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Investing Tips For Beginners

admin — Sun, 02 May 2010 09:00:01 +0000

Investing can be confusing, especially for the beginner. Getting some basic tips can help a beginning investor to make informed choices that fit their needs. Each person has a different goal when investing and that plays a big impact on how you invest. The following list explains some things beginners should know before investing.

1. Understand that there are no set rules for investing. There are no guarantees and no perfect way to invest.

2. Make informed choices. Before investing in any way you should completely understand how your investment will work and all of the details of the transaction.

3. Make a simple plan to determine your goals and needs. This will help you to determine what investments to make and how much money to invest.

These three tips are great for general investing, but many people are looking to invest in the fast paced world of the stock market. The above tips are a good beginning, but the following tips will further help those interested in investing in stocks.

1. Look at the value of the stock instead of the price. Low cost stocks may be low for a reason. Look at the whole picture. See why the price is low and if there is a possibility it may rise.

2. Check the companies return on net worth. This is the profit after taxes divided by the net worth. It is important to see a trend of growing return on net worth.

3. Spread out your risk. You should not put all your money in high risk stocks. Try some lower risks and some higher risks. This is the best way to protect your money.

4. Understand the basics of stock prices. Prices move up or down depending on future projections.

These four tips can help a beginning investor start investing in the stock market.

No matter what type of investment you are looking into, knowledge will be the key to success. These short tip lists are just the beginning to understanding investing and how to maximize your return. Keep learning and trying.

Invest Now for Dividends Later

admin — Sun, 18 Apr 2010 03:34:28 +0000

No matter what age you are or even your level of employment or economic position, it may be a good idea to start preparing now, even in a meager way, for eventual financial security. Some people feel they need every dollar they make to get by from one paycheck to the next. While this may be true for some, there are others who squander significant sums on insignificant things. They could be socking that money away into an investment account that, over time, could lead to huge savings and a comfortable retirement.

It isnt hard to get started. All you need is $100 to $500 to open an account, and anywhere from $25 to $50 monthly to continue building your stock or mutual fund portfolio. In fact, a young person aged 20 could deposit $2,000 and then not another dime. In forty years he or she might have tens of thousands of dollars. The stock market has followed fairly predictable patterns since its inception in the 1800s in New York City. Although historic events like the Great Depression and several global wars have impacted its activity, the gains and losses remain fairly consistent, with most investors earning a predictable return on their investment.

Of course, no one can predict what the future holds, or whether the pattern will continue. And none of us should invest more money than we can afford to losejust in case the world economy crashes one of these days. But with steady deposits that continue to compound and earn interest over time, a sensible and prudent investor can substantially increase the amount of money going for retirement or a dream vacation at some future point.

If you are thinking about opening an investment account, do a little online browsing for more information. Visit sites like E-trade or Scotts Trades to see how the process works. Start reading your newspapers financial pages for details about the latest stock prices and market trends. Do a little paper trading by following the daily stock news. Instead of actually purchasing stock, however, work it out on a piece of paper by pretending to buy a certain amount of stock for the specified price and then watching to see how it performs over the following week. Chart your gains or losses to figure out whether your stock deal was successful. If you do this for several months, you will soon learn to understand more about the stock market and how to buy and sell like the pros.

Even if your budget is tight, try to set aside a little money to open an investment account from any windfalls that come your way from job bonuses, inheritances, or cash gifts. Some people set aside their annual job raise, or part of it, as part of their investment strategy. Then, as your budget becomes looser with paid-off bills or grown-up kids, you may be able to start having a standard monthly amount deducted automatically from your paycheck and deposited into your investment account. This could take the form of a Roth IRA (individual retirement account), a money market fund, a mutual fund portfolio, or individual stock shares.

It probably is a good idea to take an investment class at the community college or sign up for a financial planning seminar. Success may be just a few years away if you start now and plan right.

How to Interpret and Profit from Financial Statements

admin — Thu, 01 Apr 2010 22:49:47 +0000

Financial statements are a useful tool for judging the health of a company, and for comparing it to its competitors. They show what the company owes and owns, the profits or loses it has made over a given period, and how their position has changed since their last statement. Generally if you can tell which direction a company is heading in, you can also forecast future stock prices with some accuracy.

