Tuesday, December 30, 2008

Losing a trade or a row of trades is never fun. It can make you frustrated and unhappy. And who can blame you for feeling that way. A loss of capital can cripple your account making it harder to get to where you want to go.

That is definitely why you want to lose as little capital as possible when you are wrong. It is all about risk management.

But so many people forget that you trade more than just money when you trade. You are affected mentally every time you place a trade. Your confidence grows when you are on a winning streak. You feel like you can do no wrong.

However the flip side is also true. When you are on a losing streak you can feel terrible. You can feel like you never want to trade ever again. It can be hard.
The market come with surprises and can definitely get the better of you at times, no matter how good of a trader you are. They just can’t be controlled.

But even though we can’t control how the markets will move what we can control is how we react to them. If we have just been beat up we can choose to do one of two things. We can say we never should have traded in the first place and walk away or we can learn from our mistakes and use it to become a better trader.

Trading is a game that you are constantly learning how to improve on. I am confident that every year I become a better and better trader. When I make a mistake I quickly learn from it and apply what I have learned in my future trading.

If you want to be successful in trading you have to do the same. There is no way around it. Concentrating on learning from your mistakes and building your confidence are the two most important parts of mental trade management.

For more information about the stock market visit http://www.stocks-simplified.com

Tell us your trading goals at http://www.stocks-simplified.com/investing_goals.html

Monday, December 29, 2008

Low volume stocks

Low volume stocks can make it much more difficult to trade profitable. For that reason it is better to stay out of these stocks regardless of how the set up looks.

Volume should be looked at every time you place a trade. What volume does is tell you exactly how much of a given stock was traded during the day. Every number counts as 2 trade’s one buy and one sell. So if volume is 10 million it means 10 million people sold and 10 million people bought that day.

It is very important to look at volume because if volume is too low it could pose problems if you plan to make money trading it.

The first problem low volume stocks give you involves getting in and out. If there are only 40,000 trades on a given day you might find it very hard to get in especially at a price that you want to.

The second problem is similar, if a stock turns against you it could be hard to get out. Falling price on a low volume stock could make a crowd of sellers with no buyers around. By the time you get out you could have a loss so far under your original stops that, you would be hurting.

The last way low volume stocks work against you is the mere fact that you can’t use the volume to help you. Normally you can use volume to help determine the strength of a price action. High volume on an up day means that the stock is likely to keep going up in the short term.

If volume is low to begin with however, it makes it harder to tell where high volume and low volume are. No one is trading the stock anyway.

So what is good volume? Every trader has a different opinion, but I believe you should be able to find a stock that is trading at least 1 million shares per day. That should allow you to move in and out pretty easily.

As your account gets bigger however you may want to move the bar up. Only trade stocks with more and more volume. Just remember to keep volume in mind the next time you make a stock trade.

For more information about trading volume visit http://www.stocks-simplified.com/volume.html

For more information about the stock market visit http://www.stocks-simplified.com

Saturday, December 27, 2008

Stock Market Trading and Poker

I am a huge stock market geek and a huge poker geek as well. I remember seeing not too long ago a world poker series; they were interviewing a guy from the semi finals who said he was an option trader.

That made me think, trading which is one of my biggest hobbies is very similar to one of my other favorite hobbies poker. Now I know most people out there are not willing to believe that poker and trading are similar.

Most people associate poker with slot machines and gamblers, and the stock market with a way to invest your money and grow. The truth is people do make a living by both being poker players and by being stock market traders. Once more it takes the same qualities to be a good poker player as it does to be a good stock market trader.

In order to be a profitable poker player you must.

1. Have a strategy that wins in the long term

2. Manage your risk, don’t make stupid calls

3. Win big when you win, all in, raising

In order to be a profitable trader you must

1. Have a strategy that wins in the long term

2. Manage your risk

3. Win big when you win

I’m not saying that the stock market only works when you get lucky. But I am saying that the stock market is not something to be taken lightely. Most people believe they can just buy a stock today and sell it sometime later for a profit.

The stock market should be treated more as a poker game then a savings account, were you put it in and forget it. You cannot put all your money in one stock and hope for the best in the same way you would not go All in with a jack high and hope for the best. If you want to ultimately win you need a strategy that makes you money in the long run. A strategy thar lets you manage your risk and grow your winnings.

For more information about the stock market visit http://www.stocks-simplified.com

Tell us your stock market goals at http://www.stocks-simplified.com/investing_goals.html

Tuesday, December 23, 2008

Weeding out Market Noise

If you pay attention to the stock market at all you will get bombarded with tons of useless facts about what is going on with the country, how the economy is improving/ getting worse, how inflation rates are changing, what the unemployment rate is.

It is difficult to find out which information is useful and which information is not useful. Easy, remember 90% of all information talked about in the stock market is completely useless, at least when it comes to making money. You cannot decide what to buy and what to sell based purely on inflation rates, or what the media says.

Your success as a trader will partly be decided by your ability of weeding out market noise. In fact ignoring all irrelevant facts about what is happening in the market will help you in the long run.

So what do you rely on? Simple your system, everyone who ever has, is, or will make consistent money in the stock market has done so by following their own system of trading or investing, that’s a fact.

It’s a shame that most traders will allow all of the market noise to get the best of them and break there rules. It happens to everyone who has just started trading, you will buy a stock because it looks like a good buy according to your rules, but then bad news comes out and you start thinking, “Oh no, that sounds really, really bad I better sell everything I own cause the markets going to crash”. Only to see your stock rally after you sell it. Following your rules would have helped you here.

There are 3 things you need to do in order to be successful in the market.

1. Develop your goal for the stock market. Investing without goals is like buying a lottery ticket, you don’t know what will happen but you hope everything will turn out for the best.

2. Develop a system and follow it, everyone who makes money in the market follows this step.

3. Weed out market noise, who cares what some random guy with a degree in economics on CNN says about the stock market. There is no college degree that will turn you into a stock market trader.

Follow these goals and you are on your way to making money in the markets.

I encourage you to share your stock market goals with the rest of us at http://www.stocks-simplified.com/investing_goals.html

For more information about the stock market visit http://www.stocks-simplified.com

Monday, December 22, 2008

Saving accounts vs. stock market

Most people decide that the stock market is just too risky for them to put their hard earned money into. I know many savers out there who would rather put their money into a savings account then into the markets.

This way they can go for the sure thing, the government insured return, but what are you actually getting when you invest your money into a savings account? Say your bank pays you 2% interest in your savings account, and you put $10,000 into it.
After 1 year you have $10,200 and it appears you have found a safe way to let your money grow. But hold on; let’s look at some facts first. Inflation normally hangs around the 3% range. This means that in order for you to have the same buying power as you did last year you need to have $10,300.

So even though you made $200 in paper money, you’re buying power actually decreased by $100. And if you factor taxes into that you will find that saving accounts are the only for sure way to lose buying power and get taxed on it at the same time. Losing around 1% in value per year isn’t exactly something you make up in the long run.

Now suppose you invest that money into the SPY which goes up 10% annually on average, you would have $11,000 after 1 year, on average and because you only need $10,300 to keep the same buying power not only is your paper money increasing but you’re buying power is too.

And suppose you educate yourself to make 20%, 30% or more off of your money annually, that would do so much more for your wealth then a savings account ever could. Also what is the limit on the return you can expect from the market? There isn’t one, your returns can be as large or as small as you can possible imagine and shoot for.

That isn’t to say the markets are without risk. You always have the chance of losing money in the markets. But if you manage your risk and let your winners ride it can be a great place to make money.

For more information about the stock market visit http://www.stocks-simplified.com

Wednesday, December 17, 2008

Changing your trading rules

Changing your trading rules can be a good approach if your rules aren’t working. But if they are there is no need to change them just because you have a few bad trades.

You have been good, following your trading rules and having some success. But you start to notice some flaws in your approach. You will from time to time enter trades where you lose money and are forced to exit.

You also see other opportunities that you have missed because they did not give you an entry signal. This makes you upset. You now want to remake your rules one that would have allowed you to get into those opportunities. You also make new rules that will not allow you to get into the losing trades.

If this sounds like you, be careful. Every system has its share of winning trades and losing trades. You cannot just go dumping your rules and trying to create new rules every time you see a missed opportunity. This is especially true if you are having success following your current rules.

Remember your goal in trading is to win on average. You may lose a few small trades here and there but you should also be winning a few big trades here and there as well. If you are winning don’t try to change it.

I always hear people say I wish I would have bought Microsoft when it started. I would be a millionaire by now. My response to that is why would you have bought Microsoft then? Did it give off any buy or sell rules at that time? Or would you of simply put your life savings into a stock no one knew too much about and hope for the best.

