the sale of the stock? Sometimes, an influential analyst may issue a report warning about a company’s prospects. If the company’s management pooh-poohs the report but most of them are bailing out anyway (selling their stock), you may want to do the same.

Frequently, when insiders know that damaging information is forthcoming, they sell the stock before it takes a dip. Similarly, if the company’s management issues positive public statements or reports that are contradictory to their own behavior (they’re selling their stock holdings), the SEC may investigate to see whether the company is doing anything that may require a penalty. The SEC regularly tracks insider sales.

Matching Stocks and Strategies with Your Goals

Various stocks are out there, as well as various investment approaches. The key to success in the stock market is matching the right kind of stock with the right kind of investment situation. You have to choose the stock and the approach that match your goals. Before investing in a stock, ask yourself, “When do I want to reach my financial goal?” Stocks are a means to an end. Your job is to figure out what that end is or, more importantly, when it is. Do you want to retire in ten years or next year? Must you pay for your kid’s college education next year or 18 years from now? The length of time you have before you need the money you hope to earn from stock investing determines what stocks you should buy.

Dividends are payments made to an owner (unlike interest, which is payment to a creditor). Dividends are a great form of income, and companies that issue dividends tend to have more stable stock prices as well. Every investor has a unique situation, set of goals, and level of risk tolerance. Remember that the terms large-cap, mid cap, and small-cap refer to the size (or market capitalization, also known as market cap) of the company. All factors being equal, large companies are safer (less risky) than small companies.

Investing for the Future

Are your goals long term or short term? Answering this question is important because individual stocks can be either great or horrible choices, depending on the time period you want to focus on. Generally, the length of time you plan to invest in stocks can be short term, intermediate term, or long term.

Investing in stocks becomes less risky as the time frame lengthens. Stock prices tend to fluctuate on a daily basis, but they have a tendency to trend up or down over an extended period of time. Even if you invest in a stock that goes down in the short term, you’re likely to see it rise and possibly go above your investment if you have the patience to wait it out and let the stock price appreciate.

Investing for a Purpose

When the lady was asked why she bungee jumped off the bridge that spanned a massive ravine, she answered, “Because it’s fun!” When someone asked the fellow why he dove into a pool that was chock-full of alligators and he responded, “Because someone pushed me.” Your investment in stocks shouldn’t happen unless you have a purpose that you understand, like investing for growth or investing for income. Even if an advisor pushes you to invest, be sure that your advisor gives you an explanation of how that stock choice fits your purpose.

An elderly lady who had a portfolio brimming with aggressive- growth stocks because she had an overbearing broker. Her purpose should’ve been conservative, and she should’ve chosen investments that would preserve her wealth rather than grow it. Obviously, the broker’s agenda got in the way. Stocks are just a means to an end. Figure out your desired end and then match the means.

Most General Investment Styles

Your investing style isn’t a blue-jeans-versus-three-piece-suit debate. It refers to your approach to stock investing. Do you want to be conservative or aggressive? Would you rather be the tortoise or the hare? Your investment personality greatly depends on your purpose and the term over which you’re planning to invest. The following sections outline the two most general investment styles.

Conservative investing

Conservative investing means that you put your money in something proven, tried, and true. You invest your money in safe and secure places, such as banks and government-backed securities. But how does that apply to stocks?

Conservative stock investors want to place their money in companies that have exhibited some of the following qualities:

- Proven performance: You want companies that have shown increasing sales and earnings year after year. You don’t demand anything spectacular, just a strong and steady performance.

- Market size: Companies should be large-cap (short for large capitalization). In other words, they should have a market value exceeding $10 billion. Conservative investors surmise that bigger is safer.

- Market leadership: Companies should be leaders in their industries.

- Perceived staying power: You want companies with the financial clout and market position to weather uncertain market and economic conditions. It shouldn’t matter what happens in the economy or who gets elected.

As a conservative investor, you don’t mind if the companies’ share prices jump (who would?), but you’re more concerned with steady growth over the long term.

Aggressive investing

Aggressive investors can plan long term or look only over the intermediate term, but in any case, they want stocks that resemble jack rabbits they show the potential to break out of the pack.

Aggressive stock investors want to invest their money in companies that have exhibited some of the following qualities:

- Great potential: The company must have superior goods, services, ideas, or ways of doing business compared to the competition.