Gaining a basic knowledge of financial statements, and applying this knowledge when choosing or assessing investments can help you pick tomorrow’s winning stocks, while avoiding tomorrow’s losers.
Of course, financial statement analysis will not always factor in significant news events, unexpected incidents, changes in management, and other factors which may influence share prices, but it provides a starting point from which to gauge the present value of shares, independent of future occurrences.

The following report details some simple financial statement explanation and analysis methods. Although the topic can get much deeper and more complex, this article is designed to give investors the ability to understand the numbers and simpler of financial ratios, and be able to use that knowledge to assist them to make better decisions when doing their due diligence.

Balance Sheet

The balance sheet shows a company’s financial position at a specific date, usually the last day of the company’s fiscal year for annual reports. One side of the balance sheet shows what the company owns and has owing to it, called assets. The other side represents liabilities, which are what the company owes, and also has shareholders’ equity, which represents the excess of the company’s assets over its liabilities. Shareholder’s equity is often referred to as book value.
Total assets are equal to the sum of the company’s liabilities plus the shareholders’ equity. In other words, take away liabilities from assets and the remainder is what value is owned by the shareholders.
The Balance Sheet can be used to uncover the value of the company, the debt load, and cash position.

Earnings Statement

Also called the Income Statement or Profit and Loss Statement, it shows how much revenue a company received during the year from the sale of its products and services, and the expenses the company incurred due to wages, taxes, operating costs, etc… The difference between the two is the company’s profit or loss for the year. The amount left over after taxes is the net earnings.

Net earnings are basically saying how much money the company really’ made over the course of the year. Some companies can have low earnings if they used much of their money for research and development, to acquire other companies, fuel aggressive growth, move into new markets, etc, which is much more favorable than if the company had low earnings because they didn’t generate many revenues, their expenses were too high, etc…

Statements of Changes in Financial Position

This shows how the company’s financial position changed from one year to the next. Also called the cash flow statement, this details how the company generated and spent its cash during the year.
This statement can be used in evaluating the liquidity and solvency of a company, and to assess the ability of that company to generate cash internally, to repay debts, to reinvest in itself, etc…

Sources of Financial Reports

Certainly you can get financials from the companies themselves. Most will gladly fax them to you, or mail you their latest quarterly and annual reports.

However, a faster way to access the information can be by Internet. For example, go to Yahoo.com and choose stock quotes. Enter the ticker symbol for the company you are interested in, and Yahoo will provide its most recent press releases, which will include past quarterly and annual reports with the financial statements. You can also check the previous reports to compare which direction the company is moving in and look for trends (i.e. increasing debt load, unpredictable earnings, decreasing revenues, erratic revenues, etc…).
There are also many other Internet resources which provide similar information, such as wsrn.com, bigcharts.com, (canada-stockwatch.com for Canadian issues), etc…

Comparison Shopping

To familiarize yourself with some of the numbers, try looking up the financials of three companies you own or are interested in.

(Balance Sheet) Which of the companies has the greatest long term debt load? Do any of the companies have greater current liabilities than current assets? Compare the current share price to the shareholder’s equity (book value): is the share price much greater or less than the book value?

(Earnings Statement) What were the revenues of the most recent year (or quarter) and does the number represent an increase or decrease from the previous period? How much money per share did the company earn (or lose) in the most recent period?

(Statement of Changes in Financial Position) Has company debt been increasing or decreasing? What was the greatest expense the company incurred according to the statement?

Decision Making

Understand that financial statements can provide investors with a partial fundamental snapshot of a company. They only represent one piece of the puzzle. Remember that, while financial statements can help investors compare several companies, comparison is limited only to the numbers provided.