Rather than looking at opportunities you have missed and saying I should have gotten into that, how about developing a system that works in the long run and following that system.

For more information about the stock market visit http://www.stocks-simplified.com

Sunday, December 14, 2008

Trading Like A Robot

Often times trading can become very exciting. There can be times you want to go around bragging that you made $1,000 today, you may get high off of your trading profits. But remember, it is impossible to get a high off of trading and make money trading at the same time. You can do one or the other.

That is because trading requires a large amount of self discipline. You must be able to trade without having a huge amount of emotion attached to your trading. You can’t be thinking, “I’ve got to make a profit today because…” the market doesn’t work that way.

Even for a short term trader the stock market is still a long term strategy. The difference is, if you are a short term trader you have to rely on the long term outlook. You may lose a little here or win some there, but in all you should be heading up, in the long term.

Taking the emotions out of trading means you have to be able to follow your system without getting a high when you are making money or getting depressed when you are losing money. The ideal way to trade is like a robot, buying stocks when they give you a buy signal and selling them when they give you a sell signal.
If at any time you wonder whether you should sell your stock to accept your losses or weather you should get out and keep your gains, you are trading wrong. A robot does not wonder or think it simply follow the rules already in place. And if you want to be a great trader you must be disciplined enough to follow your rules.

In order for you to trade like a robot you need to do 3 things.

1. Develop a set of rules that you use to determine when to enter or exit a trade. Every trade you take should follow your rules.

2. Test your rules by back testing and paper trading. This is the best way to figure out if your rules will work in the long term.

3. Follow your rules. Never hesitate to buy when your rules tell you or sell when your rules tell you.
These three steps allow you to make money in the markets and allow you to trade unemotionally.

For more information about the stock market visit http://www.stocks-simplified.com

Wednesday, December 10, 2008

Finding the perfect trading set up

Some people try to find the perfect trading set up. They only trade when all the stars are aligned and when everything that can possible be on their side is on their side.

It is so easy to want to find the perfect set up, the set up that can’t fail. Where all we have to do is click to buy and we have won. Unfortunately, the perfect set up never comes in the stock market. You can spend every waking moment looking for the perfect stock to buy, one that has great fundamental, great technicals, and has gave a buy signal on every oscillator, you will never find it.

Every trade no matter how good it looks has risk involved. Instead of looking for the perfect set up, Develop a system, that works in the long run. It doesn’t matter if you lose money here and there as long as you keep those losses small and keep your winners big.

Finding a stock that is strong is all you can do. Nicolas Darvas wrote a book back in the 1950s, called How I made $2,000,000 in the stock market. In it he states, “I slowly came to see that though I was becoming a diagnostician I could not be a prophet. When I examined a stock and found it strong, all I could say was ‘it is healthy now, today, at this hour.’ I could not guarantee it would not catch a cold tomorrow.”

That is all you can do. You never know what is going to happen. All you can do is find a trade that seems to be strong at one point in time and limit your losses in case you are wrong. But you have to be able to jump into a stock that looks good and ride it until it doesn’t look good anymore.

For more information about the stock market visit http://www.stocks-simplified.com

Monday, December 8, 2008

Take Complete Responsability When Trading

All successful traders will take complete responsibility for their trading actions. You will not find a successful trader who blames others for losing their money in the stock market. This is the first step to becoming a great trader.

This step is very important because until you take responsibility for your trading, both profits and losses, you will not feel comfortable enough to place trades yourself and follow your own rules, which is necessary if you want to make money in the stock market.

Even more important a trader who takes responsibility for their actions will be more likely to consider their mistakes learning experiences. If you hold yourself responsible for losing a trade you will be more likely to review bad trades and figure out what you did wrong. From that you can learn how, not to make the same mistakes again.

People who blame their brokers for giving them bad advice, or their friends for giving them the wring hot stock pick, do not have that luxury. They may never find out what they did wrong. As a result they are likely to keep making the same mistake over and over again without understanding why they can’t seem to make money in the stock market.

Taking responsibility can also help you when developing your trading strategy. If you try to trade everyone else’s strategy it may work against you as you try to make their strategies work for you. The only way you can make money is by developing a strategy that you feel comfortable about and if you trade based on others opinions you may not feel comfortable with it and make mistakes such as exiting to early or holding on too long.

In the end the most important thing you can do is to take responsibility for your own trades. If you don’t you are just counting on lady luck to come and save the day. And if you have ever gambled you will find that is a terrible long term

For more information visit http://www.stocks-simplified.com

Sunday, December 7, 2008

Holding Cash When Trading

Holding cash when trading, those are the words the majority of traders fear. No one wants to do it, but it can actually be a benefit to you.

Two of the biggest stock market geniuses of all time, Warren Buffet and Jessie Livermore have always gone through long periods of holding cash. They only buy when there are positions out there worth buying, and when everything seems to be going in the right direction.

This is directly opposite to what most new traders will do. They feel the need to be fully invested in the market at all times, after all if they are not fully invested they are losing potential profit. This type of thinking can be a downfall.

Remember that the stock market can be a double edged sword. You can make a large amount of cash during the good times but you can lose a large amount of cash during bad times.

Your first goal should be to protect your losses. The best way to do that is to hold cash when you are unsure of the markets. Waiting for the markets to make up their mind instead of trying to trade a bad market will help you to preserve your capitol.

Another reason why holding cash can be a good idea is that it is less stressful and allows you to take a break. When the markets are constantly moving up 500 points then down 500 points during the same day you probably want to take a breather until the markets make a decision.

Wait it out and take a break. Forget about the markets for a while, at least until they start trending. If you trade too much during hard times you will be too stressed out to make a profit during a trending market, and you will probably make less money in the long run as well.

For more information about the stock market visit http://www.stocks-simplified.com

Friday, December 5, 2008

Readjusting trend lines

Drawing a trend line is just like connecting the dots. By drawing a line at the highs of a stock you get a resistance level. By drawing a line at the lows of a stock you get a support level.

The theory is that stocks will bounce up from support and bounce down from resistance. Also when a stock breaks a trend line is it likely to stock will have a big run in the same direction it broke.

Drawing a trend line and using them to trade is much more of an art then a science. As such they may need to be constantly readjusted as stocks take on new behaviors. Stocks may break above levels of resistance only for a short time then fall all the way back to support.

In which case, it is better to take the new high into consideration when redrawing your resistance level. Another example would be in an up trending stock, where the stock has just made a fast rally which leaves all your trend lines in the dust and makes them obsolete. In which case, your trend line will have to be drawn again to incorporate the new price action.

One thing you do not want to do is adjust your trend line so you can lower your stops. If you buy a stock at support hoping it will go to resistance and it breaks support get out. Do not adjust your support to make it appear as if support is lower now. Getting out quickly when you are wrong can help you in the long run.

Trend lines can be the single most important indicator when deciding when to get into and out of a stock. So it is important to make sure they are as accurate as possible. That means you have to be willing to readjust trend lines every once in a while, and keep them updated.

For more information about the stock market visit http://www.stocks-simplified.com

Thursday, December 4, 2008

Myths About Short Term Trading

There are many myths about short term trading these are the “text book” stereotype. The myths are often wrong or based off of bad assumptions.
These myths are

1. Speculators don’t make money when the markets go down. No, unlike long term investors who get hurt by such things as market crashes short term traders can take full advantage of downturns in the market by buying puts or shorting the stock. I never understood where this myth came from considering most if not all short term traders do not mind playing the downside.

2. Short term trading is risky. Anytime you put your money in the market you are taking a risk, regardless of time frame. Some people seem to have forgotten that buy and hold or investing in big named companies is not always a for sure thing.

3. Speculators can’t beat the market. It is very possible to make between 20-100% annual returns, sometimes more, in the market as a short term speculator. If that isn’t beating the market we do live in a perfect world.

4. Speculators can make money in the short run, but investors will make money in the long run. This comes from the belief that long term traders have that they will make money in the long run if they buy strong value companies. While this has been shown to work in the past you can’t assume just because it works, it works better then trading. Pulling out relatively consistent small gains adds up.

5. Short Term Traders sit at their computers all day and watch the market. This is false, if you are a position trader you do not want to spend more then 5-20 minutes a day (after hours) monitoring your positions, any more is just stressful and not worth it. If you are a day trader you probably want to spend more time, like 30-90 minutes, but the same thing goes here. Sitting at your computer all day is just plan stressful.

For more information about the stock market visit http://www.stocks-simplified.com

Wednesday, December 3, 2008

Why The Stock market was born

I thought it might be fun to talk about how the stock market was born. Many people do not realize the importance of the stock market.

The stock market was born out of necessity. It helps companies grow as well as helps the average citizen fight against inflation.