- Capital gains possibility: You don’t even consider dividends. If anything, you dislike dividends. You feel that the money that would’ve been dispensed in dividend form is better reinvested in the company. This, in turn, can spur greater growth.

- Innovation: Companies should have technologies, ideas, or innovative methods that make them stand apart from other companies.

Aggressive investors usually seek out small capitalization stocks, known as small-caps, because they have plenty of potential for growth. Take the tree example, for instance: A giant redwood may be strong, but it may not grow much more, whereas a brand-new sapling has plenty of growth to look forward to. Why invest in stodgy, big companies when you can invest in smaller enterprises that may become the leaders of tomorrow? Aggressive investors have no problem investing in obscure companies because they hope that such companies will become another IBM or McDonald’s.

Learn How Economics Affects Stocks

Economics. Double ugh! No, you aren’t required to understand “the inelasticity of demand aggregates” or “marginal utility”. But a working knowledge of basic economics is crucial to your success and proficiency as a stock investor. The stock market and the economy are joined at the hip. The good (or bad) things that happen to one have a direct effect on the other.

Getting the hang of the basic concepts

Alas, many investors get lost on basic economic concepts (as do some so called experts that you see on television). I owe my personal investing success to my status as a student of economics. Understanding basic economics helped me (and will help you) filter the financial news to separate relevant information from the irrelevant in order to make better investment decisions.

Be aware of these important economic concepts:

Supply and demand:

How can anyone possibly think about economics without thinking of the ageless concept of supply and demand? Supply and demand can be simply stated as the relationship between what’s available (the supply) and what people want and are willing to pay for (the demand). This equation is the main engine of economic activity and is extremely important for your stock investing analysis and decision-making process. I mean, do you really want to buy stock in a company that makes elephant-foot umbrella stands if you find out that the company has an oversupply and nobody wants to buy them anyway?

Cause and effect:

If you pick up a prominent news report and read, “Companies in the table industry are expecting plummeting sales,” do you rush out and invest in companies that sell chairs or manufacture tablecloths? Considering cause and effect is an exercise in logical thinking, and believe you me, logic is a major component of sound economic thought.

When you read business news, play it out in your mind. What good (or bad) can logically be expected given a certain event or situation? If you’re looking for an effect, you also want to understand the cause.

Here are some typical events that can cause a stock’s price to rise:

- Positive news reports about a company: The news may report that a company is enjoying success with increased sales or a new product.

- Positive news reports about a company’s industry: The media may be highlighting that the industry is poised to do well

- Positive news reports about a company’s customers: Maybe your company is in industry A, but its customers are in industry B. If you see good news about industry B, that may be good news for your stock.

- Negative news reports about a company’s competitors: If they are in trouble, their customers may seek alternatives to buy from, including your company.

Economic effects from government actions:

Political and governmental actions have economic consequences. As a matter of fact, nothing has a greater effect on investing and economics than government. Government actions usually manifest themselves as taxes, laws, or regulations. They also can take on a more ominous appearance, such as war or the threat of war. Government can willfully (or even accidentally) cause a company to go bankrupt, disrupt an entire industry, or even cause a depression. It controls the money supply, credit, and all public securities markets.

What happens to the elephant-foot, umbrella stand industry if the government passes a 50 percent sales tax for that industry? Such a sales tax certainly makes a product uneconomical and encourages consumers to seek alternatives to elephant-foot umbrella stands. It may even boost sales for the wastepaper basket industry.

The opposite can be true as well. What if the government passes a tax credit that encourages the use of solar power in homes and businesses? That obviously has a positive impact on industries that manufacture or sell solar power devices. Just don’t ask me what happens to solar-powered elephant-foot umbrella stands.

Ordinary Income And Capital Gains

Profit you make from your stock investments can be taxed in one of two ways, depending on the type of profit:

Ordinary income

If the profit you make from stock investments is taxed, your profit is taxed at the same rate as wages at your full, regular tax rate. If your tax bracket is 28 percent, then that’s the rate your ordinary income investment profits will be taxed at.

Two types of investment profits get taxed as ordinary income:

• Dividends - When you receive dividends from your stock (either in cash or stock), these dividends get taxed as ordinary income. This is also true if those dividends are in a dividend reinvestment plan. If, however, those dividends occur in a tax-sheltered plan, such as an IRA or 401(k) plan, then they’re exempt from taxes for as long as they’re in the plan. In January, investors receive a 1099-DIV statement from the issuer of the dividends that includes information on the amount of dividends earned the previous year. Check with your tax advisor because the latest tax laws offer tax advantages for dividends.

