Stock Trader

3 Foolproof Stock Trading Strategies That Work

1
Sep0

If you have enough savings and you wish to make profits out of it, one option is to invest in the stock market. In its simplest sense, stock trading is generally about buying and selling stocks. You can choose to invest your money anywhere, but of course, a healthy amount of risk is always involved. The stock market is a very flexible system, and stock prices can go up or down like a roller coaster.

To be a successful stock trader, it is imperative to educate yourself with the basic principles in the stock market. Investors are in search for the magic formula that would help them pick the best stocks, but the truth is there is no hard and fast rule that could ensure maximum profit in a short span of time. Many factors are at play in the movement of stocks in the market, and most of these are simply beyond your control.

Even if you wanted to, you cannot directly influence the trends in the financial arena that would determine whether a company would fly high or sink low. Your best allies as a stock trader are usually just careful planning and effective strategizing.

1. Acquire an adequate amount of market knowledge. The advent of online trading has now made it possible for ordinary individuals to get involved in the stock market. Anyone can participate in stock trading online, but before you buy shares in the market, familiarize yourself with the principles of stock trading first. You need not be an expert on all the technicalities of trading. You just need to be a diligent learner. Do your research, read up, and study stock related terms. Look for articles online or subscribe to an online stock trading newsletter to get the latest news and expert tips from veteran traders.

2. Choose a good online stock company to set up your account with. In order to buy and sell stocks on the internet, you need to have an online account. Open an account with a reputable stock company to have access to their services such as stock charts, online brokers, and market analysis tools. You just need to pay a commission fee for every transaction you make, but this is minimal considering that you can get a lot of useful information on the company website and their online stock trading newsletter.

3. Hire an effective broker. If you are relatively new and inexperienced in the stock market arena, you would do well to get the services of a good stockbroker. A broker serves as a sort of adviser who will guide you in making decisions, alert you to the latest news in the financial world, explain the trends, and can do the transactions for you.

Again, you must remember that there is no single way to know which stocks are most profitable to invest in. Just take advantage of useful tips, lessons and advises that you encounter along the way, and use these to come up with your own unique strategy that will work for you.

William F. Gabriel gives practical tips on choosing the right online stock trading newsletter and online stock trading newsletter.

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Tagged as: Flexible System, Imperative, Magic Formula, Maximum Profit, money, online stock trading newsletter, Profits, Risk, Roller Coaster, selling stocks, Span, Stock Market Investors, Stock Prices, stock trader, Stock Trading Strategies, Truth

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Does A Faulty Barometer Herald A Storm For Stocks?

24
Aug0

Must you fire your monetary advisor and hire a month so that you can optimize your asset allocation?

Most likely so, should you believe proponents of a time-honored indicator of future stock market performance known as “The January Barometer.” The Barometer basically states that “As goes January, so goes the year,” and it’s racked up a seemingly remarkable forecasting record given that nicely before Yale Hirsch of Stock Trader’s Almanac first popularized it as early as 1972.

Given that 1938, the direction of change with the benchmark S&P inside the first month out with the gate has matched the year as a whole much more than a whopping 80% from the time, making January by far the most predictive month for the calendar. The results are similarly impressive should you use the Dow Jones Industrial Average (DJIA) as a yardstick and, although it somewhat diminishes the accuracy of the forecasting tool, in case you assess efficacy over the next 11 or 12 months to avoid double-counting January’s moves inside the periods it’s supposed to foreshadow. Dating back to the inception from 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. Beginning from 1950, an up January has meant about a 13% gain in stock prices via the remainder of the year, while opening with a down month presaged about a 1% loss.