In other words, you can see that one company made money while the other lost money, but you don’t know which has the better technical outlook (based on analysis of the trading chart), which is a potential takeover target, which will have the best future earnings, etc…

As well, the impact of financial statements tends to be long-term as it relates to share prices. Four quarterly reports showing increasing earnings may push the stock into an upward trend as the market begins to recognize the fundamental improvements of the underlying company, but one quarter of increasing earnings may or may not have a significant impact on shares.

Therefore, most investors use financial statements as part of a greater overall decision making process. Certainly, though, an understanding of and familiarization with the data can benefit any investor who takes the time to make educated trading decisions.

Important Points

Many growth companies don’t need nor are expected to have positive earnings. Instead, they generally accumulate debt as they focus on research and development of new technologies, aggressively move into new markets, fight for market share with competitors, etc… Other companies with minimal growth prospects on the other hand, have more importance placed on actual earnings, lowering operational costs, etc…

Be sure to understand what numbers are important and unimportant to a specific company based on their situation and the position they are in. This can be done easily by going to wsrn.com and doing an industry comparison on the company in question. Do companies in the same industry seem to have positive earnings, or is the focus on growth, research, etc… Are they a larger or smaller company than the industry average, and are they growing faster than the others?
Read the fine print to make sure the numbers you are reading have been audited, rather than being just company estimates, or unverified results. This generally is not something you need to worry about with most exchange-listed companies, but it is important practice.

Many annual statements will begin with positive news about sales or revenue increases, or other positive comments, but further reading reveals that the company actually lost more money, increased debt, or had a poor quarter or year. For most companies their financial statements are part of their promotional material and they need to make the information sound as impressive and positive as possible, even if the overall results were disappointing.

Be wary of one-time earnings or loses. For example, a company may win a huge lawsuit settlement and the influx of money gives them positive earnings for the quarter. However, how would they have done when the one-time extraordinary is ignored? Learn more at http://www.pennystockinsider.com.

Does a Faulty Barometer Herald a Storm for Stocks?

admin — Sun, 21 Mar 2010 18:27:47 +0000

Should you fire your financial advisor and hire a month in order to optimize your asset allocation?

Probably so, if you believe proponents of a time-honored indicator of future stock market performance known as The January Barometer. The Barometer simply states that As goes January, so goes the year, and its racked up a seemingly remarkable forecasting record since well before Yale Hirsch of Stock Traders Almanac first popularized it as early as 1972.

Since 1938, the direction of change of the benchmark S&P in the first month out of the gate has matched the year as a whole more than a whopping 80% of the time, making January by far the most predictive month on the calendar. The results are similarly impressive if you use the Dow Jones Industrial Average (DJIA) as a yardstick and, although it somewhat diminishes the accuracy of the forecasting tool, if you assess efficacy over the next 11 or 12 months to avoid double-counting Januarys moves in the periods its supposed to foreshadow. Dating back to the inception of the NASDAQ Composite Index in 1971, January achieves the greatest success of any month in anticipating the movement of OTC stocks throughout the following 11 or 12 months, and ranks second only to April in its correlation with calendar-year outcomes. Starting from 1950, an up January has meant about a 13% gain in stock prices through the remainder of the year, while opening with a down month presaged about a 1% loss.

Criticisms of The January Barometer

The historical evidence looked even more compelling at the start of this decade, but The January Barometer laid an egg in 3 of the past 5 years. In 2001, a positive January called a premature end to a bear market that got ugly after Al Qaeda suicide hijackers attacked the World Trade Center and Pentagon. In 2003, stocks declined in January, continuing a deep correction in the wake of a sharp initial rally off the final bear market low of the previous October, but turned higher in springtime to climb 26.4% by year-end, still the biggest annual gain since the 1990s. Last year, the market fell again in January, only to see the S&P 500 eke out a 3% gain for all of 2005, although the Dow edged down a fraction of a percent. However, the lackluster display by the blue chips actually understated the effect of the Barometers error in a year in which smaller stocks outperformed for a 6th straight time and the average equities mutual fund returned a total 9.5%.

