Pearson’s financial publishing interests, albeit a smaller part of the business than its educational publishing, are supported by financial advertising that very closely mirrors the stock markets. Goldman Sachs has cut price targets …
Once you`ve found the best entry point for your stock trades, you need to keep your position out of trouble while you hold it and wait for potential profits. How does a position get into to trouble? In an environment as volatile as the market, there are many ways, but the one that often triggers a position to move against you is market news. The only way to guard against sudden turns in the market is by setting stops. Stops must be set on every trade. This topic is so important that I`ve devoted several articles to it that you might want to read for more detailed information.
But generally, when you make your trading plan, you must decide where to stop out if the trade goes against you. Do you want to stop out of the stock at a small loss and abandon the trade, or average down by increasing your holdings at a lower price, keeping a loser stop in place even farther down? The best idea is to stop out at a small loss. There aren`t many times when averaging down works. You should limit the averaging down option to extremely low-risk plays with high chances of success. These should be stock trades in which you`ve determined that a price decrease to the level where you`d average down is not a sign of an impending drop but just a temporary move in the stocks range.
The best way to figure this out is by looking at support levels on charts. Averaging down does not mean you don`t have to set stops. It just means you`ll set them lower and give the stock more room to move around before you trade out of it. With appropriate stops in place, you will be practicing good money management. And good money management is the key to protecting your capital, keeping it intact for the stock trades that will create profits.
Once you`ve started to make profits on your stock trades, you need to decide when to exit the position. Your trading plan should tell you when it`s time to exit. Knowing when to exit is vital, because traders who hold on to their positions too long often find that their paper profits disappear. They often end up making no money, or even incurring a loss, on what should have been good stock trades.
To keep this from happening to you, it`s useful to think about how the risk-to-reward ratio changes as a stock you`re holding rises in price. The reward level decreases as the profits in your portfolio increase. There is less reward there because you`ve already collected most of it. The risk rises at the same time. As the price rises to a point where traders start to question how much more it can move, they start to take profits. If the risk is increasing while the reward is decreasing, at some point your risk-to-reward ratio will become unfavorable. You will already know that point is for each trade, since you will have calculated it before you made the trade, according to your trading plan.
Your plan may specify a particular number you`ve chosen as the exit point, or it may tell you to exit when the volume dries up, or to use trailing stops and hold the stock until a trailing stop is triggered. All of these are firm plans that tell you when to leave the position. Your exit plan also may have alternative exit points, and may tell you that if any of several possible things happen, you should exit. These are all good exit plans.
Last, in your stock trades, as long as you have an exit plan in place that is triggered by an unfavourable risk-to-reward ratio, you will never lose your profits. Instead, like all other successful traders you will take your profits at the point that is best for your personal trading style, in accordance with your carefully thought out trading plan.
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How to Buy and Sell Stocks … STOCK MARKET TREND … Stock Market Prediction BY .- ProfitableStockMarket.com
The stock market can present you with a lot of hot stocks every day. Many of them are new technology stocks that come from the nanotech, biotech, voip, healthcare, homeland defense or internet sectors.
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The majority of world stock markets were up again last week as we completed the first of three back-to-back critical reversal zones that extends through May 26. Many of these indices came down into the midpoint of this first reversal … Read This…
How To Make, And Keep, Money Trading Stocks
by: Dave Wooding
If you are serious about making and keeping money by trading stocks, then there are three things you need to do, and do well.
Money management
Money management comes first. Without a rock-solid method of managing your trading funds, you trading results will be only be fair at best. Money management is more than just knowing how much money you have tied up in a trade. It’s a method of using the right portion of your trading account on any one trade relative to the perceived risk and reward.
There are a few things to consider to managing a trade successfully:
Account size
Your account size determines how long you stay in the trading game. If you are skillful, then you will not require a large account. On the other hand, even if you are a new trader, you can use a small account as long as you control your risk.
Controlling the risk means never using more money then you need on any one trade. A very simple formula for stock market success is to risk less than 3% of your total account value on a single trade.
If you have a $10,000 account, this means you never lose more than $300 per trade. If your account drops to $9,000, then you risk less than $270.
As your account grows, while the total amount at risk increases, you still only risk a maximum of 3% of your account. Say your account is at $12,000, then your maximum amount at risk is $360.
In theory, this ensures that you never go broke! And that is of utmost importance.
Profitable
If your system is profitable, then you will typically win more money then you lose. While some consider the percentage of winners relative to the number of losers, nothing could be further from the truth.
