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Cleaning Up Your Portfolio

September 2nd, 2008 / No Comments

One of the important factors of enjoying success in stock trading is by having a well-managed portfolio. Such a portfolio contains that provide a stock trader with various opportunities to profit from, both in the short and long term. A well-managed portfolio also requires that it has to be cleaned up now and then.

One’s stock portfolio can get considerably large over time. It can consist of a mix of stocks that may or may not offer promising returns for its owner. Some stocks can even be considered as dead weight and bring down the portfolio’s overall performance. Stock traders can better manage their stock portfolios by learning how to clear out those stocks with dismal showings in the market to allow better returns.

Having A Profit Mindset
Some traders try to hold on to stocks in their portfolios for as long as possible with the hopes of bigger profit in the future. With their patience, it might just happen. But it also may not. There are some stocks that just don’t offer that attractive deal no matter how long you try to hold on to them. Having a profit mindset will enable you to look into the stock investments in your portfolio and gauge the profitability of each one.

Traders should know how to look into their stock investment portfolio and check out which stocks are gathering dust by the corner. Bear in mind that the longer such stocks remain in your portfolio, the more money that you lose in terms of potential profits investing in other stocks. Try to get rid of stocks on dormant status and invest on something else.

Review Your Portfolio
In order to ensure that your stock portfolio performs well in the market, you may need to review it regularly. Getting the most attractive current stocks for your portfolio and holding on to them, may not necessarily give you the most profit. Remember that stocks are considered as volatile investments. The potential profit that you earn today may be lost tomorrow. That is why checking and reviewing your portfolio on a regular basis is important to ensure a good and profitable track record.

Organize
A good way to check up on your portfolio more efficiently is through effective organization. Organizing your portfolio does not just mean your stocks, it also includes your files, records and data that you use to base your trading decisions. After doing a lot of stock trading through the years, you may have noticed that clutter has begun to accumulate in your office. You may have so much unwanted files and records that you may need to get rid of. It becomes more difficult for you to look for the information that you need because of a cluttered office or PC. To work more effectively, you might need to clear out the clutter and organize your office in order to organize your thoughts and business decisions.

Posted in Advanced Trading
Social Networking For Clueless Traders

August 20th, 2008 / No Comments

Social networking has become a popular activity among online users. In fact, it may have become the most popular online activity that people engage in when they get connected to the World Wide Web. And it seems that social networking may not only help people get in touch with people all over the world and build connections, beginner traders may also benefit from social networking as they try to learn the ins and outs of online trading.

For beginner traders and do-it-yourself investors, it can be a pretty hard climb towards succeeding in stock trading. For one, inexperience may not do them good in a market that may also be considered as high risk. One way to combat inexperience is to learn more and more about stock trading and market basics in order to get the feel and the right tools to make better trading decisions. What could be better to learn about trading basics than from fellow traders? This is where online social networking may be able to help.

Zecco and TradeKing, two brokerage firms with an online presence has started an online community for clients as well as for individual do-it-yourself investors and beginner traders who may discuss and offer trading and stock market advice to each other. The two brokerage firms are considered to be the first among various brokerages to offer online social networking on their websites. These online communities do more than just offer a means for online traders to discuss certain trading issues and offer advice. They now allow community members to reveal their portfolios to others as well as provide performance ratings among the top achieving users.

As an online community, the relatively new social networking for traders can especially be very beneficial to small-time do-it-yourself investors at the stock market. Because of their stature, small-time individual investors usually have no access to certain trading information that may help them better evaluate certain stocks to make more informed decisions. Through social networking, online traders now have the means to interact with fellow trader members of the online community who might be owners of a certain stock to inquire how they might be performing. The advice as well as the knowledge learned through such online social networks may provide additional information that will help even beginner traders make more well informed decisions.

Not only that, the online communities on Zecco and TradeKing also provides performance ratings to its community members to see who performs and makes the best deals. This adds a little competitiveness among members that can motivate them to become even better at stock trading and investing. It is one of the good reasons how social networking online may be able to help a greater number of people interacting and helping each other out.