Supporters of The January Barometer sometimes point to the 20th Amendment, a piece of Depression-era legislation also known as the Lame Duck Amendment, to explain why it works. The 20th Amendment mandates that presidential terms, as well as those of senators and representatives, shall conclude in January, and calls for congress to convene on January 3. Formerly, they didnt throw the rascals out until March. Despite ratification in early 1933, the amendment didnt take effect until 1934. Hence the nation was forced to endure 4 months of lame-duck leadership from a by then wildly unpopular Herbert Hoover after the 1932 election, as the Great Depression deepened and Wall Street surrendered the vast bulk of its spectacular gains achieved during the summer of 32, following the stock market bottom.

Now, the president delivers his State of the Union Address, highlighting priorities for the year ahead, and unveils his proposed budget in January, making the month particularly influential, or so the theory goes. Of course, they dont hold national elections every year, and almost all of the leaders are incumbents or politicians with already well-known agendas. If the timing of the presidential inauguration is so important, why didnt a March Barometer foretell stocks future before 1934? From 1897 through 1933, the direction taken by the DJIA in January corresponded to the full years results 23 times out of 37, versus just 20 of 37 for March. The record throughout that interval stays the same even if you substitute the S&P for the Dow beginning in 1928, the first year they tabulated daily prices for the S&P.

Staunch defenders of the January Barometer like to commence their record keeping in 1938, citing the especially lopsided congressional margins enjoyed by Democrats earlier under the FDR Administration. This smacks of classic backfitting, however. Could the real reason behind the 4-year delay in implementation of their pet prognostic technique instead be the disastrous performance shown by The January Barometer in the 1934-1937 timeframe? In 1934, the S&P jumped a robust 10% in January, only to slide 19% during the next 12 months. If you sold on Januarys 4% dip to kick off 1935, you missed a roaring 57% advance. And if a 4% rise in January 1937 enticed you to bite, the stock markets October 1937 crash left you licking your wounds amid a 41% plunge. Another benefit to choosing 1938 as a starting point, while ignoring the entire 1897-1937 period, rests in the fact that most market years are up years, and the more recent era captures the secular bull markets of 1949-1968 and 1982-2000, leaving out the worst years of the Depression and the relatively dull markets of the first 20 years of the 20th century. In 1897-1937, stocks went up only 23 out of 41 times (56%), compared to 47 of 67 (one year was unchanged), or 70%, subsequently. January historically ranks as the second-strongest calendar month for stocks, trailing only December.

January Barometers Notable Failures

Still, in over a century since the advent of reliable daily stock averages, the January Barometer boasts a 72% (78 of 108) success rate, including a level of accuracy approaching 80% during those years in which the market closed higher in January, as was the case this year. Yet the S&P 500, through Friday, February 10, 2006, remains over 1% lower this month after hitting new bull market highs a few short weeks ago. Accordingly, this seems like a good time to examine some of the January Barometers most notable failures following those occasions when it appeared to call for further stock price appreciation.

1902: The DJIA established a final bull market peak in June 1901 and continued to edge down slightly in 1902.

1903: Railroad stocks had risen for over 6 years, more than tripling without a serious setback, when they topped in September 1902. Their yearlong bear market was just getting started when 1903 rolled around, and their eventual collapse would drag down the industrials.

1906: Final bull market high in late January, and the DJIA was nearly cut in half before the end of 1907.

1914: A 5-year bear market, which began with an unsuccessful assault on all-time highs in 1909, climaxes in July 1914 when authorities shut down the New York Stock Exchange at the outset of World War I.

1917: After stocks more than double to a November 1916 final top in the first couple of years of the War, in which America gets rich supplying the Allies in Europe, the market drops 40% by December 1917, as direct U.S. involvement in the conflict looms.

1929-31: Stocks crash after an explosive rally in the summer of 1929 caps an 8-year bull run, ushering in the Great Depression. Optimistic investors prematurely bid stocks higher to begin each of the next 2 years, only to regret it.

1934: After more than doubling in less than a year, the new bull market stalls following fresh highs in February 1934.

1937: A March top culminates an advance of nearly 5 years and 372% in the DJIA before the short but severe 1937-38 Roosevelt Recession, which saw industrial production fall faster than during 1929-32 and cut the Dow in half.