It doesn’t do you any good to have a system that wins on nine out of very ten trades if you give all of your gains back on the one loser. More important is that the winners overwhelm the losers.
A profitable trading system might have a third of the trades result in the maximum loss planned for, a third of the trades either make or lose a little money, and a third of the trades bring in the profits.
Risk
It’s worth repeating, risk no more than 3% of your total account value on any one trade. If you keep this in mind, you are ensured of minimizing losses to your account. At what price you enter a stock and where you place your initial stop price are used to determine how many shares you trade.
Profit
The profit potential of a system is the “edge”. If you can estimate how much money you *might* make over time, and if that profit comes from many trades over time, then you probably have a winning system.
A trading system will either have a profit target that determines when to enter AND exit (good) or it will tell you when to enter and keep you in a profitable trade as long as possible without giving back much, or any, gains (better).
Orders
No matter what trading pattern you use to enter a stock, you will make the most money by using the correct orders.
When you wait until a stock has proven it’s intensions - typically by trading above the previous day’s high for a buy, or below the previous day’s low for a sell short - then having an order in place that captures that exact price is crucial.
Let’s say your favorite trading pattern signals a buy for. If you are an end of day trader, then the next morning you watch the opening price for the stock. If the stock opens less then yesterday’s high, you place a stop order to buy above the previous day’s high. Even better is to include a limit price with that buy stop order.
How much above the previous day’s high is your call. As long as it is greater than the previous day’s high, you are making the stock prove that it is going up.
Sure, you give up some of the profit potential. But you are more likely to turn a profit with a stock that is moving in your favor.
Once you are in a position, then you need to protect yourself from loss. If your method of picking stocks is good, then it’s unlikely that the stock will revisit the current prices. Continuing with the buy example, to protect your account from a catostrophic loss, place a good-till-cancel sell stop order below the recent low. If yesterday’s low is lower then the current day’s low, that’s where the sell stop order goes.
And make certain that the order does not include a limit. Stocks can and do gap down. Expecting that you will have a sell order filled at your stop price is a quick way to the poor house.
Trading system
Your choice of what method to enter and exit stocks plays a critical part in your stock market sucess.
A great trading system looks for low risk opportunities to enter a stock. Knowing at exactly what price signal to enter and when to exit - even if it is for a small loss - will keep your account growing. As long as you consistently follow the rules layed out by a well designed trading plan, you can count on steadily growing your trading account.
My favorite trading pattern does a great job of identifying stock likely to move rapidly in your favor.
There is no reason to be trading stocks that are not ready to deliver the biggest gains in the least amount of time.
If you are serious about taking your stock trading to a higher level, then read about this trading pattern.
Regards,
Dave
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About The Author
Dave Wooding is NOT a registered investment advisor, nor does he suggest you trade with money you can’t afford to lose. Instead, he offers practical swing trading pattern information at http://www.trading-pattern.com that comes from years of trading experience.
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If you have heard fund managers talk about the way they invest, you know a great many employ a top down approach. First, they decide how much of their portfolio to allocate to stocks and how much to allocate to bonds. At this point, they may also decide upon the relative mix of foreign and domestic securities. Next, they decide upon the industries to invest in. It is not until all these decisions have been made that they actually get down to analyzing any particular securities. If you think logically about this approach for a moment, you will recognize how truly foolish it is.
A stock’s earnings yield is the inverse of its P/E ratio. So, a stock with a P/E ratio of 25 has an earnings yield of 4%, while a stock with a P/E ratio of 8 has an earnings yield of 12.5%. In this way, a low P/E stock is comparable to a high - yield bond.
Now, if these low P/E stocks had very unstable earnings or carried a great deal of debt, the spread between the long bond yield and the earnings yield of these stocks might be justified. However, many low P/E stocks actually have more stable earnings than their high multiple kin. Some do employ a great deal of debt. Still, within recent memory, one could find a stock with an earnings yield of 8 - 12%, a dividend yield of 3- 5%, and literally no debt, despite some of the lowest bond yields in half a century. This situation could only come about if investors shopped for their bonds without also considering stocks. This makes about as much sense as shopping for a van without also considering a car or truck.
