NetTrade

• Option Trading Basics

  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

  August 13th, 2008 / No Comments

• The Darvas Box

  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

  June 27th, 2008 / No Comments

• Trading With Biases

  In trading, there are some ways of thinking that determine a person’s trading decisions. Some of these way of thinking is based on several biases that they believe would increase their chances of profiting from their investments and trading practices. In market analysis, biases based on personal beliefs are used to help determine in which direction a trader plans to tread upon. But unfortunately, a lot of inexperienced traders seem to believe on a set of biases that may prove untrue if used in the field of trading.

  Lotto Bias
  One of the many biases that traders often use but mistake to be a good method in trading is the “lotto bias”. This bias is related to a person’s sense of control. In a lotto ticket, having the opportunity to pick off the right numbers seem to give a person a sense of control over his chances of winning the lottery. The fact is that no matter what the lotto player chooses, he still has that 1 in 13 million chances of getting the numbers right. What choosing the numbers give the person is just a false sense of control.

  With the lotto bias at work, a trader can make the mistake of believing that he can make it big in speculative trading just by picking the right numbers. Traders seem to take huge amounts of time trying to find the perfect trading system when in fact the likelihood of profiting from trading is largely dictated by chance. That is why it is important for experienced traders to listen to the markets instead of trying to impose one’s system of trading on the markets.

  Representation Bias
  A representation bias can be summed up as trying to judge something based on what it looks like rather than the probability of how the markets actually behaves. Traders seem to take some data that seem nonsense and try to make sense out of it, trying to think that it must represent something really essential and important. Representation bias presents a limitation on a person’s ability to be effective in the decision making process. It allows traders to look over what is not seen but may be happening in place of the obvious but that should not be considered as fact.

  Conservatism Bias
  This bias is based on one’s set of beliefs and personal opinion to determine trading decisions. It can even be considered as being hard-headed. This bias for standing out for what the trader thinks is right instead of what the market is showing can allow traders to make costly mistakes. Conservatism bias prevents a trader from looking at the market from a neutral point of view and with an open mind. Conservatism bias can prevent a trader to change his position when it runs contrary to belief. In trading, this bias makes traders take a look at the market in a way that they expect to see it.

  Posted in Trading Basics

  June 20th, 2008 / No Comments

• Scottrade.com

  There are a lot of  online stock brokerage companies who may propose that they are the best thing ever happened to your stocks however you need to fully understand what it is they are offering you. You might want to look deeper into the type of service that the company tries to market to you. You would most probably want to take a look at the history of the company and how it has performed in the past. Today, we look at Scottrade.com and what it means to work in partnership with them.

  For more than half a century, Scottrade has already been in the stock brokerage industry. It is a leader in both customer service as well as technology with regard to online stocks. It is also considered a leader in terms of value for one’s money. In Scottrade, the investors are equipped with a variety of stock trading tools as well as services which can take care of their investing needs. Scottrade is quite proud to provide premium service and discounts to investors which have various styles in trading. This is one of the missions of the firm. It is essentially about providing the best price and best service, combined with the best technology that the online investing community has to offer.

  First of all, Scottrade offers an enhanced version of their tools which is in ScottradeELITE. You can only download this tool if your stock trading account has a minimum account value of $25,000. You need to check first if your account value, which is composed of all cash and other securities are present and if they meet the necessary qualifications. One of the things that is praiseworthy of this is that there is no inactivity fee unlike other online stock brokerage companies.

  The company also offers NASDAQ  TotalView which is considered to be the best and fastest data feed which is available from NASDAQ. This means that you will be able to view each and every single bid that is placed on specific stocks. This also enables you to ask for every market participant that is included in the NASDAQ Market Center. Should you sign up for this enhanced tool, you will automatically receive Level II quotes free of charge.

  Apparently, there is so many things that you need to consider when joining Scottrade and when signing up for the different tools that they have. It might be worth your while to take a closer look at their site.

  Posted in Trading Basics

  November 29th, 2007 / No Comments

• Day Trading

  Day trading is all about buying and selling stocks at a very frequent in order to have that chance to ride the upwards momentum so that one can make a certain amount of profit. The rapid buying and selling occurs only within minutes and they don’t have the long-term goal of holding onto the stock. Most day traders buy on borrowed money and they simply anticipate that they will be able to make do with leverage by reaping higher profits through leverage. But ultimately, these people run the risk of greater losses than they expect.

  Day trading is neither unethical nor is it illegal but one this is for sure and that is it is definitely risky. Most of the investors that participate with this type of trading do not have the financial resources, the time nor the disposition to gain money as well as maintain with devastating losses that a particular encounter with day trading can bring.

  Here are just some of the different pointers that one should take into consideration

  Be prepared for your losses
  During the initial stages, day traders will most probably suffer deep financial losses. Some of these day traders may not even reach profit-making status because of the difficulty of the market or because of several other internal and external factors during their day trading. Because of this particular element of day trading, it is crystal clear that day traders should never risk money or assets that they cannot part with. Examples of financial resources that should never be risked with day trading are living expenses, retirement fund, taking out a second mortgage or the student loan money.

  It is not equal to investing
  All that a day trader does is sit in front of their computer monitors and look for a particular stock that is either moving up or down in value. They would like to ride the momentum of the stock and simply sell it before it becomes too much of a liability. In the same way, day traders also look for stocks which are on their way up and they try to get their hands on these types of stock and seconds to minutes after purchasing, they sell it immediately in order to gain a quick profit.

  As discussed in the aforementioned points, day trading is definitely not the way to go if you’re planning to invest. You might want to learn more about it before you actually dive in wallet first.