Imagine you are a business owner. You own a restaurant that is making $100,000 a year in net profit. It works out great but you want it to grow, you can’t afford the $500,000 it cost to open up another restaurant. Suddenly you get an idea.

You will sell shares of your company to other individuals and profit from those shares. In return the investors who buy the shares will own a percentage of the company and a percentage of the income produced by the company.

You figure your company is worth $2,000,000 because with a $100,000 income that is 5% annual profit, many people would be willing to take that. You then divide this into 10,000 shares and sell each one for $200.

You can now sell enough shares to open up a couple more restaurants, and as long as you keep at least 51% of the company you control the company.

This deal also lets individuals beat inflation. By buying $200 shares of this company they can make approximately 5% on their money through their share of the earnings. They are also able to benefit as the company grows because the value of their shares will increase.

But what if the investors wanted to sell their shares and cash out with their profits? It can be hard to find buyers when you need them. Because of this the stock market exchange was created.

It is here that investors, traders, and money management companies can buy and sell stock. It is like a supermarket where you can find many shares of companies to buy or short. And this is the stock market as we know it today.

For more information about the stock market visit http://www.stocks-simplified.com

Sunday, November 30, 2008

Buying long term stocks when the markets are down

History has proven time and time again that buying long term stocks when the markets are down has been a wonderful strategy. In fact the best times to buy have always been close to the market bottoms.

That is because when the markets crash they tend to take all stocks with them. This includes the stocks that really should have good long term value. This creates buying opportunities on almost every stock in the markets.

The problem is not all of these stocks are great buys. Some may actually be value traps, where they look like they have lots of room to go up only to fall down even lower. There are two types of value traps to watch out for.

The first kind of value trap occurs when a seemingly strong company gets beat up by the market and is trading at a cheaper price they it has been. Several companies such as Lehman Brothers and Countrywide became value traps this way and caused many
bottom pickers to lose their shirt.

The second kind of value trap is when a company has been trading below the price it should be trading at for several years, with little or no attempt to move up. These stocks should generally be avoided due to lack of interest in the company.

There are 3 different things you can use to determine if a stock is likely to go up or if it giving you a false signal.

1. Is the company growing or have a new product coming out? If the company is not growing there may be little interest for investors to buy it despite it being undervalued.

2. Does the company have a strong cash flow? If it has a strong cash flow it is unlikely to go bankrupt and will probably be a better all around investment.

3. Has the stock stayed undervalued for a long time? If it has it is better to assume there is something wrong with it or there is lack of interest in owning it.
In general buying long term stocks when the markets are down has long term benefits as you try not to get caught in a value trap.

For more information about buying stocks when the market is down visit http://www.stocks-simplified.com/Fire_Sale.html

For more information on how to value a stock visit http://www.stocks-simplified.com/fundamental_analysis.html

Saturday, November 29, 2008

When to Sell a Stock

Everyone believes that the most important part of trading is determining when to buy a stock, it isn’t. The most important part of trading is determining when to sell a stock.

You can buy a stock at the absolute best possible time, but if you sell it at the wrong time it can make a potentially great trade a breakeven or losing trade. You do not make money until you sell a position.

It can be very hard to remember that. Ever trader will have those days when they buy a stock and it goes up 20% in 1 day. It makes it hard not to walk around saying I made so many thousands of dollars today in the stock market, but until you sell you haven’t made a cent.

So, how do you determine when to sell, when should you say you have a big enough profit, or a big enough loss and you should exit? The better question is when do you decide that. You should always decide when you are going to exit a trade before you even enter.

You must decide how much of a loss you are willing to take or how much of a profit you are willing to let stack up before you sell and pull your money out. This should be done prior to each trade.

If you find yourself in a position where you are trying to figure out whether you should close your position or let it ride remember your rules. What would your basic rules and guidelines tell you to do in a situation like that? If you didn’t make an exit strategy before you entered the trade close out of your position immediately. Always develop an exit strategy first.

There are a variety of methods out there that can help you to find the best time to exit a position. My personal favorite way is by using chart patterns, but you can also use fundamental indicators to help you develop an exit strategy.

For more information about chart patterns visit http://www.stocks-simplified.com/chart_patterns.html

For more information about fundamental indicators visit http://www.stocks-simplified.com/fundamental_analysis.html

Tuesday, November 25, 2008

The Big secret of trading

In the trading world you have two options, learn fast or go broke. There is one big secret of trading that anyone who has ever been successful has mastered.

This secret is keeping your losses as small as possible and your wins as large as possible. Think about it as a business, because that is what trading is. You can only make money if you have supplies. Well in the stock market this supplies is cash.

“You need money to make money,” This phrase has been said over and over again but has been widely misinterpreted by the general public. Most people believe this means you have to be a millionaire in order for you to invest and make good money in the market.

Actually what they are saying is that in order for you to make money in the stock market you must have something in there. Even if you only have $1000 you can still invest in the markets and start pulling out money.

Because it takes money to make money you should take only small losses when you are wrong. You do not want one bad trade to completely destroy your account. Never overextending your account so you will lose half of your money on one trade is the key. Keeping your positions small and keeping stops tight can help you to maintain your account.

At the same time you are in the markets to make money not just to preserve your capitol. In addition to keeping your losses small, you should try to keep your wins large. Finding a good balance between these two works and is the key to trading successfully.

What I have found is keeping a target and a stop on a trade allows you to only take trades that offer you a large profit if you are right with a small loss if you are wrong. This way you can weed out trades that will not at least give you a chance to make $2 for every $1 you risk.

For more information about the stock market visit http://www.stocks-simplified.com

Monday, November 24, 2008

Researching stock trades

There is an abundance of information you can get on any company or mutual fund you want. You can search for it on the web or you can request information from your broker. But how much of this stock market information is actually valid, and how much is just useless?

Yes it is true you can get piles and piles of information on any company you choose. You can get balance sheets, income statements, analysis reports and much more. There is an abundance of information out there that can be easily obtained by the common investor.

But think about it for a second. If you can receive all of this valuable information about any company you want can’t anyone. Any financial document you read about a company will have been read by a million people before you. How valuable can it be in telling you whether a stock is going to go up or going to go down? Remember the markets are forward looking vehicles. All relevant financials have already been analyzed and factored into a company.

Yet the majority of people seem to believe this is the best way to make money in the market. It is not, for many reasons, everyone has access to this information, a company’s financials can lie, a strong company does not necessarily mean a strong stock, and the more you research a stock the more you fall in love with it, whether or not it is the best possible buy.

A much more scientific approach is to use chart patterns and price action to determine if a stock is a good buy or a good sell. The benefit to using price patterns is that price patterns already have all of the fundamental data factored into it, along with everything else that moves price. Another benefit is that price patterns occur over and over again and again. This provides predictable targets and stops which will allow you have some consistency in the market which is the first step to making consistent money.

For more information about the stock market visit http://www.stocks-simplified.com

Saturday, November 22, 2008

Why The Majority of People Lose Money in the Stock Market

The large profit potential of the stock market brings new investors looking to strike it big on a continued bases. The problem is the majority of people lose money in the stock market.

Why is this? It is because too many people do not take the stock market seriously. Everything in life takes work, you work to create an income, you work to become good at a sport, If you want something to work for you, you have to work for it first. Somewhere along the line people forgot that the stock market follows that basic rule.
The majority of people believe the market can just make them the fast money. It can make them the quick bucks without worrying because the market goes up, on average. The theory that the market goes up on average actually works against the general public.

I have heard people say that they have money they do not need to touch for 6 months so they were going to put it in the SPY for 6 months. Because the SPY goes up an average of 10% a year they figure they can make 5% in 6 months. There are times when false assumptions like this can work and there are times when this thinking can cut your account in half, or worse.

Now that we know why people fail in the stock market let us look at why people succeed. There are many theories out there but there are two things that all stock market professionals worthy of that title will agree on that you need.

1. You need buy and sell signals. You need to have something that you can look at to determine if a stock is a good buy, a good short, or whatever you plan on doing with it. Without some set rules or at least an idea of your rules you are planning on guess work to help you. Having specific rules also allow you to track your performance in the market along with make attempts to improve your success. Remember you cannot track guesswork and you cannot improve it.

2. You need a way to manage your risk. Never under any circumstances should you bet all, the majority, or even half of your account in any one stock, ETF, or Mutual Fund. This is a huge armature mistake and can often lead to large unnecessary losses.

The major reason that you want to not take a loss is to preserve your capitol. To make money you must think of the stock market as a business. In order for you to make money you need money to spend. If you lose all your money on some foolish bet you will not have any capitol left to pull yourself out of the mess you have made.