1946: A last thrust higher following a 10% February correction merely postpones the inevitable. The 129% DJIA gain in a span of more than 4 years culminating in a May 29, 1946 peak grossly understates the extent of the advance leading up to the high. The S&P does significantly better than that, and other averages leave the blue chips in the dust. Railroad stocks nearly triple, and the Dow Jones Utility Average quadruples.

1966: Another bull market launches in the second year of the decade, only to die in the 6th, as the Dow touches 1000 for the first time en route to a February 9, 1966 closing high.

1994: On February 2, the anniversary date that preceded the 1946 correction, and also in the 4th year of a bull market, stocks begin a 10% correction, as in 1946. This time, however, rather than quickly racing to a final top after the correction is over, the stock market trades in a narrow range throughout the rest of the year before busting out higher in 1995.

2001: The 1990s bull market amazingly lasts over 9 years, taking the NASDAQ Composite from a mere 325 to above 5000 in March 1990. After a run like that, the ensuing bear market wasnt nearly complete despite a reflex rally in early 2005.

What Can be Learned?

Are there any lessons we can take from the 14 notable failures of the January Barometer described above?

Six of the examples (1902, 1903, 1917, 1930, 1931, 2001) involve false January rallies that developed in the early stages of bear markets. Clearly, we dont fit into this category. The bear market following the late 1990s tech-stock mania bottomed on October 9, 2002. Our market attained its subsequent high-to-date just last month.

Could we have already seen the final top, or might the entire advance since 2002 represent nothing more than an elongated bear market rally? The latter possibility would be essentially unheard of, given the amount of time elapsed since the low. Nevertheless, bull markets have been known to expire in a shorter time than the 3 years and 3 months required to trudge to the January 11, 2006 closing highs in the DJIA and S&P.

Almost half of all previous misleadingly bullish Januarys came late in long or powerful bull markets, during the years (1906, 1929, 1934, 1937, 1946, 1966) of their final tops. The latter 3 such cases, like our present situation, all unfolded following second-year lows, but served up lengthier and more energetic advances than the 2002-06 bull market so far. The 2-month, 12% bounce in the S&P from its low last October 13 would represent an uncharacteristically brief and anemic concluding bull leg, especially anticlimactic on the heels of a flat year. Unlike 1946, 1965-66 and 1994, we havent seen a 10% market decline in some time. The largest correction the market could muster in 2005 was on the order of 7%. The less-than-stellar 52% maximum improvement in the closing price of the Dow since its October 9, 2002 trough is also tepid by bull market standards. As in 1942-46, the S&P is ahead of the DJIA, and broader indexes have crushed both blue-chip measures, but the S&Ps reluctance thus far to challenge its all-time high, unlike the Dow after it was similarly cut in half 100 years ago, further attests to the underachieving nature of the existing bull.

Still, this bull market is undeniably long in the tooth, and enough time remains in 2006 to set up a final top and then possibly stage a decline big enough to make a liar of The January Barometer for a 4th time in 6 years.

Cruise stocks: a risk vs. reward analysis

admin — Sat, 20 Feb 2010 09:49:58 +0000

Investors know that oil prices and terrorism, two things that really can’t be controlled, have a large influence on the stock market. Many investors avoid airline stocks for this reason. They can’t control one of their biggest expenses (fuel) and an act of terrorism can seriously damage the industry.

Why are cruise stocks any better? Rising fuel costs and Hurricane Katrina led to lower stock prices for companies like Carnival Corp. and Royal Caribbean Cruises Ltd. These two cruise lines account for about 75 percent of the cruise industry, worldwide.

When George Allen Smith IV, from Connecticut, vanished while on a Royal Caribbean cruise, the industry received a lot of negative publicity.

Certainly, there are many negatives for cruise stocks, but some investors are bullish. First, there is no direct indication that the vanishing honeymooner from Connecticut has hurt ticket prices. Valuations on these stocks also look good.