All investments are ultimately cash to cash operations. As such, they should be judged by a single measure: the discounted value of their future cash flows. For this reason, a top down approach to investing is nonsensical. Starting your search by first deciding upon the form of security or the industry is like a general manager deciding upon a left handed or right handed pitcher before evaluating each individual player. In both cases, the choice is not merely hasty; it’s false. Even if pitching left handed is inherently more effective, the general manager is not comparing apples and oranges; he’s comparing pitchers. Whatever inherent advantage or disadvantage exists in a pitcher’s handedness can be reduced to an ultimate value (e.g., run value). For this reason, a pitcher’s handedness is merely one factor (among many) to be considered, not a binding choice to be made. The same is true of the form of security. It is neither more necessary nor more logical for an investor to prefer all bonds over all stocks (or all retailers over all banks) than it is for a general manager to prefer all lefties over all righties. You needn’t determine whether stocks or bonds are attractive; you need only determine whether a particular stock or bond is attractive. Likewise, you needn’t determine whether “the market” is undervalued or overvalued; you need only determine that a particular stock is undervalued.
Clearly, the most prudent approach to investing is to evaluate each individual security in relation to all others, and only to consider the form of security insofar as it affects each individual evaluation. A top down approach to investing is an unnecessary hindrance. Some very smart investors have imposed it upon themselves and overcome it; but, there is no need for you to do the same.
Geoff Gannon writes a daily value investing blog and produces a twice weekly (half hour) value investing podcast at www.gannononinvesting.com
and began to wander down the isles of this early rising market. Think of those images you see of the real stock markets and try and transport them to a busy fish market in downtown Tokyo. Rows perhaps 1km long of market stalls, …
The process of creating sports betting samples is long and arduous …
I ll join after first quarter profits are reported to stock markets and investors . The project is not without critics. Schwarm China of the Dismuke Dahlstrom LLC sports betting firm in Boston believes that no matter how much money is …
In “The Intelligent Investor”, Benjamin Graham describes a formula heused to value stocks. He eschewed the more esoteric calculations andkept his formula pretty simple. In his words: “Our study of the various methods has led us to suggest a foreshortened and quite simple formula for the valuation of growth stocks, which is intended to produce figures fairly close to those resulting from the more refined mathematical calculations.”
In “The Intelligent Investor”, Benjamin Graham describes a formula heused to value stocks. He eschewed the more esoteric calculations andkept his formula pretty simple. In his words: “Our study of the various methods has led us to suggest a foreshortened and quite simple formula for the valuation of growth stocks, which is intended to produce figures fairly close to those resulting from the more refined mathematical calculations.”
The formula as described by Graham, is as follows:
Value = Current (Normal) Earnings x (8.5 + (2 x Expected Annual Growth Rate)
Where the Expected Annual Growth Rate “should be that expected overthe next seven to ten years.”
The value of 8.5 appears to be the P/E ratio of a stock that has zerogrowth. It is not clear from the text how Graham arrived at this figure, but it is likely it represents the y-intercept of a normal distribution of a series of various P/E values plotted against corresponding growth figures.
Graham’s formula takes no account of prevailing interest rates; at the timehe last updated the chapter, around 1971, the yield on AAA Corporate Bondswas around 4.4%. We can adjust the formula by normalizing it for currentbond yields by multiplying by a factor of 4.40/{Current AAA Corp Bond Yield}. Bond yields can be found on Yahoo!
Lets take a real-life example, using IBM. According to Yahoo!, the expectedgrowth rate for IBM over the next 5 years is 10% per annum (note data isonly available for 5 years ahead rather than the 7-10 years Graham states, but this should not make a significant difference). EPS for IBM over the last 12 months is $4.95. Taking these values and plugging in the 20 year AA Corporate bond yield of 5.76% (AA Bond yields are higher than AAA so will give a more conservative estimate of IV) in our adjustment gives:
Intrinsic Value = 4.95 x (8.5 + (2 x 10) x (4.40/5.76) = $107.77
IBM is currently trading at around $91, so it is currently slightly undervalued.
We can also do the same calculation for IBM’s average expected 2005 earnings of $5.62 in order to give some idea of what IBM’s price shouldbe if it meets those earnings estimates:
Intrinsic Value = 5.62 x (8.5 + (2 x 10) x (4.40/5.76) = $122.36
Of course this calculation is somewhat subjective when considered on its own. It should never be used in isolation - we must always take intoaccount other factors such as debt/equity, cash flow, managementeffectiveness, prevailing economic conditions, etc. Investors should seeksome qualifying criteria such as a PEG (Price Earnings Growth) ratio of less than 1 in additon to the stock being undervalued based on trailing and forward intrinsic value. Be aware that PEG itself is also based on future expectations, so we have to have some degree of certainty that thecompany will meet those expectations. We can do this by looking at thelast 5 years growth rate and Earnings figures.