These two things are absolutely critical to making consistent money in the stock market. All successful strategies need to follow these two rules to be successful. Any so called “Professional trader” who disagrees with them is not a professional trader at all.

For more information about the stock market visit http://www.stocks-simplified.com

Friday, November 21, 2008

Paying Dividends when shorting

One of the drawbacks of shorting stocks is that you inherit the obligation of paying the dividend. This can work against you in some ways but you can be prepared for it.

You heard me, everyone who did not know that you must pay the dividends when you short a stock now you do. But let’s look at why that is first. When you short a stock you borrow the stock from your broker who wants to keep it as a long term play and sell it to another investor on the open market.

The investor now owns the stock, but you owe the stock rights to your broker. This includes the dividends. When a company pays the dividends you have to pay the same amount to your broker.

Now I know many people are thinking, why would anyone want to take a position that will give them negative cash flow? Well in certain times it makes sense. This year the SPY has gone from $150 to $75 in a year, the $2.77 you would have got in dividends during that time would have done little to offset that. Likewise the $2.77 would have been a price any short seller would have been happy to pay.

Another thing you should remember, dividends are not extra money, and they come out of the stock price. If your stock is trading at $40 and you get a dividend of $1 your stock is now trading at $39. The change in price will often compensate the dividends you will have to pay as a short seller.

So do you even need to worry about dividends when shorting stocks? That depends on the trader, I do. Just to be safe, I prefer to look at how long I plan on holding the short position and how much it will cost in dividends. If a dividend is too much I will not short it.

To find out how I decide if a dividend is too much visit http://www.stocks-simplified.com/paying_dividends.html

For more information on the stock market visit http://www.stocks-simplified.com

Tuesday, November 18, 2008

Your Trading Hour

Setting up a trading hour is easy and is a necessity. You do not want to be involved in the market 24/7 so setting up an hour where you review your trades is a must.

There are a number of reasons why having a trading hour is a must.

1. Your body gets used to it. If you are always reviewing your trades during the same scheduled time your body will get accustomed to it. Your mind will get used to think about trading during that time and hopefully it will do a better job than if you check your stocks every 10 minutes.

2. It will cause you to worry less and make fewer mistakes. If you are constantly worried about your stock trades it can work against you in two ways. First if you worry too much it is not fun and could be harmful to your health. Second if you are constantly worrying about your trades chances are you will make more mistakes and start making trading decisions based on emotions.

3. You can’t be a trader all the time. You need to give it a rest now and then and go live your life. Go out with your family and friends do what it is you like to do. Forget about what is happening in the markets now and then. Remember it will not make any difference in your trading results if you check your account 1 or 30 times a day but it will make a difference in your quality of life.

You never need to devote more than an hour to trading a day. That should be plenty of time to do what you have to do. In fact most of the time you will not even need to use the whole hour. But scheduling an hour a day to trading can drastically improve your results and quality of life.

For more information about the stock market visit http://www.stocks-simplified.com

Monday, November 17, 2008

Why Price is King

Price is king when it comes to the market. Sure there are many different ways to evaluate a company and the different methods all have their advantages but the price patterns of a company still gives you the most accurate buy and sell signals.

More than any oscillator, any fundamental ratio, or any probability graph price is still the king of the stock market world. An up trending stock will still continue to trend upward until people panic and start to sell. A down trending stock will continue to trend downward until something happens.

In addition to that patterns that have historically occurred in the price of companies, such as chart patterns and candlestick patterns will continue to occur over and over again. People act in a predictable way after all. They have acted in the same predictable way since there has been such a thing as the stock market.

Trading patterns in the price allows you to take advantage of this.
It also allows you to cut your losses short. Looking at price you are able to find key levels of support and resistance that if broken can mean a large move. That makes it very easy to figure out where to place stops and targets.

Now I am not saying price is the only thing you should look at when trading a stock. There are a lot of other indicators that are worth looking at as well. Volume tells you how many people traded during the day. A strong uptrend with low volume may indicate the trend is not that strong after all.

Other indicators such as oscillators and financial ratios may be good secondary indicators. Looking at a few different things about a given security normally works best. But at the end of the day price is what matters. You do not make money based on how much debt a company has or what the oscillator does; you make money based on where you sold the stock and where you bought it. The market is that simple using price patterns is simple, it’s a perfect combination.

For more information about chart patterns visit http://www.stocks-simplified.com/chart_patterns.html

For more information about the stock market visit http://www.stocks-simplified.com

Sunday, November 16, 2008

Being positive and denial when trading

Being positive is always a good thing in any aspect of life. In the trading world it is almost impossible to make money without having positive thinking.

Without a positive attitude it becomes harder to pull the trigger. You are unable to place the trade because you are unsure if it is going to work out or not.

Having confidence means you have done your homework, found the perfect set up in the perfect market environment and are ready to pull the trigger. You are also willing to let the trade ride until your rules give you a sell signal. You are willing to do this because you are confident in your rules and trading strategy. That is being confident in your trading.

Having just plan denial is different. Denial occurs when the stock falls past your stops and continues to fall. In this case you ignore your rules and do not exit because you believe your stock is still a good investment. You hopelessly hold onto the stock with the idea that it might come back someday,

Denial often leads to hope, it can make you start hoping your stock will get back to where it originally was eventually. Hopefully you will break even or make a profit.

Denial and hope can be dangerous in two ways. You can hold onto the stock and eventually make a profit after many years. This may seem like a good idea at first glance, but holding onto a stock throughout the down times and riding it back up can often times produce very small returns in the stock market. In such a case your capitol would have been better off following your rules.

It could also lead to a point where the security never comes back and you are forced to just accept the loss. Most people do not see this as an option in the stock market but it does occur.

For more information about the stock market visit http://www.stocks-simplified.com

Tuesday, November 11, 2008

Keeping long and short term trades

Keeping both long and short term trades can benefit you in many ways. It can give you all the benefits of short term trading with some of the safety from long term trading.

Many experienced traders will keep both long term investments and short term trades out at the same time. This allows them to play it safe with the longer term trades and buy strong long term companies while at the same time it allows a trader to attempt to make huge returns by trading the short term moves in the market.

Diversifying between long and short term trades can become even more important when you are just starting out. This way it makes it harder to make a few bad mistakes and lose all of your money.

The amount of money you put into long term vs. short term plays can vary widely. If you are very conservative you might want to have 80-90% of your account in the long term while having only 10-20% in short term plays.

If you are more aggressive you could decide to flip that and put 80-90% into short term trades. Or split it right down the middle half long term, half short term. Every trader is different.

What is important however is making sure that you keep these trades separate. Do not try to turn a long term trade into a short term trade or a short term trade into a long term trade. You may even want to open up separate accounts.

It is not a necessity to have both long term and short term trades but it can help you to have the best of both worlds. Almost any stock that is worth buying will be trading for more 10 years from now then it is trading now, and going after short term gains can often make higher returns then holding for the long term.

For more information about the stock market visit http://www.stocks-simplified.com

Sunday, November 9, 2008

The Magical Trading system

There is no such thing as the magical trading system. All trading systems have their strengths and weaknesses.

Many Gurus’ out there will talk about a secret trading system that cannot fail. It supposable is the insider trading system that only a few people know about, and the professionals don’t want you to know. Actually what these systems are, are just different versions of the same trading ideas that you can find all over the internet.

There is no secret out there that only a few people know. And if there was it wouldn’t work. It takes a large number of traders to move the market. One or two traders that have stumbled upon this amazing secret will not be able to move the markets by themselves.

Are there systems out there that work? Of course there are, but no trading system is the absolute best. One trader might do well trading one system but do terrible trading another. Another trader might have completely different results.

In fact every trader will get a different result in the market, even if they copy someone else’s approach. It all comes down to your own personality. Trading requires you to use less emotion and act more like a computer, but everyone is still different.

Some people might prefer to stay out of the market when times are volatile in order to have less stress trading. Others may decide that if their system works in the long run they might as well stay in it and keep following their trading rules during volatile times.

Small changes like this can lead to enormous differences in the returns you will receive as a trader. Your best bet is to not go after the Magical trading systems for sell and start to work at developing your own system, one that fits your personality and trading type.

For more information about the stock market visit http://www.stocks-simplified.com

Saturday, November 8, 2008

What all successful trading systems need

Successful trading systems provide the best way to make money in the stock market. In order for a trading system to work it needs a few things.

The first thing you need in a trading system is specific buy signals, when X happens you do Y. This seems pretty obvious and most new traders stop there. They believe that the point in which you buy is the most important part of trading.

Actually it is not. The most important part is when sell your stock. You could probably make money in the stock market by just concentrating on your exit strategy. That is because every good exit strategy must have two things.