Posted in Online Trading
Option Trading Basics

August 13th, 2008 / No Comments

Trading in options is another way that a stock trader can be more flexible in terms of going through different deals in the market. Options are financial instruments that give the trader the right but is not obliged to engage in a future transaction. Unlike a forward or a future, options give the trader the flexibility of not exercising the right if he so decides not to.

There are basically two types of options contracts that traders can deal with. Buying a call option gives the trader the right to buy a specified number of stock shares at a set price within a specified time period. Buying a put option give the trader the right to sell. When the holder of an options contract decides to exercise his right as stipulated in the contract, the party that sold or offered the option is obligated to fulfill the terms of the contract.

Call options usually increase in value as the underlying stock also increases in its value. A put option on the other hand increases in value when the underlying stock decreases in value. By buying both a call and put option on a certain stock, a trader enjoys a certain flexibility in his investments. An increase in stock prices will allow his call option to increase in value while the put option value increases when the stock value goes down. Having a combined position will allow the trader to enjoy increases in stock value when the market goes in either direction. The trader may only lose money when the stock price remains stagnant or within a certain range when the position was started.

Option trading has a number of advantages over other financial instruments. By dealing with option contracts, traders may have the flexibility and the means to place bets on specific areas of the market that they foresee would become big in the near future. Option contracts also offer traders a large amount of leverage. In most countries, a single option contract can represent a certain number of multiple shares. With an option contract, a trader may get hold of a hundred to a thousand shares for just a small amount of money, giving him control over a considerably large stock position.

Option trading may be in no way more profitable than other financial instruments there are available. Trading in option contracts may also have its own share of risks that can either let the trader profit considerably in a short amount of time or even lose a considerable amount by being too careless. It is important that traders should try to study and understand better the ins and outs of options trading before putting their whole bet into it. Bear in mind that it is only one of the many financial instruments that traders may invest in to gain and profit from. Knowing and understanding how option trading works can make traders add more investing options in his arsenal and possibly profit from the right deals made at the right time.

Posted in Trading Basics
Stock Market Investing Risks

August 5th, 2008 / No Comments

Investing money in stocks, just like any other trading methods entails some risks. The risks should always be considered when it comes to investing in stocks wisely. And wise investing in stocks requires that traders know the risks that they are about to face and learn how to deal with them.

Financial Risk
Financial risk in stocks refers to the risk that you take in investing in the company itself. A financial risk is actually unique to each individual stock. If the company does well on the stock market, you are taking a small financial risk in your investment. If it does poorly, then the financial risk is greater.

The only way to manage financial risk in stock market investing is through research. You will need to know more about the company profile of the stock that you are investing in so that you may be able to determine the financial risk that you are taking. You study how capable the said company is, try to look into its balance sheet as well as evaluating its goals to see if it is on its way towards achieving success. The better the research you do on the companies that you invest in, the more effective you can be in managing financial risk.

Market Risk
Market risk refers to the general risk that you take when investing in stocks that belong to a certain industry. The risk does not actually involve the stock itself. Market risks rather involves the general movements in the market that can drive the stock prices higher or lower. Market risk involves the volatility of the stock price due to factors that are happening in the business environment. The best way to combat volatility or minimize market risk is by trying to invest in stocks for the long haul.

Timing
Timing is considered as another risk in the stock market. Timing can be best be considered if one closely monitors the buying and selling trends of the stocks being eyed. Some people try to check the stock buying and selling habits of wealthier and more experienced traders and use it to time their own stock investments. What people consider here is going the way of the power players in the stock market which have better access to valuable business information than the ordinary stock trader.

Posted in Investing
Tips to Stress-Free Investing

July 30th, 2008 / No Comments

It is quite common that investors and traders put themselves into a high degree of stress when doing their job. The risks involved and the high expectations to succeed can put quite a considerable strain and stress on the job on a daily basis. But there are ways that stress can be prevented and avoided in such a stressful environment such as the trading markets. Investors should only consider the following in order to enjoy investing in a more stress-free way.