There are, of course, other methods of calculating intrinsic value butthis is certainly one of the simplest.
(c) 2005 The Graham Investor You may use this article, as-is, provided this copyright notice is kept intact.
You need to consider some basics before you enter the world of investing in stocks. The main reason: the stock market is a field dominated by savvy investors, who know the ins and outs of making profitable trades. For people who are not on the inside, Wall Street can be a very dangerous place. Here are a few tips that can help you in your beginning stages:
1) Don’t even consider “tips” that tell you about “hot stocks”. Consider the source: if you had a huge, cannot miss, money making investment tip, would you offer it the world at large, free of charge? You wouldn’t, and neither would anyone else. If someone is touting a can’t miss stock, they most likely have a financial interest in seeing the stock rise. Conversely, if they are rooting for the stock to miss, you can almost rest assured that have “shorted” the issue.
2) Always do your due dilligence. You’ll hear this advice over and over again, and that’s because it’s extremely important and bears repeating. You must always do your own due dilligence. Relying on the advice of others, no matter how well intentioned it may be, is almost always a recipe for disaster. Make sure you dig in and really examine the public numbers and financial releases from companies. Nothing tells the story more clearly than the numbers. Ignore basic touting techniques like press releases which have very little substance, and rely instead on hype to tell the company’s story.
3) Only invest money you can afford to lose. Sure this is a basic point, but tons of people miss it. You should only invest money that you can honestly afford to lose, and without any tears, if the worst case scenario comes to fruition. Everyone enters into investments with the right idea of earning big profits, but in many cases, this never pans out. If you lose your rent money, you can rest assured that your days of dabbling in the stock market will come to a very quick and bitter end. ut asides small amounts of money each week from your paycheck for savings and investment and use that.
The learning curve for investing in stocks can be steep, but in the final analysis is well worth it. In no other endeavor can you make the types of returns that are associated with the world’s greatest stock investors. But make sure to take your time, and keep detailed records of all of your transactions, with particular attention being paid to what you were thinking when you made the trade. Over time, this record will become an invaluable instrument for helping you determine what type of trade makes you the most money, and it will also give you insights into your character as a trader. There’s plenty more to learn, of course, but hopefully these basic ideas will help you on your stock investing journey. Good luck.
Darren McLaughlin is the webmaster of the Stock Market Basics resource center.
The forex market is a great place to invest money. Consider some various factors. First of all, unlike the stock markets, the forex market is open 24 hours a day, excluding the weekends. Other factors include its geographical dispersion … Continue Reading…
Want to know what buying strategies to use when buying stocks that can potentially return triple digit gains? In part one of this series, I told you what factors you must consider when buying a small or micro-cap stock. In part two, I’ll review intelligent buying strategies when it comes to buying small caps.
Rule Number Two: Remove emotions from your buying decisions with a disciplined strategy.
Ok, so let’s assume that you’ve done your homework now and discovered a company that you believe will run up at least 60% or higher over the next year. Decide on a predetermined buying price and do not waver from this price. Period. End of discussion.
Why?
Ok, let’s take a look at hypothetical stock YYY. Company YYY is the industry’s leading innovator in a huge growth industry that has seen the biggest growth spurts in history for the last three trailing quarters, yet the general public still does not know about them. In addition, they have patented technology that lets them protect their first mover advantage and high entry costs into the industry gives them nice barriers to entry. On top of all of this, Company YYY is trading at a ridiculously low P/E and a ridiculously low price of $3. In fact, its price would have to appreciate 200% just to equal the P/Es of the giants in the field. You study YYY’s historical price chart and see some volatility, so you decide you will wait until the price drops to $2.80 to get in. But in the two days you wait for company YYY’s stock to drop in price, it unexpectedly shoots up to $5.50. Or perhaps it plummets way below your $2.80 buy in price to $2.00. On no new significant news.
Depending on what scenario happens, you may be thinking “I’m so dumb not to have bought at $3. I guess I’m just going to have to bite the bullet and dive in at $5.50,” or “This is so great. I wanted to get in at $2.80. Now it’s so much cheaper at $2.00 that I’m definitely going to buy now.”
Right? Wrong.