Carnival Corp. trades at 16 times estimated 2006 earnings; its historic range is 10 to 30 times earnings. Royal Caribbean trades at 14 times estimated 2006 earnings; its historic range is 5 to 24 times earnings. Growth potential is strong as only 4 percent of Americans have ever taken a cruise.

When considering cruise stocks, remember the risks. A sharp rise in fuel prices or another terrorist attack would likely have a negative impact on cruise stocks. In my opinion the risk outweighs the possible reward as I don’t expect cruise lines to significantly outperform the broader market.

Does a Faulty Barometer Herald a Storm for Stocks?

admin — Sun, 14 Feb 2010 17:46:29 +0000

Should you fire your financial advisor and hire a month in order to optimize your asset allocation?

Criticisms of The January Barometer

January Barometers Notable Failures

1902: The DJIA established a final bull market peak in June 1901 and continued to edge down slightly in 1902.

1906: Final bull market high in late January, and the DJIA was nearly cut in half before the end of 1907.

1934: After more than doubling in less than a year, the new bull market stalls following fresh highs in February 1934.

1966: Another bull market launches in the second year of the decade, only to die in the 6th, as the Dow touches 1000 for the first time en route to a February 9, 1966 closing high.

What Can be Learned?

Are there any lessons we can take from the 14 notable failures of the January Barometer described above?

Dealing With Stock Market Corrections: Ten Do’s and Don’ts

admin — Fri, 05 Feb 2010 10:23:30 +0000

A correction is a beautiful thing, simply the flip side of a rally, big or small. Theoretically, even technically I’m told, corrections adjust equity prices to their actual value or “support levels”. In reality, it’s much easier than that. Prices go down because of speculator reactions to expectations of news, speculator reactions to actual news, and investor profit taking. The two former “becauses” are more potent than ever before because there is more self-directed money out there than ever before. And therein lies the core of correctional beauty! Mutual Fund unit holders rarely take profits but often take losses. Additionally, the new breed of Index Fund Speculators is ready for a reality smack up alongside the head. Thus, if this brief little hiccup becomes considerably more serious, new investment opportunities will be abundant!

Here’s a list of ten things to think about doing, or to avoid doing, during corrections of any magnitude:

1. Your present Asset Allocation should be tuned in to your long-term goals and objectives. Resist the urge to decrease your Equity allocation because you expect a further fall in stock prices. That would be an attempt to time the market, which is (rather obviously) impossible. Asset Allocation decisions should have nothing to do with stock market expectations.

2. Take a look at the past. There has never been a correction that has not proven to be a buying opportunity, so start collecting a diverse group of high quality, dividend paying, NYSE companies as they move lower in price. I start shopping at 20% below the 52-week high water mark… the shelves are beginning to become full.

3. Don’t hoard that “smart cash” you accumulated during the last rally, and don’t look back and get yourself agitated because you might buy some issues too soon. There are no crystal balls, and no place for hindsight in an investment strategy. Buying too soon, in the right portfolio percentage, is nearly as important to long-term investment success as selling to soon is during rallies.

4. Take a look at the future. Nope, you can’t tell when the rally will come or how long it will last. If you are buying quality equities now (as you certainly could be) you will be able to love the rally even more than you did the last time… as you take yet another round of profits. Smiles broaden with each new realized gain, especially when most Wall Streeters are still just scratchin’ their heads.

5. As (or if) the correction continues, buy more slowly as opposed to more quickly, and establish new positions incompletely. Hope for a short and steep decline, but prepare for a long one. There’s more to Shop at The Gap than meets the eye, and you run out of cash well before the new rally begins.

6. Your understanding and use of the Smart Cash concept has proven the wisdom of The Investor’s Creed (look it up). You should be out of cash while the market is still correcting… it gets less scary each time. As long your cash flow continues unabated, the change in market value is merely a perceptual issue.

7. Note that your Working Capital is still growing, in spite of falling prices, and examine your holdings for opportunities to average down on cost per share or to increase yield (on fixed income securities). Examine both fundamentals and price, lean hard on your experience, and don’t force the issue.