Criticisms from the January Barometer

The historical evidence looked even much more compelling at the start of this decade, but The January Barometer laid an egg in 3 with the past 5 years. In 2001, a positive January called a premature end to a bear marketplace 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 given that 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. Nevertheless, the lackluster display by the blue chips actually understated the effect of the Barometer’s error in a year in which smaller stocks outperformed for a 6th straight time and also 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 recognized as the “Lame Duck Amendment,” to explain why it functions. 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 didn’t throw the rascals out until March. Despite ratification in early 1933, the amendment didn’t 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, creating the month particularly influential, or so the theory goes. Of course, they don’t hold national elections every year, and almost all the leaders are incumbents or politicians with previously well-known agendas. If the timing with the presidential inauguration is so important, why didn’t a “March Barometer” foretell stocks’ future prior to 1934? From 1897 through 1933, the direction taken by the DJIA in January corresponded to the complete year’s 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 initial year they tabulated daily prices for the S&P.

Staunch defenders from 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 genuine reason behind the 4-year delay in implementation of their pet prognostic technique instead be the disastrous performance shown by The January Barometer inside the 1934-1937 timeframe? In 1934, the S&P jumped a robust 10% in January, only to slide 19% during the next 12 months. In case you sold on January’s 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 market’s 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 inside the fact that most marketplace years are up years, as well as the much more recent era captures the secular bull markets of 1949-1968 and 1982-2000, leaving out the worst years from the Depression and also the relatively dull markets with 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 (a single year was unchanged), or 70%, subsequently. January historically ranks as the second-strongest calendar month for stocks, trailing only December.

January Barometer’s Notable Failures

Still, in above 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 marketplace 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 with the January Barometer’s most notable failures following those occasions when it appeared to call for further stock cost 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 more than 6 years, more than tripling with out a serious setback, when they topped in September 1902. Their yearlong bear marketplace was just getting started when 1903 rolled around, and their eventual collapse would drag down the industrials.

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

1914: A 5-year bear marketplace, 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 within the initial couple of years from the War, in which America gets rich supplying the Allies in Europe, the marketplace drops 40% by December 1917, as direct U.S. involvement within the conflict looms.

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

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

1937: A March top culminates an advance of nearly 5 years and 372% inside the DJIA just 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 much more than 4 years culminating in a Might 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 also the Dow Jones Utility Average quadruples.

1966: Another bull marketplace launches inside the second year from the decade, only to die inside 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 inside the 4th year of the bull marketplace, stocks start a 10% correction, as in 1946. This time, nonetheless, rather than quickly racing to a final top after the correction is above, the stock industry trades in a narrow range throughout the rest with the year just before busting out higher in 1995.

2001: The 1990s bull market amazingly lasts more than 9 years, taking the NASDAQ Composite from a mere 325 to above 5000 in March 1990. After a run like that, the ensuing bear marketplace wasn’t nearly complete despite a reflex rally in early 2005.

What May be Learned?

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

Six with the examples (1902, 1903, 1917, 1930, 1931, 2001) involve false January rallies that developed inside the early stages of bear markets. Clearly, we don’t 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 a lot more than an elongated bear industry rally? The latter possibility would be essentially unheard of, given the amount of time elapsed given that the low. Nevertheless, bull markets have been recognized to expire in a shorter time than the 3 years and 3 months required to trudge for the January 11, 2006 closing highs within 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 inside the S&P from its low last October 13 would represent an uncharacteristically brief and anemic concluding bull leg, especially anticlimactic for the heels of the flat year. Unlike 1946, 1965-66 and 1994, we haven’t seen a 10% marketplace decline in some time. The largest correction the market could muster in 2005 was on the buy of 7%. The less-than-stellar 52% maximum improvement in the closing price from the Dow given that its October 9, 2002 trough is also tepid by bull marketplace standards. As in 1942-46, the S&P is ahead from the DJIA, and broader indexes have crushed both blue-chip measures, but the S&P’s reluctance thus far to challenge its all-time high, unlike the Dow after it was similarly cut in half 100 years ago, further attests towards the underachieving nature with the existing bull.