Stick to your original plan. If you throw your buying strategy in the trash and decide to get in at $5.50, you’re letting emotions drive your decisions instead of logic. If you were only willing to pay $3, why would you possibly be willing to pay 83% more for the same stock just 48 hours later? And if we consider the second scenario where the stock plummets to $2 a share, don’t you think that this merits more caution instead of haste? Remember, in both hypothetical situations, we are assuming there is “no new significant news” surrounding stock YYY to justify these huge price movements. Under these assumptions, the volatility of the stock is probably occurring because of jumpy day traders taking profits off the board or dumping shares.
But let’s take a closer look at why letting emotions creep into your decisions is a bad idea. Let’s look at the situation again where stock YYY blew through your designated buy in price of $2.80 and went to $5.00 in two days. Let’s assume you stick to your guns, wait two weeks, and buy-in when YYY stock finally dips to $2.80. Now employing a stop loss of 15% against your buy-in price, your sell-out price of the stock is $2.38 versus $4.68 if you had bought the stock when it spiked up to $5.50. This huge gap in stop-loss price points may very well be the difference between holding on to the stock and earning 80% gains versus selling out 48 hours later and feeling confused as to whether or not you should buy back in.
To summarize, never throw out a pre-designated buying price for a risky stock due to unexpected price spikes. If this happens, stick to your original buying strategy if you still believe in the stock and wait until volatility decreases before you buy at your pre-designated buy-in price.
Remember, there are literally hundreds of stocks every year that make rapid double or triple digit gains. If it turns out that you missed out on one opportunity because the stock soared right through your buy in price and kept soaring higher or the stock’s price took a sudden plunge, know that there are hundreds of other opportunities waiting to be discovered. If the stock you loved so much never returns to your buy-in price, move on. You’ll find a better stock to buy soon enough.
? 2006 Global Market Opportunities
John Kim is the founder of Global Market Opportunities. He has over thirteen years of experience in finance and financial services with two Fortune 500 companies. To learn how to discover small and micro cap stocks that consistently and significantly beat the market indices, click the link, Learn to Invest Money and Achieve Financial Freedom
Over The Counter Bulletin Board stocks (OTCBB) and the Pink Sheets are the two types of penny stocks you will encounter. The main difference between the two is that OTCBB stocks are required to file with the SEC and the pink sheet stocks are not. Some traders refuse to trade pink sheets because of this, those traders are missing out on some great opportunities. Even Warren Buffet has been known to look for undervalued companies in these markets.
Beware, trading in the OTCBB and Pink Sheets is not for everyone. Often the stocks are illiquid and have a large spread between bid and ask. There are also a lot of companies that are completely worthless and will try and masquerade as great companies while diluting their shares. Another worry about these stocks is the fraud involved or “pump and dump” schemes where traders or company insiders have their stock “talked up” on bulletin boards or in chat rooms. The posters make unrealistic statements about where the company and the price per share are going, while selling you their shares. The price per share then plummets. You can avoid most of these problems with due diligence on your part. Take the time to read filings, call the company and investigate thoroughly. This investigation should take place with OTCBB stocks and Pink Sheets. Do not expect to find everything you need to know in the filings.
After you find a stock that you wish to purchase, you pull up the price and find that there is a 30% difference between the “bid” and “ask” price. The bid being what a trader is willing to buy a stock for and the ask what a trader will sell the stock for. Finding spreads of 30% or more is very common in these markets. If the stock is thinly traded with a big spread, you will want to buy on the bid, or a small fraction above the bid. If the stock is moving fast because of news or an announcement, you will probably be forced to buy at the ask. When you place your order to buy on the bid or slightly above, it may take a long time to get filled. You may never get filled. At these times patience is a virtue. You may also want to try buying shares somewhere between the bid and ask.
If you have done your homework well and the company announces great news, such as winning a high paying contract with IBM, the stock will then take off, gaining 100% or more before others can even call their broker to buy shares. This is the reason for investing in these markets.
I do not recommend that you place all of your money in such a “High Risk, High Reward” market, but spend some time investigating penny stocks and you may be rewarded greatly. Remember: exercising due diligence is important for all investment decisions in any market.
About the author: Keith Guyette M.Ed, J.D. is a professional trader as well as the owner and head stock analyst for www.bottompicks.com. Mr. Guyette is also the moderator at one of the largest stock bulletin boards on the web.
Due to various limitations in stock markets (for example, restrictions on short selling), stock market trading depends a lot on the market trends. There are few stock traders who manage to gain in down trend market. …