8. Identify new buying opportunities using a consistent set of rules, rally or correction. That way you will always know which of the two you are dealing with in spite of what the Wall Street propaganda mill spits out. Focus on value stocks; it’s just easier, as well as being less risky, and better for your peace of mind. Just think where you would be today had you heeded this advice years ago…

9. Examine your portfolio’s performance: with your asset allocation and investment objectives clearly in focus; in terms of market and interest rate cycles as opposed to calendar Quarters (never do that) and Years; and only with the use of the Working Capital Model (look this up also), because it allows for your personal asset allocation. Remember, there is really no single index number to use for comparison purposes with a properly designed value portfolio.

10. So long as everything is down, there is nothing to worry about. Downgraded (or simply lazy) portfolio holdings should not be discarded during general or group specific weakness. Unless of course, you don’t have the courage to get rid of them during rallies… also general or sector spefical (sic).

Corrections (of all types) will vary in depth and duration, and both characteristics are clearly visible only in institutional grade rear view mirrors. The short and deep ones are most lovable (kind of like men, I’m told); the long and slow ones are more difficult to deal with. Most recent corrections have been short (August and September, ‘05; April though June, ‘06) and difficult to take advantage of with Mutual Funds. So if you over think the environment or over cook the research, you’ll miss the party. Unlike many things in life, Stock Market realities need to be dealt with quickly, decisively, and with zero hindsight. Because amid all of the uncertainty, there is one indisputable fact that reads equally well in either market direction: there has never been a correction/rally that has not succumbed to the next rally/correction…

Day trader Versus Investor

admin — Wed, 03 Feb 2010 12:54:56 +0000

The day trader’s ultimate objective is to trade expensive and volatile stocks on the NASDAQ and NYSE markets in in increments of 1,000 shares or more, and profit from the small intra-day price movement. The day trader may make many trades in a single day, holding onto stocks for only a few minutes (or hours), and almost never overnight. Day traders are short-term price speculators. They are not investors, and they are not gamblers.

Day trading is not investing. The day trader’s time frame of analysis is rather short: one day. Their only intent is to exploit the stock’s intra-day price swings or daily price volatility. Unlike stock investors, day traders do not seek long-term value appreciation.

Stock volatility is generally a rule of the market rather than an exception. Most stock prices move up or down in any given day due to a variety of external factors. Even if the market is relatively calm, there are always stocks that are volatile. Day traders seek to identify a stock that has a trend and then go with that trend. “Trend is a friend” is a common motto among day traders. Day traders seek to pick up a relatively small stock movement, 1/8 or more on that stock. If day traders are trading a large block of shares (that is, 1,000 shares per trade), then day traders will profit $125 from a 1/8 price movement. Conversely, if a day trader acquired 1,000 shares and the trader was wrong, which also happens, then the day trader will lose $125 from a 1/8 price movement. Volatility is a double-edged sword.

For expensive stocks that trade for $100 or more, a 1/8 or 12.5 cents movement is such a small relative price change that it happens all the time. Consequently there are plenty of day trading opportunities. It is not common to see a day trader executing many, sometimes as many as 100, trades in a single day. On the other hand, an investor’s time frame is much longer. Investors seek a much larger price movement than 1/8 to earn the desired rate of return. That takes time.

In short, day traders seek to extract an income from intra-day price volatility by trading the stock frequently, while the investors seek a long-term capital appreciation.

Can You Get Rich Investing? Yes, But Think Differently!

admin — Tue, 19 Jan 2010 02:00:45 +0000

Remember back in the 1990s when a lot of people either retired early or became wealthy? It was relatively simple. With stock prices going up, up, up, I knew a lot of people who simply invested part of their paychecks. They ended up with several hundred thousand dollars in profits from their constantly rising stocks.

I knew others who had already amassed several hundred thousand by the time the stock boom came along. They were millionaires by the time the 1990s ended.

Ah yes, those were the days. Today most people will tell you it’s a lot harder. Stocks don’t seem to do much any more. You have to invest in risky emerging countries to see much return. And that chance can evaporate overnight taking your money with it.