Still, this bull industry is undeniably lengthy inside 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 with the January Barometer for any 4th time in 6 years.

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Does A Faulty Barometer Herald A Storm For Stocks?

10
Aug0

Must you fire your monetary advisor and hire a month so that you can optimize your asset allocation?

Criticisms from the January Barometer

January Barometer’s 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 marketplace high in late January, and also the DJIA was nearly cut in half just before the end of 1907.

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

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

What May be Learned?

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

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Do Not Mix Value Investing And Stock Trading

1
Jun0

Almost every stock market trader speaks regarding “recognizing value.” I’ve set up that interest in value investment ebbs and flows according to the market. No one wants to overpay for any stock, or keep holding one if the cost will get nutty.

And that results in ask a simple question: How can you find value in stock market?

It depends whom you ask…

The fathers of value investing, naturally, were Ben Graham and David Dodd, 2 teachers at Columbia Business School who wrote the investment classic, Security Analysis.

Both argued that value investing is about purchasing companies which are selling lower than their intrinsic value.

How do you determine that? As per Graham & Dodd, meaning buying firms that…
Trade at important discounts to book value. Receive high dividend yields. Have low price-to-earnings (P/E) ratios.
Buying therefore is not only speculated to lead to higher returns. It’s also designed to deliver a big “margin of safety.” The concept is that if you buy a security right, your loss is partial.

A number of academic research has shown that if you ever follow the ideology of Graham and Dodd, you need to do well on the long term.

But you will discover possible problems by this approach…

Firstly, stocks are rarely as low-priced like they were back in the 1930s when Security Analysis was printed. Or even as low-priced like they were back in 1982 while the typical stock offered for lower than book value and 8 times earnings as well as yielded more than 6%.

And if you sat out the previous 28 years out as stocks were too costly, you missed an awful many opportunities.

When you do find a stock that does meets Graham and Dodd’s stringent requirements, you also have to be patient. Why? Because companies which are the lowest are out of help for a cause. Sales are often level or downward. Earnings are weak. Gain margins are small.

You can’t succeed simply by buying a firm that is low-priced. (It could forever become more affordable.) You must purchase a company that could in the future – and perhaps not very faraway – be dear for others. Otherwise, when will you take gains?

So maybe Graham and Dodd’s idea wants modifying. (Warren Buffett, Graham’s most well-known student, has definitely found ways to modify it.)

I’ve established how the explanation of value as well as instruments to accomplish a margin of safety are flexible. Also The Oxford Club has found lucrative ways to bend them.

To my intelligence, one stock that goes from $10 to $50 was a “value” at $10. I do not care what the P/E or price-to-book was at the time. Among the luxury of hindsight, it had been clearly a discount. Why quibble?

However die-hard value investors will argue that if the stock was “overvalued” at $10, it’s only more grossly so at $50 – and therefore, you’re on major risk holding it.

I oppose. If you employ trailing stops your upside is limitless plus your earnings totally protected. As long as a stock maintains trending up, we’re pleased to hold on – no matter what the valuation. After the stock eventually turns, as all perform eventually, our stops will keep the profits from slipping through our fingers.

As for value analysis, quite frankly, we don’t pay out a lot of your time poring over P/Es and book values. We’re now concerned about finding businesses which can be more likely to prove dramatic, better-than-expected growth in quarters to come. These shares are typically more expensive than average, just like businesses that may give you an idea about a small amount or no development tend to be cheaper than normal.

Growth stocks usually sprint. Gains regularly come sooner rather than later on. The majority traders don’t have the patience to be good value traders. John Templeton, for example, held businesses in the flagship Templeton Growth Fund an average of 7.5 years.

But clients will start to grouse if a stock doesn’t move for six months. They call it “dead money” and start keen to move it to a different place.

I know this instinct. But deep value investment along with quick trading do not combine.

If you are a patient, really long-duration oriented investor, value investing be able to work miracles. If you’re not, you’ll be comfortable looking for companies which are set to smash estimates.