• Short-term capital gains - If you sell stock for a gain and you’ve owned the stock for just one year or less, the gain is considered ordinary income. If you buy a stock on August 1 and sell it on July 31 of the following year, that’s less than one year. To calculate the time, you use the trade date (or date of execution). This date is the date that you executed the order instead of the settlement date. However, if these gains occur in a tax-sheltered plan, such as a 401(k) or an IRA, no tax is triggered.

Long-term capital gains

Long-term capital gains are usually much better for you as far as taxes are concerned. The tax laws reward patient investors. After you have held the stock for at least a year and a day (what a difference a day makes!), your tax rate will be reduced. Get more information on capital gains in IRS Publication 550 “Investment Income and Expenses”. Because the tax on capital gains is the most relevant tax for stock investors.

Managing the tax burden from your investment profits is something that you can control. Gains are taxable only if a sale actually takes place. (In other words, only if the gain is “realized.”) If your stock in GazillionBucks, Inc., goes from $5 per share to $87, that $82 appreciation isn’t subject to taxation unless you actually sell the stock. Until you sell, that gain is “unrealized.” Time your stock sales carefully hold on to them at least a year to minimize the amount of taxes you have to pay on them.

When you buy stock, record the date of purchase and the cost basis (the purchase price of the stock plus any ancillary charges, such as commissions). This information is very important come tax time should you decide to sell your stock. The date of purchase helps to establish the holding period (how long you’ve owned the stocks) that determines whether your gains are to be considered short-term or long-term.

Say that you buy 100 shares of GazillionBucks, Inc., at $5 and pay a commission of $18. Your cost basis is $518 (100 shares times $5 plus $18 commission). If you sell the stock at $87 per share and pay a $24 commission, the total sale amount is $8,676 (100 shares times $87 less $24 commission). If this sale occurred less than a year after the purchase, it’s a short-term gain. In the 28 percent tax bracket, the short-term gain of $8,158 is also taxed at 28 percent. (Short-term gains are taxed as ordinary income.) Any gain (or loss) from a short sale is considered short-term regardless of how long the position is held open.

How to Trade the Stock Market

Investing in the Stock Market can be one of the most profitable skills you'll ever master. Whether you're trading indices, foreign currency, stocks, commodities or options - there are some vital matters you must understand before you can even begin to make money.
The Stock Market is one of the largest markets in the world, so it is going to be around for a long time. This means that if we can master a few strategies that bring consistent profits, it is not inconceivable that we could set ourselves up with a reliable income stream. The fact is, one of the most profitable skills we can ever master, is the skill of trading.
But trading the markets can also be very stressful. Many an optimistic graduate from some guru's course, has become disillusioned with the passage of time, as they watch their hard earned capital draining away to the point where further trading is no longer viable. Sometimes this even accompanies a career being neglected, as professional development gives way to an obsession with "finding a way" to make it work. Every spare minute is spent swamped in the markets. Newsletters, bulletin boards, forums, articles, books, courses, software, even tipping services - all become the new learning path.

Nicholas Darvas Reveals The Biggest Trading Secret Of All Time - Discover The Truth

Nicholas Darvas was a brilliant investor, and one of the first traders to use technical analysis. At the height of his fortune, he made 2.2 million dollars. If Darvas had invested today, that 2.2 million would be 20 million!

Before Darvas came to America he studied economics at the University of Budapest. In1951, he immigrated to the United States, where he trained with his half-sister, Julia, to be a ballroom dancer. And he was a very good dancer, touring the world by 1956.

He started investing in 1952, a ballroom dancer who had never invested in the stock market. But a Toronto nightclub couldn`t pay him in cash, so they paid him with three thousand shares of a Canadian mining company called Brilund. Two months later, the stock tripled and Darvas made a tidy profit. An investor was born.

Like anyone beginning to trade on the stock market, Darvas made his mistakes. When he started out, many of his trades were gambles. He would pick companies that were the next big thing, or that came recommended by other traders. Many of his first large trades resulted in a huge losses. But cheered on by whatever small profits he did make, Darvas began asking questions about why stocks behaved the way they did.

Realizing that even experts couldn`t predict the market, Darvas decided that he needed to acquire his own understanding. He began devouring newsletters, books, tip sheets, “hot tips”, and so-called insider information, in his quest to understand the market.