When the stock market won’t bring you any return, most people turn to real estate. But housing prices have peaked in most cities, meaning you can’t just buy a house and sit on it for several years to earn a fat nest egg.

So does that mean we have to give up on ever getting ahead and just learn to be satisfied living the “average” life our jobs can provide?

Not necessarily. These days you have to think differently to get ahead. For example, you’ve noticed how manufacturing and jobs are heading out of North America to foreign countries. That’s bad news for many workers, but it’s GREAT news for some segments of the Foreign Exchange Market.

You see, when we buy products from China, or Japan ships products to England, all kinds of currency has to change hands and be converted. There is BIG money in that process.

FOREX, the foreign exchange market, handles 2 TRILLION in transactions EVERY DAY. That’s far more money than what Wall Street handles. Just about anybody can jump in and pull out quite a profit for themselves by participating in the FOREX process.

Does all this sound a bit new to you? Most North Americans have heard very little about FOREX. They’ve got BILLIONS of dollars sitting in savings accounts and low yield investments that could make them a LOT more money in the Foreign Exchange Industry.

If you’re thinking helping all those millions get their money transferred to FOREX is a HUGE opportunity ripe for the picking, you’re RIGHT!

I hope my article has opened your eyes to some of the terrific opportunities that are being created now. Rather than looking back to the good old days of the booming American stock market and waiting for those times to return, refocus your attention on what is really happening right now. Your fortune lies in seeing more clearly the awesome opportunities at hand.

A Few Tips For Day Trading the Stock Market

admin — Wed, 30 Dec 2009 17:26:50 +0000

Day trading the stock market involves the rapid buying and selling of stocks on a day-to-day basis. This technique is used to secure quick profits from the constant changes in stock values, minute to minute, second to second. It is rare that a day trader will remain in a trade over the course of a night into the next day. These trades are entered and exited in a matter of minutes.

The main question that most people ask when it comes to day trading is simple: is it necessary to sit at a computer watching the markets ALL day long in order to be a successful day trader?

The answer is no. Its not necessary to sit at a computer all day long. There are a number of factors to consider, but generally the rule of day trading is to trade when everyone else is trading. In other words, trade in the morning.

As with all financial investments, day trading is risky in fact, its one of the riskiest forms of trading out there. The stock prices rise or fall according to the behaviour of the market, which is entirely unpredictable. Day traders buy and sell shares rapidly in the hopes of gaining profits within the minutes and seconds they own those particular stocks. Simple to do in theory, harder to do in practice.

If you are constrained by a small amount of capital, you may not be able to buy large amounts of a stock, but buying only a small amount can add to the risk of a loss. And, obviously, it is impossible to predict with certainty which stocks will result in profits and which in losses. Even the best of traders must learn to accept both outcomes.

Its also important to know that in day trading, it is the number of shares rather than the value of shares that should be the focus. If you day trade, you WILL face losses, but even for the more expensive stocks, the loss should be marginal, because prices do not usually fluctuate to an extreme degree over the course of just one day.

The day trading industry deals in a large variety of stocks and shares. Here are just a few:

Growth-Buying Shares shares made from profit, which continue to grow in value. Eventually, these shares will begin to decline in price, and an experienced trader can usually predict the future of this type of share.

Small Caps shares of companies which are on the rise and show no signs of stopping. Although these shares are generally cheap, they are a very risky investment for day traders. Youd be safer to go with large caps and/or mid-caps, which are much more secure and stable thanks to a premium.

Unloved Stocks company stock that has not performed well in the past. Traders buy these shares in the hopes of generating profits if and when the stock rises in value. As with small caps, unloved stocks can be a risky choice for day traders.

These examples are NOT your only options when it comes to day trading stocks. The best way to determine which type of stock is right for you is to invest some time for careful research, a knowledge of market patterns, a solid strategy, and a disciplined trading plan.

The key to successful day trading is to be prepared. Know as much as possible about the industry before you begin actually trading. You need to learn to trade ONLY when the market gives the right signals, and ONLY when the volume of activity in the market supports a successful trading opportunity.

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