Saturday, March 29, 2008


Some of you are probably wondering. What is MCAD? You have heard traders talk about it. How they have used it to produce themselves big gains in the stock market. But what exactly is it and how can you use it to make you money in the market?

The MACD is a technical oscillator which will give you buy and sell signals. It is based on a mathematical formula which is based on price movement. The indicator is supposed to give you overbought and oversold signals of a given stock.

When the MACD enters the overbought territory it is a signal to buy. When it enters the oversold territory it produces a sell signal.

The benefit of MACD is that it has been tested for a long time. The indicator was first introduced in 1960 and has been widely successful since then. Many professional traders consider it a great way to make money in the markets.

It has been subject to a lot of criticism however. Some investors believe that it is too random. A person trading with the MACD will have a series of wining trades as well as a series of losing trades. They argue that the MACD will often give out false signals. Many of these people consider it a lagging indicator. That will tell you what happened after it happened.

However even though it may have a series of wins and losses it will still come out ahead over a large number of trades. Every trading strategy will have its share of wins and losses that is how the stock market works. Any trader who claims that the MACD cannot be used to make money in the stock market has never traded with the MACD.

That being said you must also realize that the MACD as well as any other technical indicator will have its share of false signals. Because of this most traders will not use the MACD as a standalone indicator, but more as a confirmation indicator. This helps to weed out false entry signals.

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Thursday, March 27, 2008

How to become a great trader

Some people believe they can become a great trader overnight. These people may also believe that making money in the stock market will not take that much work. This is simply not the case. There are many steps you must take to become a great stock trader. Here is a step by step procedure on how great traders became great traders.

1. First you must learn how the stock market works. Whatever techniques you are using to trade the stock market, fundamentals, technical analysis or something else, you should first learn how it works. Learn how traders decide if a stock is a good buy or not. To do this you should read websites and books that are written by experts who are already making money in the stock market. See what they think is important to look at and try using their systems yourself.

2. After you have a firm understanding of how the stock market works you should develop your own system. Make a set of rules to follow when trading. Buy whenever a stock does this; sell whenever a stock does that. These rules should be precise so you will not have any trouble deciding what to do down the road.

3. After you have developed a set of rules for yourself the next step is to open a paper trading account. Practice trading with your rules on paper first. Follow your rules very strictly. If you make money in your paper trading account, great, it’s time to move on to the next step. If you aren’t making money with your rules go back to step 2 and develop a new system. Keep doing this until you are making money.

4. If you have a system that is making money on paper it’s time to start trading with real money. Be careful when trading real money. Most traders will let their emotions control them. If you want to make money you have to get in and out exactly when your system tells you to. It might be good to start trading with just a small amount of your portfolio first, just until you can trade your system without letting emotions get in the way.

To learn more about how to make money in the stock market visit

Tuesday, March 25, 2008

making money in a bears market

When a bears market comes around people start to panic. They panic because the bullish stocks they bought when the markets were going up are now losing money when they are going down. They do not know that if you want to make money during a bears market you should trade for the downside.

When the markets go down many market professionals make a killer by implementing bearish strategies. In fact some investors make more money when the markets are bearish. This is because markets tend to go down faster then they tend to go up.

Here I have listed 5 bearish strategies that can be used to make money when the market is heading down. So get ready to ride the market crash all the way to the bottom with us.

1. Shorting stocks for profit. Your broker has many stocks that they are holding for the long term. They do not care what happens to them right now as long as they make a profit in the long haul. Let us say it is trading at $100 you can borrow their stock and sell it. This makes you an instant $130. Then if the stock drops to say $90 you can buy it back at $90 and give it back to your broker. In this example you made $40 per share.

2. Buying puts for leverage. When you buy a put for a stock what you are actually doing is buying the right to sell a stock at a given strike price. This way if the stock’s price drops our puts price goes up. If we bought a put with a strike price of $130 on the same stock for $6 we could have made money while the stock goes down as well. The difference between the puts strike price and the stock is $40, so your put would be worth at least $40. Buying puts is a highly leveraged way of trading and will eventually expire worthless if not sold by its expiration date.