Yet, despite his arsenal of knowledge, Darvas continued to lose money. In 1955, he purchased over fifty thousand dollars worth of a company called Jones and Laughlin. Jones and Laughlin had an excellent price to earnings ratio, high dividends, and was in a strong industry group. He was so confident in his analysis, that he bought most of this stock on margin. Then Jones and Laughlin began to fall.

Jones and Laughlin`s price fell far enough to account for a $9,000 loss. In a desperate attempt to recoup his losses Darvas bought a stock he knew virtually nothing about. Soon it had risen to a point where he regained about half of his losses.

At this point in his career, Darvas was frustrated with his attempts at analyzing stocks. With Jones and Laughlin, he had put a value on the stock and expected the price of the stock to behave as he expected. When the stock price fell instead of climbing as expected, Darvas finally accepted that his method wasn`t working. He decided there wasn`t much worth in analyzing stocks by trying to assess their value. Annoyed with information from tip sheets, friends, so called experts, and even Wall Street maxims, he decided to shun most of these common sources.

In 1956 Darvas embarked on a two-year tour of the world to showcase his ballroom dancing. During this time he developed his famed Darvas Box method of screening stocks. Wanting to keep up on his holdings in stock he already owned and always on the lookout for new stocks, Darvas looked for ways to get American stock quotes while he traveled. This was a daunting task, but arrangements were made to obtain a copy of Barron`s or the Wall Street Journal through United States Embassies, and Brokers wired time sensitive information when needed.

Without brokers, friends, or other investors to influence him, Darvas developed a method of picking stocks based solely on the stock`s price and volume. By the time he returned to New York in 1959 he had made about $500,000. After Darvas returned to New York, people who were amazed with his success began to give him “hot tips” and stock advice again. Darvas listened to them, and took huge losses on the fortune he had made.

Realizing that it was the human element in stock trading that was his downfall, Darvas sequestered himself in Paris in February of 1959. He made arrangements with his brokers to make all his trades via wire and get the day`s highs, lows and closing prices. Using very little data, and a lot of intelligence and discipline, Darvas refined his Box method of picking stocks. Within six months, he had turned a profit of two million dollars.

Nicholas Darvas is regarded as one of the best traders in the history of the market. Darvas Boxes are used today and are the subject of analysis for financial researchers. Many software firms are developing programs that make the exact same observations and decisions that Darvas made as he watched stock prices and volume. His method is complicated and difficult to master, but it has been rigorously tested by those in the business and has been found to be one of the best methods out there.

Stock Option Trading Millionaire Principles

INTRODUCTION

Having been trading stocks and options in the capital markets professionally over the years, I have seen many ups and downs.

I have seen paupers become millionaires overnight…

And

I have seen millionaires become paupers overnight…

One story told to me by my mentor is still etched in my mind:

“Once, there were two Wall Street stock market multi-millionaires. Both were extremely successful and decided to share their insights with others by selling their stock market forecasts in newsletters. Each charged US$10,000 for their opinions. One trader was so curious to know their views that he spent all of his $20,000 savings to buy both their opinions. His friends were naturally excited about what the two masters had to say about the stock market’s direction. When they asked their friend, he was fuming mad. Confused, they asked their friend about his anger. He said, ‘One said BULLISH and the other said BEARISH!’”

The point of this illustration is that it was the trader who was wrong. In today’s stock and option market, people can have different opinions of future market direction and still profit. The differences lay in the stock picking or options strategy and in the mental attitude and discipline one uses in implementing that strategy.

I share here the basic stock and option trading principles I follow. By holding these principles firmly in your mind, they will guide you consistently to profitability. These principles will help you decrease your risk and allow you to assess both what you are doing right and what you may be doing wrong.

You may have read ideas similar to these before. I and others use them because they work. And if you memorize and reflect on these principles, your mind can use them to guide you in your stock and options trading.

PRINCIPLE 1

SIMPLICITY IS MASTERY

When you feel that the stock and options trading method that you are following is too complex even for simple understanding, it is probably not the best.

In all aspects of successful stock and options trading, the simplest approaches often emerge victorious. In the heat of a trade, it is easy for our brains to become emotionally overloaded. If we have a complex strategy, we cannot keep up with the action. Simpler is better.

PRINCIPLE 2

NOBODY IS OBJECTIVE ENOUGH

If you feel that you have absolute control over your emotions and can be objective in the heat of a stock or options trade, you are either a dangerous species or you are an inexperienced trader.