A way to let your winners ride, and a way to cut your losses short. Letting winners grow bigger and bigger can be easy at times. However cutting your losses short can be very hard for new traders. Novice traders have a tendency to want to hold onto a trade that has turned against them in hopes that it will eventually come back.

This could lead to dangerous waters as the stock falls more and more due to mass panic. The only way to be a successful trader is by cutting your losses short and letting your winners ride. You want to make much more money when you are right then you lose when you are wrong.

The final thing a successful trading system needs is someone to carry it out unemotionally. It is amazing how two traders can follow the exact same system during the exact same period and get completely different results.

The key is trading unemotionally. Don’t skip a buy signal just because the last three buy signals you bought at you lost money. Trading is all about probability and averages. You want to have a system that works well on average and believe in that system enough to trade it.

For more information about the stock market visit http://www.stocks-simplified.com

Friday, November 7, 2008

Things to look at When Trading

When trading, especially short term trading, there are a number of things that are important to look at. Each individual chart should have these things before you decide to trade them.

1. Do they follow your trading rules? You should have a set trading system in place every time you place a trade. Obvious the first thing you should look at before placing a trade is, is the stock giving me a buy, or sell signal based on my rules.

2. Do they have earnings coming up? Earnings are announced every 3 months. These reports can move the stock huge in one direction or another. Trying to predict them correctly can be like trying to guess the next number the roulette wheel will spin. Needless to say you want to avoid getting into stocks that will be giving off an important announcement in the near future.

3. Does the stock historically do well with your trading rules? I’ll be the first to say some stocks hate me. They constantly give me losses every time I enter them for a swing trade. Other stocks will show me a profit 60 or 70% of the time. It is important to always look at the history of the stock you are trying to trade. Back test your system on that stock to make sure it is working there first.

4. Look at the company’s fundamentals. I realize fundamentals work well for long term plays but they are not necessarily accurate in the short term. But they do still offer buying and selling pressure.

5. Take a quick look at the afterhour’s price. This part is arguable but I always like to look at the afterhour’s price of a stock before placing a trade. If a stock is trading at $55 by closing but is only trading at $43 after hours there may be something fishy going on and you probably want to avoid it.

For more information about the stock market visit http://www.stocks-simplified.com

Tuesday, November 4, 2008

Trading your Time Frame

When you first enter a trade you must determine which time frame you want to use. Trading your time frame is very important. You cannot enter a trade based on one time frame and exit it based on another time frame.

Many people will buy long term stocks. These are companies they are bullish on and confident about their ability to head up. But when the stocks start to take a turn for the worst they will exit to save money.

That simply doesn’t work. If you enter a trade for a long term play it should remain a long term play. Likewise if you enter a trade with a short term perspective you should trade it with that same short term perspective.
Changing your rules and time frames once you enter a trade can have dire consequences. Only by staying consistent in your trading can you have consistent profits.

So, what is your time frame in the markets? This is a question all new traders should ask themselves before entering the market. The time frame you pick has to fit your personality as well as your ability.

Do you have the time to devote 10 to 20 minutes a day to the stock market? If so you might do well as a short term trader. Do you want to spend a couple hours a day trading while the market is open? In that case you may fit better as a day trader.

If you can’t devote a lot of time to the markets a longer term perspective would fit best. It all depends on you. You may even choose to have some long term trades and some short term trades open at the same time.

But once you decide what your time frame is on a given trade you cannot go back and change it later on.

For more information about the stock market visit http://www.stocks-simplified.com

Monday, November 3, 2008

trading away from the Crowd

Trading apart from the crowd is the only way to consistently profit in the stock market. History has shown that the majority of people are wrong, the majority of the time.

Even so, it is human nature to follow the crowd. That has helped us to survive when we were hunters and gatherers. It was either eat or be eaten and if you are in a big group you aren’t going to get eaten. There is something to the strength in numbers after all. But in the world of the stock market following others only leads to disaster.

Finding good stock market picks should be done with research and logic. You should develop rules in which to trade. Yet so many people will decide what to buy based off of what the news says, or what the bloggers are saying.

This could lead to good returns during a bulls market but can also completely destroy your account when the markets are heading down. Following the crowd and buying the “Hot” picks can sometimes lead to good results in the short term, but will not make you money in the long term.

The only way to make consistent money in the market as a short term trader is to develop your own strategy. By developing a system that you trade you can make a profit in the long term.

Your system doesn’t have to be perfect all systems fail now and then. The only thing it needs to be successful is it needs to work in the long term. If after 100 trades you make $10,000 then you have a working system that can generate money for you in the long term.

By refusing to take the extra mile to develop a strategy that works you will be unable to make it in the stock market. And you will probably fall back to trading with the crowd.

For more information about the stock market visit http://www.stocks-simplified.com

Sunday, November 2, 2008

Trading With the Market

Trading with the market and not against it can be the quickest way to profiting in the stock market. This one thing can give you success in the market even if you are terrible at everything else.

It is no secret that people can make money when we are in a bulls market. In fact “In a bulls market everyone is a genius”. It is easy to make money in a fast moving bulls market, just close your eyes and pick a stock.

Is it the best way to make money? No, but it does work in a market that everything runs up. This is the strategy most people seem to adopt. They just buy as much stock as they can and hope it goes up. In a bulls market this works because they are trading with the market. Everything has buying pressure.

Most people are Okay with being bullish and buying stocks hoping it will go up, but when a bears market comes along it is a disaster. All the bulls get pounded, and everyone seems to believe it is the end of the world.

In reality it is just as easy to make money in a bears market as it is to make money in a bulls market. You just need to be trading with the markets. If the markets are heading down and you are buying stocks of course you will lose money. It only makes sense.

But if you are shorting, buying puts, or using some other method to take advantage of falling stocks you can actually make money as the markets crash. Everyone assumes you have to be bullish when you are trading, that if you hear about a hot stock it has to be a stock that will go from $30 to $100 not from $30 to $5.

The unwillingness to make money on the downside is what gives bear market a bad name. Jessie Livermore has a point when he says, "They say there are two sides to everything. But there is only one side to the stock market; and it is not the bull side or the bear side, but the right side." If you are trading with the market you will most likely make money. If you are trading against it you will most likely lose money.

For more information about the stock market visit http://www.stocks-simplified.com

Friday, October 31, 2008

Leadership stocks and lagging stocks

Leadership stocks and lagging stocks are two things you can look at when trading the market. These are stocks that are performing above average and below average.

A leadership stock is a stock that has done better then the market average for a set period of time. This period depends on your time frame. If you are long term you might look at a year or longer, if you are a short term trader you might only look at the day.

The lagging stocks are stocks that have done worse than the market for a given time frame, either a day or longer.

It is important to pay attention to this because comparing how a stock did to the market average can tell you a lot. If the S&P went up 2% today but stock XYZ only went up .5% it can tell you that this stock does not have that much buying pressure.

In addition it can tell you that the stock probably only went up because the market as a whole went up. If the market stays flat or goes down stock XYZ will be more likely to crash then other stocks. If you are trading a stock that severely under performs you may want to consider moving your stop up.

I never exit stocks that are severely under performing just because they are under performing but it can cause me to move my stop up.

However if the S&P goes up 2% and the stock ABC goes up 5% that could be a sign that stock ABC has a lot of buying pressure and will continue to outperform the market in the short term. I never enter a stock just because it is outperforming the market, but if it has just broken through resistance or bounced off of support in addition to beating the market in the short term that can be a good sign.

Determining whether a stock is leading or following the market can be interesting and help you gain confidence, but it should be used alongside other indicators.

For more information about the stock market visit http://www.stocks-simplified.com

Wednesday, October 29, 2008

Market Turning Point

In this market everyone is looking for the market turning point. The point where investors come in and say, stocks have been crushed enough, everything is on sale, it is time to buy. But how can you tell when that time has come? Is there some magical device that will give you the exact bottom or top?

The Japanese like to think so. The candlestick patterns that were first discovered in Japan are widely used today to find the tops and bottoms. They do have success and have been tested over 400 years.

However these candlestick patterns are not the ultimate answer. They normally only give off signals for short term trends. If you were looking to catch a short spike up that last a couple of days candlestick patterns can be helpful.

But if you are looking for a longer term trend reversal that will last years it will not come so suddenly. A trend does not change overnight; the markets do not suddenly go from a downtrend to an uptrend in an instance.

What normally happens at market tops and bottoms is the market tends to trade sideways for a little while. This little while could stretch anywhere from a few months to a year. That allows investors to feel like the stocks have stabilized and stop falling.

It gives everyone the feeling that the risk is gone. You can buy stocks at a big discount without having to worry about losing your shirt. Finally after months of trading sideways the markets break into new short term high and everyone starts to buy creating another bulls market.