Go Long Term
Investors usually place themselves in stressful situations when they expect to invest and earn profits on the short term. This is where stress usually follows because investing success especially in stocks can take time. Thinking short term may allow investors to take more risks that can lead them to frequent losses and hence, more stress.

To avoid a more stressful outcome, it would be better for investors to always think long term. This means expecting profits in terms of years instead of days or months. With such long term goals, you do not have to worry yourself too much about day-to-day or even year-to-year price changes. Stocks usually pay off in the end if you invest on them for the long term.

Diversity Is The Key
It is not good to always put your investments in just one type of stocks. The key to a more successful an stress-free investing is through diversity. Put your investments in different types of stocks or even in varied financial instruments so that you make your investments spread over different options available. Having them all in just one type of investment can become too risky. A loss will considerably amount to quite a lot on your part. Whereas when you diversify, a loss on one investment can sometimes be taken by the gain of another.

It can be very difficult to diversify investments especially if you see one segment of the market currently doing quite well. You should try to have a plan and try to stick to it no matter how attractive one portion of the market may be. A good way that you can start diversifying your investments is by putting some of it in mutual funds. Mutual funds are usually invested in a wide range of investing options to take advantage of the gains or profits that they offer.

Posted in Investing
Performance Anxiety And Traders

July 22nd, 2008 / No Comments

In the world of trading, it can be easy to go through a lot of stress and develop certain psychological problems along the way. One of the most common of such problems that traders have to deal with would be performance anxiety. Performance anxiety is not just a problem affecting traders but can also affect athletes and actors. Performance anxiety usually happens when a trader becomes more aware of the performance, especially the outcome, in such a way that it begins to interfere with the actual act of performing.

Performance anxiety can easily lend itself into the any trading day. It usually affects traders at a time when they either have to go through high degrees of risk or aiming to do better than their previous performance. The skill of how a trader performs can sometimes work automatically especially through experience. But there are times that can make a trader become more aware and scrutinize every action being done in trying to focus the eventual outcome of the performance. This results in the trader trying to have a conscious control over an activity that has been previously honed to automatic mode. What happens is that there is a disruption to the actual performance.

A prime example of performance anxiety can be likened to a basketball player on the free throw line about to make crucial free throws that can win the game. Becoming aware of the very importance of making the free throws, the player may aim at the ring but does not deliver the shot in his natural stroke. For traders, it can happen when one overthinks a trade and it doesn’t set up exactly as planned.

There are many things that can cause performance anxiety in trading. A series of poor trades that creates a losing streak in the mind of a trader can be one. Another can be experiencing situations that a trader did not expect to happen. Being pressured to impress everyone as well as a series of other pressures may affect the mindset of a trader that may lead to performance anxiety. These circumstances can cause certain disruptions to a traders state of mind that can sometimes be exhibited by a change in moods.

Traders should be aware that a number of trading problems can be a direct effect of performance anxiety. Instead of trading performance flowing naturally as usual, certain disruptions in thinking due to increased risk or pressure can allow a trader to perform poorly. Performance anxiety does not just happen when experiencing market losses. Some traders may suffer from performance anxiety even when enjoying market success.

In the same way, perfectionism can lead traders to experience performance anxiety. Traders depend on their achievements to determine their success. Sometimes, this can lead traders to set goals that may be difficult to reach. Trying to achieve such lofty goals can add some tension on the trader that may affect actual trading performance and may bring on performance anxiety.

Posted in Stocks
A Look At Penny Stocks

July 15th, 2008 / No Comments

Penny stocks may not look much to some investors out there, but there are also some considerable opportunities that it can offer, provided that the investor knows his way through investing in such stocks. Along with the profit opportunities also come considerable risks. To give you an idea, here is a brief look at penny stocks.