No trader can be absolutely objective, especially when market action is unusual or wildly erratic. Just like the perfect storm can still shake the nerves of the most seasoned sailors, the perfect stock market storm can still unnerve and sink a trader very quickly. Therefore, one must endeavor to automate as many critical aspects of your strategy as possible, especially your profit-taking and stop-loss points.

PRINCIPLE 3

HOLD ON TO YOUR GAINS AND CUT YOUR LOSSES

This is the most important principle.

Most stock and options traders do the opposite…

They hold on to their losses way too long and watch their equity sink and sink and sink, or they get out of their gains too soon only to see the price go up and up and up. Over time, their gains never cover their losses.

This principle takes time to master properly. Reflect upon this principle and review your past stock and options trades. If you have been undisciplined, you will see its truth.

PRINCIPLE 4

BE AFRAID TO LOSE MONEY

Are you like most beginners who can’t wait to jump right into the stock and options market with your money hoping to trade as soon as possible?

On this point, I have found that most unprincipled traders are more afraid of missing out on “the next big trade” than they are afraid of losing money! The key here is STICK TO YOUR STRATEGY! Take stock and options trades when your strategy signals to do so and avoid taking trades when the conditions are not met. Exit trades when your strategy says to do so and leave them alone when the exit conditions are not in place.

The point here is to be afraid to throw away your money because you traded needlessly and without following your stock and options strategy.


PRINCIPLE 5

YOUR NEXT TRADE COULD BE A LOSING TRADE

Do you absolutely believe that your next stock or options trade is going to be such a big winner that you break your own money management rules and put in everything you have? Do you remember what usually happens after that? It isn’t pretty, is it?

No matter how confident you may be when entering a trade, the stock and options market has a way of doing the unexpected. Therefore, always stick to your portfolio management system. Do not compound your anticipated wins because you may end up compounding your very real losses.

PRINCIPLE 6

GAUGE YOUR EMOTIONAL CAPACITY BEFORE INCREASING CAPITAL OUTLAY

You know by now how different paper trading and real stock and options trading is, don’t you?

In the very same way, after you get used to trading real money consistently, you find it extremely different when you increase your capital by ten fold, don’t you?

What, then, is the difference? The difference is in the emotional burden that comes with the possibility of losing more and more real money. This happens when you cross from paper trading to real trading and also when you increase your capital after some successes.

After a while, most traders realize their maximum capacity in both dollars and emotion. Are you comfortable trading up to a few thousand or tens of thousands or hundreds of thousands? Know your capacity before committing the funds.

PRINCIPLE 7

YOU ARE A NOVICE AT EVERY TRADE

Ever felt like an expert after a few wins and then lose a lot on the next stock or options trade?

Overconfidence and the false sense of invincibility based on past wins is a recipe for disaster. All professionals respect their next trade and go through all the proper steps of their stock or options strategy before entry. Treat every trade as the first trade you have ever made in your life. Never deviate from your stock or options strategy. Never.

PRINCIPLE 8

YOU ARE YOUR FORMULA TO SUCCESS OR FAILURE

Ever followed a successful stock or options strategy only to fail badly?

You are the one who determines whether a strategy succeeds or fails. Your personality and your discipline make or break the strategy that you use not vice versa. Like Robert Kiyosaki says, “The investor is the asset or the liability, not the investment.”

Understanding yourself first will lead to eventual success.

PRINCIPLE 9

CONSISTENCY

Have you ever changed your mind about how to implement a strategy? When you make changes day after day, you end up catching nothing but the wind.

Stock market fluctuations have more variables than can be mathematically formulated. By following a proven strategy, we are assured that someone successful has stacked the odds in our favour. When you review both winning and losing trades, determine whether the entry, management, and exit met every criteria in the strategy and whether you have followed it precisely before changing anything.

In conclusion…

I hope these simple guidelines that have led my ship out of the harshest of seas and into the best harvests of my life will guide you too. Good Luck.

The Logic Behind Technical Analysis

Let me first say that I do not now engage in technical analysis; nor, have I ever engaged in technical analysis. I do not believe doing so would be a productive use of my time.