  Posted in Trading Basics

  November 23rd, 2007 / No Comments

• Filtering Out The Bad Critics

  Most online investors simply don’t know what to believe. They seemingly wander from rumor to rumor until one day, they learn the hard way that discussions online are supposed to be taken lightly—especially when it concerns your money. Most people have been through several lawsuits simply because they posted fraudulent information or compromising information that caused an independent company’s stock to plummet drastically.

  There are measures being taken by both the Security Exchange Commissions as well as the other companies involved in these online activities such as giving out subpoenas in order to ferret out information from their critics. The companies are able to ask for the different personal information from web sites simply because there are times that the content of the posts by a particular informant becomes too good to be true or too ludicrous for most experienced trade sages to believe. The companies are utilizing the power of the courts to essentially identify people who post important information regarding the stock of their company. However, sometimes, the damage has already been done before justice can run its course. Both financial and punitive damages may have already been done.

  Lawsuits are just about the most recent thing that the online investing world has utilized in order to help with the fight against fraudulent information posting on various stock sites. There is an increase of policing activity by the SEC as it now has 55 full-time staffers who are all dedicated to bringing about justice in the online investing world. This is a huge jump from the three-man team that they employed way back in 1999. Looking back at the exploits of the company, it is quite evident that the 50 cases out of the 240 Internet-related ones concern postings on message boards.

  There was this one recent lawsuit that the SEC filed wherein they sued an individual who allegedly posted fraudulent information on a Yahoo! Message board which caused the stock of a company who collects bills to radically plunge down almost 30% in just two days of trading. The 25-year-old man had identified himself as a president and chief executive officer of another company and that he as well as other executive officers were going to file a $20 million lawsuit against the bill-collection company. This type of activity isn’t tolerated in the business world as it directly affects the company and the people who put their trust in it.

  The next time you hear a rumor on a message board or maybe even a press release. Do yourself a favor and get some authentic and legitimate information. Rumors are rumors.

  Posted in Trading Basics

  November 14th, 2007 / No Comments

• Internet Investors Beware

  Investing in stocks online has now become a financial phenomenon. It is mainly due to the fact that being able to invest online is quick and easy and will cost you practically less energy as opposed to being on the trading floor or with a stockbroker on the phone. You are exclusively accountable to yourself and as far as you’re concerned, you will never be duped by anyone because you call your own shots. But that’s as far as you know.

  Stock scams right now are prevalent in the World Wide Web for the exact same reason that everything now is being done online—it is quick and easy. Why, one actually needs to expend less energy as opposed to swindling someone in person and talking to him into buying a particular stock. This is the new age: the age of information revolution and with it comes a few rotten apples that are aiming to spoil the entire basket of stock investments with its reputation.

  Stock scams happen when malicious people mislead those who don’t know any better about how a stock moves. There are those who literally hype up a stock or promote an investment scam and then are quick to run away with everyone’s money. The financial message boards are a medium in which these uncouth people have thrived for many years now. They simply offer a cost-effective way to target a lot of easy to fool people and they open their wallets wide to receive the hapless people’s money.

  Beware of different stock discussion forums or message boards. There have been online resources that have been existing since trading started on the Internet. However, these helpful resources have been breeding pits for the vipers of the stock investment community who only look to spread wrong information for financial gain.

  Even though the companies that control these message boards and discussion forums have done their own homework in cleaning up the boards and legitimizing it as a scam-free board, it no doubt will not prevent someone who has just entered the boards on what type of stock to look out for or not.

  Essentially, the most effective way to regulate the Internet is to educate the investors so they will not be drawn into the different scams that the Internet is teeming with. It is important to know that stocks are simply prone to manipulation, given the right tactic. If you do not know what it is that you should be looking at, it would be best to ask a second, third and sometimes even fourth opinion from different parties.

  Posted in Trading Basics

  November 8th, 2007 / No Comments

• Trading Psychology 101

  Whenever you venture out into trading, you should always be on the lookout for how well you know yourself. Every person has different strong points that he or she is able to profit from during trading. You should be able to know what those strong points are and use them to your advantage so that you’ll be able to react properly during different circumstances. If you are able to protect yourself from different damaging situations during trading, then you will be able to manage a trade with much ease, not to mention even greater profit.

  You should know that your biggest hindrance when you’re trading is yourself. You shouldn’t focus on the market or even the world events. If you do not look into psychology when you’re trading you will most probably make the wrong decision and eventually lose out on all of your savings and stocks in the long run. Here are just some of the concepts that you need to take note of when you’re dealing with trading psychology.

  Patience
  You should always remember that what goes up must come down. Therefore, whatever it is that you encounter within a particular trade, simply be patient enough to wait for the different positions to materialize after a trade, then you’ll be able to get all of the facts first. Be sure that you get all of the information straight first before you go make a trade happen. This will happen only if you decide to watch the market from the sidelines from time to time. You will be able to properly respond to the different types of surprises that will come your way.

  Make sure that you never fall in love with your stocks nor do the opposite and hate them. These stocks really don’t care that you own them and they certainly are not your friends. Be sure that you are detached from them so that you will be able to make decisions based on logical premises instead of emotional ones. Do not constantly check the share prices all day long  unless you really are day trading. If you get caught up in a particular stumper of a stock then make sure that your decisions are coming from your head.

  There you go—the basic principles in making wise, informed and logical decisions regarding stocks. In the realm of online stock trading be sure that you always lead with your head and not with your heart.

  Posted in Trading Basics

  October 24th, 2007 / No Comments