That pattern forms time and time again when the markets start to change. Changing takes time. If you are trying to buy cheap stocks right now don’t assume that they will automatically shoot up in the next week. Some plays could take years to work out.

To learn more about candlestick patterns visit http://www.stocks-simplified.com/candlestick_patterns.html

For more information about the stock market visit http://www.stocks-simplified.com

Tuesday, October 28, 2008

Line chart, bar chart, or candlesticks

With all the different ways to view stock charts today it can get kind of confusing. Figuring out whether to use a line chart, bar chart, or candlestick chart is the first step.

Let’s compare them. Bar charts and candlesticks give you much more information than the simple line chart. They tell you the open and closing price along with the high and low of the day.

Even though they both give off the same information I prefer the candlestick because it is much easier to read. If you get use to the bar charts it will probably be just as easy. But for new traders the candlestick charts are much easier to read.

The line chart is much different than the other two. It plots the closing price of each day and then just connects the dots. This type of chart weeds out all of the noise that you get from both bar and candlestick graphs.

Line charts make it easier to identify support and resistance along with chart patterns. Because of this they make it easier to make quick decisions on whether the stock is bullish or bearish.

But for all of these advantages line charts make it harder to determine where to set stops. For instance you find a stock that has just hit support and you expect it to come up.

Looking at your line chart you buy it and place a stop 1% below support. However with a candlestick chart you are able to see the highs and lows of each day. You can determine how wide the daily trading range is.

Maybe the stock is very volatile during the day. In this case you may want to set your stop 2 or 3% below support so you do not get kicked out of a trade too early.

The daily trading ranges can be important to determine where to pace your stops. That is something very important that the line chart does not provide.
In the end it is up to each individual trader to determine what type of chart fits them best.

For more information about stock chart settings visit http://www.stocks-simplified.com/stock_chart_settings.html

For more information about the stock market visit http://www.stocks-simplified.com

Monday, October 27, 2008

Never Move Your Stops Down

It is very tempting to move your stops down during times of panic. It becomes even harder when you believe the market is overreacting to bad news. But holding your ground is absolutely critical when trading.

When you buy a stock you need to have a stop level. This is a level that is the most you are willing to lose on that one trade. It is the point where you say if the stock reaches this level I am pulling the plug and getting out with my losses.

Following through with that level is very important. Only by managing your risk and cutting your losses short can you be able to last in the stock market. If you only lose 2-5% of your account on 1 trade it will not affect you too much. You will still be able to come back without too much difficulty.

Ok, but stocks pull back and recover right? This type of thinking is what causes new investors to stay in a trade too long and watch their accounts go down. The fact is stocks can fall for a while. Strong stocks normally don’t just fall for 10 or 20% before they start to turn around.

Many stocks can fall 50%, 60%, or more before they start to turn around. And some stocks might never turn around. The last thing you want to do is hold a stock through a 50% decline.

On the other hand if you do not move your stop level lower you can exit the trade for a smaller loss and can look for better opportunity elsewhere. There is always opportunity to make money in the stock market so holding your stock through a 50% decline can be useless.

Remember the stock market is a battle field, holding your ground when it comes to following your rules is a must.

For more information about the stock market visit http://www.stocks-simplified.com

Saturday, October 25, 2008

Exiting losing trades fast

Exiting short term trades at the best possible time is always the goal if you are trying to catch the little up and downs of a stock. It is something everyone needs to work at and can greatly improve your profits.

The first step to always exiting your trades at the best possible time is to set targets. Setting target can give you an idea of where to exit a trade and also how much you expect to make. Remember these targets should be reasonable and based on technical indicators. Do not buy a stock at $5 and say ok my target is $300.

Chances are the stock will never reach that and if it does it will not be for 60 or 70 years. It is much more reasonable to enter a trade when it is at $5 and set a target for $7 in the near term.

In addition to targets every trade should have a stop to allow you to exit out of your losers quickly and with less pain. This should be the most you are willing to risk on the trade and should be decided before you trade.

NEVER, move a stop down. Sometimes it is tempting to move a stop down when a stock starts heading against you. This only leads to larger losses which can work against you in the long run. It is ok to move your stop higher as the stock goes higher but you should have a set amount you are willing to move it.

When setting a stop you need to let your stock have room to move. Don’t buy a stock at $50 and put a stop at $49.99 because you will sell it for a loss 99% of the time.

The last thing you should consider is exiting a no-performer early. Most short term traders will have some point where they just decide to exit a stock. If the stock has not been making the short term move you were expecting it for many days in a row it may be time to exit the trade early and find a better opportunity.

For more information about the stock market visit http://www.stocks-simplified.com

Thursday, October 23, 2008

Trading With the trend

No matter how many times you have heard it, it is worth hearing it again. You must trade with the trend and not against it if you ever plan on being successful in the stock market.

It can be difficult to trade in the same direction as the market especially when prices have fallen so much. You will find times when the average stock is trading at 70 or 60% of what they were a year ago. That makes it extremely hard to assume they will keep falling.

It builds up the urge to go and buy all these stocks at a discount and wait for the rally to start. But you cannot do that. If the market is down trending it is likely going to keep down trending.

The worst losses I ever experienced was when I though the market had to start turning around. On the other side the best profits I ever experienced was when I traded with the trend even when I thought it would turn around.

There are too many people out there trying to buy at the bottom and sell at the top and getting burnt. The reality is that there is no way of telling where the bottom or top are.

If a stock has fallen 50% there is always room to fall. I’ve seen plenty of stocks fall 90% in a year. They harmed every bottom picker who entered them. I have also seen many companies that “Aren’t going anywhere” file for bankruptcy after falling.
On the other hand stocks that are trading at 2, 3 or 4 times what they should be trading at do not necessarily have to fall. Who knows the stock could be on the verge of making the biggest rally it has ever seen.

In short stay with the trends, don’t every try to fight it and you will be much better off.

For more information about a stocks trend visit http://www.stocks-simplified.com/stock_trend.html

For more information about the stock market visit http://www.stocks-simplified.com

Wednesday, October 22, 2008

The Holy Grail of Stock Trading

Everyone always searches for the infamous holy grail of stock trading. The magical trading system that will make them rich and allow them to never lose money again.

So does it exist? Is there a trading system or oscillator that will allow them to never lose money again? No, there is no magical system out there that will make you an instant stock market millionaire.

Yet so many people pay thousands of dollars looking for that one special system. They go to seminars after seminars or buy systems after systems. All of this to find the famous holy grail of trading, a system that will not fail to make them money.

There is no such thing. Many people who try to find the best system just switch from Stock market program to stock market program. Getting nowhere and spending a lot of money doing it.

But there has to be a way to trade right? There are many people who consistently make money in the stock market after all. There are a few things all stock market professionals have in common.

1. All traders have a system or multiple systems. Remember there is no holy grail that will make you right every time but there are systems that are right more than they are wrong.

2. All traders manage their risk. If you lost 10% of your account on 1 stock you are not managing your risk. No single trade should set you back more then 2-5% of your total account value. This way a loss will not hurt you too much and it can easily make it up on your next trade.

3. No traders will get their stock picks from the news. All successful traders are able to weed out everything they are hearing on the news and make rational decisions based on technical analysis.

4. All traders control their emotions and make rational decisions based off of their own trading plan.

So there you have it. The Holy Grail, build a system and follow it, control your emotions, and minimize your risk. If you can do those things you can succeed in the markets.

For more information about the stock market visit http://www.stocks-simplified.com

Tuesday, October 21, 2008

Reacting to the Market

Reacting to the market is a lesson every trader should learn. It is much simpler and much more profitable then to just react to the market then to try to understand it.

Too many traders try to explain a big move. For instance most people will say that stocks fell because of the unemployment numbers that just came out, or the interest rates that were announced or some other important news factor that came out today.

And they may be right, there could be hundreds of reasons why the market falls on any given day, but is it really worth it to find out. In most cases the answer is no.

Stocks fall because of panic, more sellers than buyers. Stocks shoot up because of greed, more buyers than sellers. Many times it can actually help you to weed out all the noise that comes from Wall Street and make decisions based on what you see.

If you are a technical trader that is what you should do. Don’t concern yourself with the fact that everyone says we are in the worst depression since whenever. Concentrate on the basics, is the market up trending? Is it down trending? Has it broken support? Any Chart patterns forming?

The basics will help you to stay calm and look at the market with a clear mind rather than looking at it with hundreds of news reports running through your head. Perhaps the most important reason for just reacting to the market is that it helps to eliminate bias.

You can listen to the news and hear all the reasons why a given stock is going to go up. The problem is when it comes time to see how the stock is actually performing you will have a bias to the upside. Even if the stock is in a strong downtrend you can always find some news out there that can justify buying it.