Having said that, I do not claim technical analysis has no predictive value. In fact, I suspect it does have some predictive value. The Efficient Market Hypothesis is flawed. It is based upon the (unwritten) premise that data determines market prices. As Graham so clearly put it in “Security Analysis”:

“…the influence of what we call analytical factors over the market price is both partial and indirect – partial, because it frequently competes with purely speculative factors which influence the price in the opposite direction; and indirect, because it acts through the intermediary of people’s sentiments and decisions. In other words, the market is not a weighing machine, on which the value of each issue is recorded by an exact and impersonal mechanism, in accordance with its specific qualities. Rather should we say that the market is a voting machine, whereon countless individuals register choices which are the product partly of reason and partly of emotion.”

I’ve seen a lot of people cite this quote, without bothering to notice what’s really being said. Graham had a very broad mind, much broader than say someone like Buffett. That’s both a blessing and a curse. At several points in Security Analysis (and to a lesser extent in his other works), Graham can not help but explore an interesting topic more deeply than is strictly necessary for his primary purpose. In this case, Graham could have said what many have since interpreted him as saying: in the short run, stock prices often get out of whack; in the long run, they are governed by the intrinsic value of the underlying business. Of course, Graham didn’t say that. Instead he chose to describe the stock market in a way that should have been of great interest to economists as well as investors.

Data affects prices indirectly. The market is a lot like a fun house mirror. The resulting reflection is caused in part by the original data, but that does not mean the reflection is an accurate representation of the original data. To take this metaphor a step further, the Efficient Market Hypothesis is based on the idea that the original image acts on the mirror to create the reflection. It does not recognize the unpleasant truth that one can interpret the same process in a very different way. One could say it is the mirror that acts on the original image to create the reflection. In fact, that is often how we interpret the process. We say an object is reflected in a mirror. We rarely use the active “an object reflects in a mirror”.

For some reason, when we talk about the market we like to use inappropriate metaphors. We talk about wealth being destroyed when prices fall. Yet, no one talks of wealth being destroyed when the price of some product falls. When the market rises, we talk about buyers, as if there wasn’t a seller on the other side of the trade. Above all else, we talk about “the market” not as a mere aggregation of trades, but as some sort of object all its own.

The Efficient Market Hypothesis does not recognize the true importance of interpretation. Saying that data (publicly available information) acts on market prices omits the key step. After all, the same data is available to every blackjack player. Casinos just don’t like the way a card counter interprets that data.

The Efficient Market Hypothesis is not the only argument against technical analysis. There is also empirical evidence that questions the utility of technical analysis. However, empirical evidence alone is not sufficient to prove technical analysis has no predictive power. If most knuckleball pitchers had limited success, the knuckleball might be an inherently ineffective pitch, or there might be a better way to throw it. The same is true of technical analysis.

The adjective “random” is a very strange word. Although it is rarely the definition given, the most appropriate definition for random would have to be “having no discernible pattern”. The word discernible can not be omitted. If it is, we will take too high a view of science and statistics. There’s a great introduction to economics written by Carl Menger which begins:

“All things are subject to the law of cause and effect. This great principle knows no exception, and we would search in vain in the realm of experience for an example to the contrary. Human progress has no tendency to cast it in doubt, but rather the effect of confirming it and of always further widening knowledge of the scope of its validity.”

All things are subject to the law of cause and effect; therefore, nothing is truly random. A caused event must have a pattern – though that pattern needn’t be discernible. Even if one argued there is such a thing as an uncaused event, who would argue that stock price movements are uncaused? We know that they are caused by buying and selling. Stock prices are the effects of purposeful human actions. Several sciences study the causes of purposeful human action; so, it would be hard to argue any human action is uncaused. Furthermore, each of our own internal mental experiences suggests that our purposeful actions have very definite causes. We also know that the actions of some market participants are based in part on price movements. Many investors will admit as much. They may be lying. But, there is plenty of evidence to suggest they aren’t.

If the actions of investors cause price movements, and past price movements are a partial cause of the actions of investors, then past price movements must partially cause future price movements.

Technical analysis is logically valid. Not only is it possible that some form of technical analysis might have predictive power; I would argue it necessarily follows from the above assumptions that some form of technical analysis must have predictive power.

So, why don’t I use technical analysis? I believe fundamental analysis is a far more powerful too. In fact, I believe fundamental analysis is so much more powerful that one ought not to spend any time on technical analysis that could instead be spent on fundamental analysis. I also believe there is more than enough fundamental analysis to keep an investor occupied; so, he shouldn’t devote any time to technical analysis. Personally, I feel I am much better suited to fundamental analysis than I am to technical analysis. Of course, there is no reason why this argument should hold any weight with you. I also believe there is sufficient empirical evidence to support the idea that fundamental analysis is a far more powerful tool than technical analysis.