Penny stocks in the US are common stocks that are being traded for less than $5 a share. These stocks are usually traded in what is called as the “Pink Sheets”. It is an electronic quotation system that displays quotes of stocks for many over the counter or OTC traded securities. It is through the Pink Sheets that penny stocks bids and quotation prices can be published by broker dealers. But in addition, interested brokers should know that the Pink Sheets is not a stock exchange and is not registered in the US Securities and Exchange Commission. Companies with stocks quoted in the Pink Sheets are not obliged to fulfill any requirements or reports to the Commission.

Penny stocks are usually stocks issued by companies with small market capitalization. With this in mind, investors putting their money on penny stocks are setting their sights on small companies. This type of investments generally are viewed by many as a pretty risky proposition, putting up invested capital on some unproven small company. But this does not mean that investing in such small companied would eventually turn up on the losing end. There are many small companies out there that shows promise and may have good chances of making it big. Sometimes, the “next big thing” or the next great innovation may come from these small companies.

The key to investing in penny stocks is by thoroughly analyzing the small companies that issue them. Most investors are attracted to penny stocks primarily for the low stock prices and rapid growth potential. Some penny stocks, due to their low price can at times be seen increasing prices by several times its original value in a matter of days. But this price changes tend to be very volatile that most investors consider penny stocks to be very high risk investments. The key to successful investing in penny stocks is prior knowledge and careful analysis of the small companies eyed for their penny stocks.

In order to lessen the risk of investing in penny stocks with its accompanying risks, investors are better off investing funds that they would not bother losing. Investors should avoid putting up essential funds for investing in penny stocks. Setting aside a certain amount considered to be “disposable funds” would be the safest way to go investing in such risky stocks. When the stock rises, it would be a welcome news and investors profit some. But if the penny stock price suddenly crashes, investors would not be a bit bothered, considering that money invested is considered “disposable”. That is the best way for investors to invest in penny stocks.

Posted in Stocks
Stock Trading Mistakes

July 8th, 2008 / No Comments

Stock trading can either be a profitable venture or an investment failure. The end result of trading in this market ultimately depends on the right trading decisions. The risk is always there, but the savvy investor knows how to avoid committing the mistakes that allow many others to fail in this highly competitive volatile market. By trying to avoid the usual mistakes, a wise investor makes sure that decisions concerning the buying or selling of his stocks are founded well on experience and reliable knowledge.

Taking Stock Trading For Granted

One of the mistakes that most starting stock investors make is that they do not consider such trading as a serious business. Some are in it for the thrill and excitement. Some even think that going into stock trading might be fun. Of course, some investors may feel that way, that is, until they realize that they are beginning to lose a considerable amount of investment money in it. Trying to recover the losses won’t be as much fun and exciting anymore. Stock trading is for the level headed individual who looks at it as a serious endeavor and not just for the thrill of it.

Making Ego As A Main Trading Factor

For people thinking that they must win every time, stock trading may not be such a good market to venture in. of course, highly confident people may do fairly well in stock trading since they might be able to make some risks that may pay out well in the end. But for those who may have such an ego thinking that everything that they do will turn out successful, stock trading may not offer the similar or usual fate for such people. Egoistic individuals always think that they already know enough to be successful and would take no other suggestions except their own. Truth is, there is no such thing in stock trading. There is always something happening that every one may not expect. There are things that every body may not know about. And with an ego to go with stock trading, it can be a very dangerous and costly mix.

Investing More Than They Should

The savvy investor is one who knows his limits. He knows how much he can afford to invest and can afford to lose in the stock market. The risks in stock market trading may be akin to gambling, but there should be no such thing as “all in” when delving into stocks. Doing so will only put the trader into a considerable risk that he may not be able to get out of. A wise stock market investor knows that money one cannot afford to lose does not belong or is not worth risking in stocks, no matter how attractive the market may seem. Only the foolish would try invest a child’s college fund or business investment money on stock and expecting to profit from it immediately.