But justifying your buying isn’t always enough. If a stock is clearly trending down and breaking through support there is no reason for you to buy it. In fact you may even want to short it.

Basically it does not help you to try to explain or rationalize things by looking at the short term news reports. It can help you much more to weed all the useless junk out and concentrate on your own specific trading rules.

For more information about the stock market visit http://www.stocks-simplified.com

Monday, October 20, 2008

Focus on the trading Process

Focusing on the trading process can help you become more profitable when trading. It has many advantages then focusing on your profit.

Focusing on your profit can actually hurt your trading account. It makes it harder to make rational decisions and is what separates the professional trader from the average Joe. When you focus on your profits and losses you can make bad decisions.

It can cause you to exit a trade far too early. Once you make a profit, especially a large profit it is tempting to exit early. This leads you to exit for a $100 profit when you would have actually made you $1000 if you had followed your rules. I have made these mistakes many times, everyone does. That is one of the dangers of looking at your profit and losses while you are in a trade.

Another reason why focusing on your profits and losses can be bad is it can cause you to stay in a bad trade for too long. In which case you to hold onto the trades and try and turn a loss into a profit. The idea behind this is “You don’t lose money until you sell”.

The bad part about that is it actually works against you. Stocks tend to trend, if a stock starts to turn against you if can fall for a very long time causing you to hold onto the stock for years hoping that you will eventually break even.

What you should be doing instead of focusing on your profits and losses, is focus on your game plan. It is much better to concentrate on how you are going to open or close a position. Develop your own rules to trading, when will you get in, when will you get out.

Developing a strategy and sticking with it can cause you to be much more profitable in the stock market then you could have imagined.

For more information about the stock market visit http://www.stocks-simplified.com

Thursday, October 9, 2008

Critical trading account levels

Crossing critical trading account levels are never easy. It is emotionally draining to cross below a critical trading account level and it is the best feeling in the world to cross above one.

What I mean by critical levels are levels at which you feel are important. For instance you finally make it over the $100,000. It felt great. The only problem is now you do not want to trade anymore, why? Because you are afraid of your account going below $100,000.

These levels can make you stop trading or get out of your trades too early just so you can stay above them. Because of this they can be one of the biggest psychological hurdles to overcome. And even the best of traders will have a problem with it.

That is why you should not count your money while you are in a trade. Kenny Rogers once said “You never count your money when you’re sitting on the table.” That is as true in the stock market as it is with anything else. So how can you avoid counting your money?

1. Hide your balance. Some brokers allow you to hide your balance when you are in your account. It is definitely beneficial to block out the number so you will not be able to see it, and therefore you will not use your account balance to make exiting decisions.

2. Check your account 5 minutes a day. Checking your account balance for only 5 minutes a day can help you stay calm and let you keep your sanity. If you are constantly checking your account balance you will undoubtedly make decisions based solely on how much money you have.

3. Take trading breaks. If you trade too much you will be burnt out mentally. Taking a break here and there help you to come back fully recharged and able to better decisions.

For more information about the stock market visit http://www.stocks-simplified.com

Wednesday, August 20, 2008

Trading many different positions

Trading many different positions can benefit you greatly. There are a number of reasons why trading many positions at a time can be helpful.

1. It decreases dependency on any one trade. If you have multiple trades open at one time you are not depending that one trade is going to work out. While having one trade can potentially give you higher rewards it can also give you a higher risk and be more stressful if the trade turns against you.

2. It lightens surprises. If one stock gaps in the wrong direction that can be hard for your trading account. But if you have 5 other trades going at the same time the loss you experience can be covered up by your other trades.

3. Trading multiple positions allows you to cover both directions in the market. If you have a bullish trade and the market crashes you will probably lose money on that trade. However if you have a few bearish trades as well as bullish trades the money you make from the bearish trades during a crash can offset the money you would lose from bullish trades. Having multiple trades open can be useful for protection.

4. It gives you less stress. If you only have one position open and it does not do what you expect it to it can be stressful. Getting frustrated is not only a bad feeling but it can work against you in the stock market. If you are stressed you will most likely make bad decisions, (or at least not the best decisions). Now if you have multiple positions open you will not feel so stressed about one trade. That trade could turn sour and you still make money with your other positions. This allows you to make calm rational decisions and lets you sleep easier at night.

For more information about the stock market visit http://www.stocks-simplified.com

Tuesday, August 19, 2008

Researching stock trades

It is important to keep track of stock market events when trading. If you do not you may often encounter sudden suppresses.

The first thing you want to be aware of is the federal meetings. Every now and then the feds cut or raise interest rates. This can have a big impact on the movement of the market. Stocks may rally on the news of an interest rate cut and fall on news of an increase in the interest rate. This due to the fact that lower interest rates help businesses and aid growth, higher interest rates can hurt growth.

Another thing you may want to keep an eye out for is earnings announcements. If a company has good earnings there stock is likely to go up. If they have bad earnings there stock is likely to go down. Predicting earnings can be risky, it can be a good idea to stay away from a stock announcing its earnings.

You may also want to check on the company itself to make sure that it is a good company. Every time I place a trade I take a quick look at the company itself to see how they are doing. You do not want to buy a stock that is going to go bankrupt tomorrow.

Finally you always want to check out the technicals of a given stock before you buy it. Is it up trending? Forming any chart patterns or candlestick patterns? That can be very important in deciding which way to trade the stock, or if to trade the stock at all. Checking the trend of the industry group and overall market may be helpful as well.

There is a lot of homework to be done for every trade. Just remember not to overdo it. While it is important to put the odds in your favor, you need to pull the trigger if you want to make money. You can’t wait until everything is perfectly aligned before you act.

For more information about the stock market visit http://www.stocks-simplified.com

Monday, August 18, 2008

The Do Not Trade List

Most traders keep a watch list, but it is beneficial to keep a do not trade list as well. This is a list that is simply a list of stocks to watch out for. These stocks you want to do your best to stay away from and not trade.

When I was first trading, I would back test and paper trade new systems, which I continue to do. One thing I would notice is that my systems would work extremely well when I was trading some stocks but would work terrible on other stocks.

This is true regardless of how you trade. It makes sense. People move stocks. Every person has a different personality, and most traders have a few stocks that they prefer to trade. Therefore every stock behaves slightly different.

Even though all stocks follow the basic rules of technical and fundamental analysis the way in which they follow those rules vary from stock to stock. In short everyone has a different personality and that is true with stocks as well.

Just like you do not get along with some people you will not get along with some stocks. They may not behave in the way that you may want or expect them too. Of course that can be frustrating.

This is why keeping a do not trade list is very important. If you find that a certain stock is not giving you good results while others are you may want to make a note of it and stop trading that stock. But remember you can’t tell whether a stock doesn’t like your trading method based on one trade. You can only tell after a series of trades.

Keeping a list of stocks that do not agree with you can save you thousands of dollars in trading losses. It is well worth it.

For more information about the stock market visit http://www.stocks-simplified.com

Sunday, August 17, 2008

Using stops VS not using stops

There is a lot of debate out there on the use of stop order. Some people believe that stop orders get you out too early while others say that the loss prevention it provides far outweighs the possibility of getting out to early.

I believe that every trade should have a stop loss order on it. This is especially true when you factor in such things like a market crash. Now I know no one likes to think of the market as crashing. I have even heard people talk as if market crashes were unusual things. No they happen every couple years, it is a natural part of the market and you must be prepared for them.

I have seen strong up trending stocks fall 15% or 20% in one day. In these cases it would be much better to place a stop order and only lose say 5% then to not and have a 20% loss (and if the market gaps down that loss can be even higher).

Stop orders are designed for capital preservation. If you let your trades run wild you can end up losing a huge chunk of your account. Remember when trading capitol preservation always comes first.

You can ride an up trending stock all the way up as long as it doesn’t hit your stop. If it hits your stop you’re out. It does not matter if you believe that this stock is going to keep heading up, you simply cannot afford to let the stock pull back and take away your profits, or even put you in the red.

Most traders will put there stop below the trend line or below the moving average. If you are shorting you may want to put your stop above the trend line or above the moving average. The important thing is that you have an exit planed on all trades.

For more information about the stock market visit http://www.stocks-simplified.com

Saturday, August 16, 2008

How to Handle a losing streak

Every trader has a losing streak now and then. It is a natural part of trading. The key is knowing what to do when you get into a losing streak.

If you are having a losing streak you should take that time to learn from your mistakes. There has to be a reason for having a large number of losses. It is important to try and figure out what that reason might be.

Try to look at how you are trading know and see what you are doing wrong. Are you getting stopped out too soon? Are you exiting your winners too early? Letting your losses get too big? Figure it out and adjust for it.