Even though I believe there must be some form of technical analysis that does have predictive power, the mental model of investing which I have constructed does not allow for such a form of technical analysis. In other words: logically, there must be an effective form of technical analysis, but practically, I pretend there isn’t.

Why? Because I believe that’s the most useful model. One should adopt the most useful model not the most honest model. I’m willing to pretend technical analysis does not work, even though I know some form of it must work.

Really, this isn’t all that strange. In science, I’m willing to pretend there are random events, even though I know there must not be random events. In math, I’m willing to pretend zero is a number, even though I know it must not be a number. A model with random events is useful. In most circumstances, a refusal to allow for random events would be harmful rather than helpful. The model with random events is simpler and more workable. The situation is much the same with zero. It isn’t a number. To include zero as a number, you would have to put aside the principles of arithmetic. So, we don’t do that. In school, you were taught that zero is a number, but that there are certain things you must never do with zero. You accepted that, because it was a simple, workable model.

I propose you do much the same in the case of technical analysis. You should recognize the logical validity of technical analysis, but create a mental model of investing in which technical analysis has no utility whatsoever.

Why Invest in Real Estate?

Wow, it was another exciting month in Calgary’s Real estate Market. Real estate prices are continuing to rise like there is no tomorrow with a bit of assistance from the volatile stock market. Earlier this week when I had tuned into the business news all I could hear is how the stock market has done it again. The biggest drop in one day since 911, leaving people staring like deer in a headlight and asking the question of now what? The stock sell off had started in the Asian markets, continuing to Europe and finally it finished in the North American market. Millions of people worldwide were going to bed not knowing what they’re going to face the following day. Should I sell my investments now to minimize my losses or wait and maybe it will recover in the long run?

The Stock Market Report - How to Let the Good Times Run

The best way to maximize your profits is to be prepared to give some back to the stock market. When most traders first hear this, they are a little taken back. Why would you give any of your profits back to the Stock market; because you are never going to be able to exit right at the peak of the Stock market trend. But, you can still stay with the trend as it develops, and let your profits run in the Stock market. Then, when the price turns, you can exit.


Traditionally, an inexperienced trader will exit a position once they see a little bit of a profit in their trading account. They want to crystallize that profit immediately. People don`t like to lose, and they believe that those profits, made in the Stock market, are their profits, and once they have them, they don`t want to risk giving them back to the Stock market.

Is the Stock market strategy written about in this article doomed to failure, since it breaks one of the cardinal rules of trading; to let your profits run? It is always wise to implement cardinal rules like this, but how do you implement this in the Stock market? Well, after you`ve defined your trading float, set your maximum loss, calculated your stop losses, and also calculated your position sizing – you can determine how to handle profits.

Once you`ve set your initial stop loss, you`ve ensured a mechanism to cut your losses short. Now you need to introduce a rule that allows your profits to run. By simply setting these two rules, you can control two important variables - whether or not you make a profit, and how much profit you`re going to make.

Of the two types of exits you use in the stock market, hopefully it`s the ones we`re about to discuss now that you`ll get to implement more often, as these are the ones that are implemented once you`re in a profitable situation. Trailing stop losses will allow you to follow a trend as it develops in the Stock market, and exit the position at the point where you can realistically maximize your profits.

A simple example can illustrate the importance of a trailing stop loss. If you received a buy signal and purchased XYZ, and set your initial stop loss, you`d be sure to keep your losses small. But, your initial stop does not move. What happens if, after purchasing XYZ, the asset runs up a few hundred percent?

Unless you have a way to lock in the profit, you could keep that position until the share reverts all the way back down to your stop loss, where you would exit the trade. You would end up losing money even though there`s potential for some fantastic gains.

Obviously, you need to have a way to keep a situation like this from ever happening, and that`s exactly what a trailing stop does. This form of stop is adjusted on a periodic basis according to a mathematical formula that keeps it moving upward as the price moves upward.

After the first day of trading, if the price moves in your favour, or even if the shares volatility shrinks, then the trailing stop is moved in your favour. If the Stock market then moved against you enough for your stop to be triggered, you would still take a loss, but it would not be as large as your initial stop loss.