While it doubles or triples – or go up 50-fold or else more like Apple (Nasdaq: AAPL) and Amazon (Nasdaq: AMZN) – never be bothered, other investors will concede it had been “value” before.

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Learning To Trade The Emini

4
May0

Many new futures traders find their way to the futures market through stock trading. One of the very first lessons a stock trader will learn, especially day traders and scalp traders, is to watch the S&P 500 futures. Most stock traders have a very strong respect for the S&P 500 futures because they know that wherever they go, the cash markets will follow. Index futures traders that trade the Dow and NASDAQ emini contracts will also follow the S&P 500 futures as well since they know the second they go south, it is time to exit all long positions.

Always keeping one eye on the S&P 500 futures is the first lesson a novice trader needs to learn in how to trade eminis. Many day traders will eventually move to the futures markets but for various reasons. One very large reason is the that index futures require very little research on the part to the trader each night since they trade the same market everyday. Stock traders must scan and research different stock charts every night to find possible trade set-ups that offer trading opportunities once the market opens the next day.

Another reason stock traders may decide to change from stocks to index futures is volatility. On any given day the market is open, futures will almost always move to one direction or another offering opportunities for profit. Volatility is the key to movements that appear on chart screens that offer potential trade set-ups and executions. Reasons vary as to why futures contract traders choose the emini market but one reason is crystal clear, they do offer enormous income potential for traders that are disciplined and focused.

Learning how to trade eminis takes time and should not be approached until sound fundamentals are acquired on how the dynamics of the market works. New and inexperienced traders that have not taken the time to gain the fundamentals about the larger markets, including the futures market will most certainly fail and deplete their trading account quickly. One “death spike” can completely destroy a trading account. A death spike receives it’s name because of it’s formation on a chart. Usually death spikes occur when a unexpected financial news item hits the wires. In seconds, the futures market can turn and blow past stops, not stopping until the market has shaved off 30 or more points in seconds.

Being unprepared for these events can be catastrophic for the inexperienced futures traders. Trading more than one contract at a time with no experience is the main reason for these trading losses. Novice traders often exhibit impatience and want to rush the road to profits and end up losing all of their trading capital.

Money management or preservation of trading capital is one of, if not the most important rules and discipline a futures trader can learn. If there is on area that a trader should focus his energies on, it is developing a system that is mechanical in nature, either through software or mentally, and never deviate from this system during the trading day.

Developing a emini trading system that is tested against real time market data before ever trading the markets live, will increase the trader’s chances of being successful. Experienced futures market traders all use a method that has been tested and back tested and proven. One major function of the mechanical day trading system is money management used to protect their trading capital.

Although their trading system may vary in design, all focus on money management, One trader may just use piviot points, another may use support and resistance, while others may use moving averages and crossovers. Trading systems are as varied as traders but all have one thing in common…money management!

When experienced traders first learned how to trade eminis, they quickly learned that using stops and exiting trades quickly once the trade goes south it the key to winning as in the emini markets. In fact, most traders will tell you, they experience more losing trades than winning trades, however, they have learned to cut the losing trades short and capitalize on winning trades.

Also, we need to address trading platforms. Charting software and brokerage accounts a re a dime a dozen…there are 100′s that cater to trading the financial markets. A broker should be chosen with two important points to consider: One is commission. Brokerage firms that cater to all financial market traders will more often have higher commissions than one that specializes in one market such as the emini market. Commission rates vary, but finding commission rates of $2.50 per side is not uncommon and these brokers should be sought out since commissions can eat into profits.

The second is trade execution. The emini contract markets are fluid, volatile and can be lighting fast and fast executions are a necessity. Again, brokerage firms that specialize know what traders need in a trading platform and will offer the best executions for their clients.

Learning how to trade eminis takes discipline and focus, however once a system is proven, a new trader can quickly become a profitable trader.