Another thing you can do is scale back. Try and make fewer trades and/or have them take up less of your account. Get stricter with your money management rules. It is not fun having a string of bad trades so you should keep your losses to a minimum.

Getting pickier can also help. Only take trades that have everything on your side, good fundamentals, good technicals, good industry group, ect. Maybe check to see if the planets align couldn’t hurt. It is better to take less risk in bad times and save the higher risk stuff for your winning streaks.

And last but not least don’t worry so much. Life is rich take a break. Go do something you enjoy and have fun. Try to forget about trading for a while. Spending all of your time worrying about what the stock market is doing can be very stressful.

Getting stressed out isn’t going to help but clearing your mind will. It is important to remember losing streaks shall pass. What is important is keeping a positive attitude and keeping your losses small, especially during bad times.

For more information about the stock market visit http://www.stocks-simplified.com

Friday, August 15, 2008

Keeping Losses Small

Keeping your losses small is a very important part of trading. Small losses can easily be overcome by large winners. However many traders gain let their losses run wild.

Too many traders will not exit there trades when they start to turn against them. They will hold onto their stocks and hope it turns around. They might even turn this short term trade into a long term trade. Bad idea, if you enter a trade as a short term deal you cannot switch it to be a long term trade all of a sudden. That mistake can be the death of most traders.

There are many reasons why cutting your losses short can be a great idea.

1. Everybody is wrong sometimes. I have never met a trader who is right 100% of the time. It is better to have small losses then have large losses when you are wrong.

2. Small losses can be easily overcome. If you keep your losses small they can easily be overcome by your winners. One large winner can easily offset several small losses.

3. Taking small losses lets me sleep at night. If I take small losses I quickly forget about it and move onto the next trade. If I don’t cut my losses short they can add up and make me worry. How many times have you seen a stock head against you and you decide to hold onto the position, only to end up regretting that decision later on? Letting your losses run can be hard on you mentally so why let it happen?

4. Taking small losses let me come back. If I only lose 2% of my account on 1 bad trade it doesn’t hurt me that much and lets me come back. However if I lose 50% of my account on 1 bad trade it is going to be hard to come back.

For more information about trading in the stock market visit http://www.stocks-simplified.com

Thursday, August 14, 2008

What it takes to be a great trader

There are a number of traits that someone must obtain if they want to be a great stock market trader. These traits are critical to your success as a stock market trader.

1. Controlling your emotions. This is an extremely important part of trading. How many times have you gotten into a stock because everyone was making money with it. You are afraid of missing the opportunity so you jump in only to see the stock crash. Emotions control most traders and often leads to a loss of capitol.

2. Don’t give up with a few losses. Trading is abundant with both wins and losses. If you have one or two bad trades that does not mean that you should stop trading all together, especially if you believe in your system.

3. Cutting your losses short. This is one of the most important parts of trading. Losses are nothing to be scared of. They are a part of trading. The trick is to cut your losses short and let your winners run to make up for any loss you may encounter.

4. Manage your positions. The best trader in the world will go broke if they do not use proper position sizing. You only want to risk a small part of your account for any one trade 2-5%. This way if you are wrong it is not the end of the world. You will still have capitol to make future trades with if you are wrong.

5. Learn from every loss. It is important to learn something from every loss. If you don’t you will just end up losing again on a similar trade in the future. As the old saying goes, “Those who do not study the past are doomed to repeat it”.

6. Never lower your stops. It is natural to want to lower your stop if your stock pulls back, after all no one wants to take a loss. But lowering your stops can often lead to bigger losses, remember cutting your losses short is the best thing you can do when trading.

To learn more about the stock market visit http://www.stocks-simplified.com

Wednesday, August 13, 2008

Why use Technical Analysis?

There are a number of reasons why using technical analysis can be a great way to make money in the stock market.

1. Technical Analysis allows you to cut your losses short and let your winners ride. A good majority of trading is all about cutting your losses short. Technical Analysis allows you to enter trades where you stand to lose a little if you are wrong and make a lot if you are right.

2. Technical analysis is founded on price action. Supply and demand is the real force behind the stock market. If a stock has great Fundamentals, but no one wants to buy the stock it is not going to go up. Using price patterns is the most accurate way to determine how fear and greed are running the markets.

3. Technical Analysis allows you to make short term trades. Because it allows you to make short term trades it allows you to take advantage of compound interest. Someone who can consistently make 5% a month will far outpace someone who can consistently make 20% a year.

4. I can’t compete using Fundamental Analysis. Fundamental Analysis may be a great way to make money in the stock market but it is hard for the average person to compete. This is especially true when you consider big corporations will billions to invest in spending big money to figure out the fundamentals. It is impossible for someone to know as much as they do so why compete with them.

5. Technical Analysis allows you to find the big corporations. If a stock is in an uptrend with high volume it is safe to say someone with big money is investing in that company. Someone who most likely knows more about the company then the average person feels confident to put their money there so why not take advantage of that and trade that stock.

For more information about the stock market visit http://www.stocks-simplified.com

Monday, August 11, 2008

Staying calm when trading

It is important that you always stay calm when trading, even when you are having a difficult time in the market. If you do not stay calm in the markets when they are going against you it can be dire to your account.

First of all if you are not calm it will be harder for you to examine the situation and look for the best possible plan of action. That can be as helpful in the stock market as it can be in all areas in life.

Another great reason you want to remain calm in the stock market is because of the effects of not being calm. If you panic you are likely to make many mistakes in the market. The mistakes that you make when trading cost you money. In this case it is best not to panic.

In addition to staying calm it is always better to remain positive at all times. The more negativity you associate with the stock market the harder it will be for you to make money with it. You must be positive in order to become a great trader.

Staying patient can also be a great way to cope with a market situation that may be hard to trade. You can always stay out when the markets get too volatile and get back in when they have picked a direction. This way you will not lose money when you are confused about which way the markets are heading.

Staying calm is really the corner stone to successful trading. As a trader you need to be able to make decisions in all market cycles that can greatly help or hurt you. If you are unable to remain calm it is best to exit your trades and take a vacation. When you feel better then come back and do it again.

For more information about the stock market visit http://www.stocks-simplified.com

Monday, August 4, 2008

Different option strategies

There is a wide variety of different option strategies, each with their own advantages and disadvantages. Below is a list of the different things you can do with options.

1. Buying short term options. This can be beneficial if you believe that a stock is going to make a big move anytime soon. This strategy is not for the long term but seeks to take advantage of sudden swings.

2. Buying Leaps. Unlike short term options the leap is said to take advantage if the longer term prospective on a stock. Because a leap is normally one to two years out you would have a long term perspective with the power of leverage on your side as well.

3. Selling short term options. This strategy tries to capture an income from the market by Selling out of the money options and collecting the premium. As long as the stock does not go past the strike price of the option the option would expire worthless and you would walk away with the premium.

4. Selling covered calls. This is similar to selling short term options. There are only two major differences. The first one is that you are limited to selling call. The second is you buy the stock first so that if the stock goes above your strike price and you have to sell you do not have to buy the stock at a higher price and sell it at a the strike price of the option. You already have the stock so you will just sell what you already own.

5. Forming a diagonal spread. This is similar to the covered call strategy. The only difference is that you buy the leap or the right to buy a stock at a given price and sell short term calls. If you get called out you can buy the stock with the leap and sell it.

For more information about the stock market visit http://www.stocks-simplified.com

Thursday, July 31, 2008

Why keep a stock watch list?

Keeping a stock watch list can be a critical for a trader. There are many different reasons why that statement is true.

First things first, what exactly is a stock watch list? This is a list of stocks that you feel are good strong companies for whatever reason. It may be that these companies have strong earnings and the company itself is a good investment. It could also be because the company is in a strong bullish trend and is likely to keep going up as long as buying pressure stays.

The idea behind keeping a watch list is that you are able to follow these stocks and buy when they give off a good technical signal. In this case you would have the best of both worlds, a fundamentally strong company with a great technical analysis entry.

Another reason why someone would want to keep a watch list is because it is easy. It is far easier to keep a watch list and check it every day then to go out and look for new stocks every single day that just gave off a buy signal. Even more than that, it is harder to look up any fundamentals, if you are so inclined, on all stocks that give off technical signals.

The third and final reason why it is important to develop a watch list is that if you keep trading a few stocks you will learn the patterns of those stocks. Yes, all stocks follow the rules of technical analysis but they all follow them in their own way. The long you trade a given stock the better you will get better at predicting how that given stock acts and you will get better at trading it. The better you trade it the higher returns you can make, which is always good.

For more information about stock watch lists visit http://www.stocks-simplified.com/stock_watch_list.html.

For more information about the stock market visit http://www.stocks-simplified.com