The key to the trailing stop loss in the stock market is that you need to adjust the asset continually to make sure that the stop is moved in your favour. A trailing stop loss is calculated in a way that is very similar to the way we calculated our initial stop loss. The only difference being rather than calculating our trailing stop loss from the entry price, we`re calculating our stop loss from the highest price since entry.

With a trailing stop loss in place, you will be able to let your profits run, and let your trading system deliver the maximum profit in the stock market.

Finally! Unique Futures Stock Market Trading Curbs Expose Fear and Perception Secrets

When examining futures stock market trading curbs, it`s a well-known saying that `traders should have a healthy fear of the market`. It seems like a perfectly reasonable assumption to make. The market is volatile, and each trade you make is to some extent unpredictable. But, it`s one thing to learn to accept the risk of the market, and another entirely to be afraid of it.

Ninety-five percent of the futures stock market trading curbs errors you are likely to make, those errors which will cause you to consistently lose money, will be due to your attitudes your fear about being wrong. Fears of losing money, of missing out on profitable trades, or of leaving money on the table will cloud your thinking when you are trading. Your fears can cause you to act in such a way that what you are afraid will happen. If you`re afraid of being wrong, your fear will influence your perceptions of market information in a way that will cause you to do something that ends up making you wrong.

When you are afraid of something happening, all other possible outcomes cease to exist. You can`t perceive the other possibilities, or act on them properly if you do recognize them, because your fear paralyses you. Physically, fear causes people to freeze or to run. Mentally, it causes them to narrow their attention to the object of their fear. This means that thoughts about other positive stock market trading curbs outcomes, as well as other information from the market, are barred from your mind. You can`t think about all the rational things you`ve learned about the market until the event is over and you are no longer afraid. Then you will think to yourself, `I knew that. Why didn`t I think of it then?` or, `Why couldn`t I act on it then?`

It`s difficult to understand that the source of these problems is usually our own attitudes. Many of the thinking patterns that adversely affect our stock market trading curbs are a natural result of the ways in which we were brought up to see the world. These thought patterns are so deeply ingrained that it rarely occurs to traders that the source of their trading difficulties is internal, and derived from their state of mind. It can seem more natural to see the source of a problem as external, in the market. This happens because it feels like the market is causing pain, frustration, and dissatisfaction. Most traders do not want to be concerned with such abstract considerations as considering how their thoughts influence their trades, but understanding how beliefs, attitudes, and perception effect your futures stock market trading curbs are as fundamental as learning how to serve is in tennis.

You could say that understanding and controlling your perceptions of market information is important only to the extent that you want to achieve consistent results. You don`t have to know anything about yourself or the markets to make a winning trade, just as you don`t have to know the proper way to swing a tennis racket or golf club in order to hit a good shot occasionally. The first time you played golf, for instance, you might have hit several good shots throughout your round, even though you hadn`t learned any particular technique. But your score was still probably well over 100 for 18 holes. Obviously, to improve your overall score, you needed to learn technique. The same is true for developing good stock market trading curbs in your trading.

Traders need technique to achieve consistent results. If a trader isn`t aware of, or doesn`t understand, how their beliefs and attitudes affect their perception of market information, it seems as if it is the market`s behaviour that is causing the lack of consistency. As a result of this perception, it stands to reason that the best way to avoid losses and achieve consistent profits is to learn more about the markets.

This bit of logic is a trap that almost all traders fall into at some point. Unfortunately, this approach doesn`t work. The market simply offers too many variables to consider, and these variable often conflict. Furthermore, there are no limits to the market`s behavior. It can do anything at any time. In fact, since every person who trades is a market variable, it can be said that any single trader can cause virtually anything to happen.

That means no matter how much you learn about the market`s behavior, and no matter how brilliant an analyst you become, you will never learn enough to anticipate every possible way the market can move. If you are afraid of being wrong or losing money, you will never learn enough to compensate for the negative effects these fears will have on your ability to be objective and to act without hesitation. You can`t be confident in the face of constant uncertainty by acquiring information. The hard, cold reality of stock market trading curbs is that every trade has an uncertain outcome. Unless you learn to completely accept the possibility of an uncertain outcome, you will try, either consciously or unconsciously, to avoid any possibility you consider painful. In the process, you`ll subject yourself to any number of costly self-generated errors.

You can get over the bad futures stock market trading curbs by accepting the risk, and moving beyond your fears, you can greatly increase your ability to be a consistently profitable trader. This requires self-knowledge and discipline, but the rewards that can be attained on the market more than make the effort worthwhile.