Posted in Stocks
The Stock Price and Market Performance

July 2nd, 2008 / No Comments

The stock price is one of the important factors that investors look closely into when deciding to buy or sell stocks in the market and on their portfolio. There are two types of prices that investors should always know- the current price of the stock and its future selling price. It may look easy enough for people to base their investing decisions by virtue of knowing the current and the future selling price of a stock.Many investors try to look at the stock price to gauge market performance. Many investors continually try to review the price history of a certain stock and use that knowledge to predict possible price changes as well as use it to influence their investment decisions. Some investors may form certain biases that can be influenced by the price of a stock.

There are some investors who may avoid buying stocks that have risen its price too sharply, believing that it may be due for a correction at any time. Others will try to avoid buying a stock experiencing a drop in price believing that it will continue to go down. But would such beliefs be considered as fact? Will a stock’s price be a credible gauge to determine its market performance?

Market Trends

Momentum seem to play a big part in a stock price. There is a common stock market wisdom that tells investors not to “fight the tape”. This means that investors should not try to go against the momentum of the prevailing trend. This assumption is based on the belief that the market would continue to move in the same direction and the best bets would be on stocks that go along that direction.

This may have some grain of truth in them, especially when you look at how most investors normally behave. Stock investors tend to bet on stocks that show price increases as opposed to stocks that are falling. And as these lead more people to invest in climbing stocks, it encourages even more people to buy. This presents a positive feedback that may go on for some time.

Martingales

But there are also instances that market performance cannot be determined by the stock price, in this case, in its past performance. There are cases that past returns of a stock may not seem to determine its future price. Past returns just don’t matter if you consider what is called as martingales. A martingale is a mathematical series of numbers in which the best prediction for the next number would be the current one. In terms of stock pricing, stock market returns could be considered as martingales. Using this theory, the valuation of a stock does not depend on past price trends or even in estimates of future price. The stock specific inputs that can be used would only be the current price as well as its estimated volatility.

Posted in Stocks
The Darvas Box

June 27th, 2008 / No Comments

The Darvas Box is a strategy in stock trading that was developed by Nicolas Darvas in 1956. What makes this quite a unique strategy is that it was developed, not by a financial or trading expert but by a popular former ballroom dancer. Yes, Nicolas Darvas was a former ballroom dancer who was famous dancer all over the world in the late 1950’s. But with his strategy, he was able to turn a $36,000 investment into more than $2.2 million in a span of three years.The Darvas Box involves buying stocks that are trading in new 52-week highs with corresponding high volumes. A Darvas Box is said to be created when a price of a stock rises higher from its previous 52-week high and then falls back at a certain price that is not high from the said high. When the price falls too much, then it may signal a false breakout. But barring any false breakouts, this trading technique sets the lower price as the bottom of the box while the high is considered as its top.

Darvas started trading in stocks while still a famous dancer in the 1950’s. During that time, stock trading was not as convenient as it is today, with brokers being paid high commissions. That is why traders looked upon buying high quality and dividend paying stocks and considered it the most sound trading philosophy. But identifying what these stocks are may take some bit of technique.

In order to identify good stock investments, Darvas looked into stocks from industries that he thought would do very well in the next 20 years. He also thought from previous knowledge that he will profit greatly if he can anticipate the next big thing in stocks. Darvas began to create a watch list of stocks from different industries. He focused on higher priced stocks because during that time, the cost of trading declined as the price of stocks increase.

With the list, Darvas then looked upon the stocks on the list that are ready to move. He did this by looking at the volume being traded. When he saw a day when an unusual volume of stock from his list was being traded, he called his broker and asked for daily stock quotes. Darvas was interested on stocks that was trading on a narrow price range. The upper limit of the said range was the highest price that the stock has reached in its current advance that was not yet reached for at least three days. The lowest limit in the range was the recent three day low of the stock price that held for at least three days.

When such a range on a stock has been found, Darvas then would contact his broker with a buy order just above the top of the trading range he set and a stop-loss order at somewhere just below the bottom range. Darvas saw that stocks set on his technique seem to pile up in boxes based on the narrow price range set. As these boxes pile up, a new box pattern is being formed as the stock price climbed higher. Each time a new box is formed, Darvas then raised his stop-loss order a fraction below the new bottom of their trading range.

Posted in Trading Basics