3. Selling calls. A call is the opposite of a put. When you buy a call you buy the right to buy a stock at a certain price. So, if you sold a $135 call on that stock for $4 you automatically take home $3. Now as long as the stock stays below $135 by the time the call expire you make $4. This means the stock can do nothing, even go up a little and you still make money. Just be careful this is one of the riskiest things you can do. If this stock goes up to $1000 you will have to buy it at $1000 and sell it at $135, which hurt. Your max loss is infinite.

4. Doing a spread. This is similar to the sell a call strategy, but it limits our risk. Here we would sell the $135 call for $4 and buy the $140 call for $3. Now you only made $1. However our risk is a lot lower. We still make money if the stock stays below $135 just like you would if you sold a call. Its advantage is if the stock goes up to $1000 you can buy the stock at $140 and sell it at $135 Your max loss is only $5(difference in spreads) - $1(you made) or $4.

5. Buying a leap. This a compromise between high leveraged puts and low leveraged shorting. Here you buy a put. Unlike our previous example however were it will expire in a few months a leap will expire in 1 or 2 year. For this extra time you will have to pay more than a regular put. If $130 put cost $6 a $100 leap might cost $18.

Monday, March 24, 2008

Why buy Leaps

Buying a leap is a very effective long term strategy. It will help you leverage your money in the market. Because of this buying a leap can produce a much greater gains than just buying the stock.

Let us look at an example of how it works. We find that stock ABC is currently trading at $50. It is a strong stock and we believe it will go up. So we buy the stock for $50.

Now we wait as the stock slowly but steadily goes up. Finally after 2 years the stock is now trading at $100. Which means we just made a 100% increase on our money in 2 years. That is good, the only thing is I am sure you could have made more money if you leveraged it.

Let’s see, options are the way to leverage your money in the stock market. If you pay $3 buy the right to buy a stock at $50 then the stock shoots up to $100 you just made $50 from that $3. I don’t even know how big of a return that was, it was huge.

But an average option expires within 1-3 months. The odd of a stock shooting from $50-$100 in a couple months is pretty darn slim. You would want leverage with a little bit more time.

How about trading with a leap. Leaps are simply an option on steroids. It has a lot more time before it expires (usually about 1 to 2 years). Now we can buy the right to buy stock XYZ at $50 within 2 years. We pay a little more for more time, maybe $15.

Since we bought more time we can afford to wait a while for the stock to make a move up. We are not in a big rush. We just let the stock do what it does.

After 2 years stock XYZ is now worth $100. We can buy it at $50 and sell it at $100. Off of that $15 we made $50. This gives us a 333% return on our money. This gives us an edge over buying the stock which would have given us only a 100% return.

Saturday, March 22, 2008

Keep your emotions in check.

Fear and greed can lead a trader to lose all of their money. It is a common mistake that many amateur and even a few professional traders will make. How many of you have bought a stock at $90 watched it go down to $87 got scared so you sold it only to watched skyrocket to $130.

When you did this you were encompassing fear into your trading system. You saw that you were starting to lose money in the trade got scared and sold it. Despite the fact that it only dropped a little bit and gave you no sell signal. I know it may be hard to stay in a trade after your stock has dropped a little however you must stay in it until your rules tell you to get out.

If you know that you will get out if you lose even a penny, don’t get in. If you are trading and your stock has came down to just above your stop you must stay in it. If you have a hard time with that, get away from the computer. Do something else and forget about it. A very successful trader once told me that every time they trade they pretend they are trading someone else’s account. That way if they lose money it doesn’t feel like they lost their money.

So you’ve got the fear down, what about the greed? Here is a different scenario. How many times have you got into stock that went from $60 to $90 real fast? You were jumping for joy, dancing around having a good time. You passed your target of $80. But you feel it can go higher. You just want to squeeze 10 more points out of this stock. It’s already up so much, 10 points is nothing, right? So you hold onto it. Then your stock goes down to $50. Owe, now you have a loss, should have got out when you were ahead.

So, how do you combat greed and fear? The best thing you can do is to have a well tested trading system and have faith in it. The more confidence you have in your trading system the more likely you will just follow it. Be a robot for a few minutes while you make trading decisions. Only do what your system tells you, no more, no, less.

To learn more about how to be a successful stock market trader visit my site

Thursday, March 20, 2008

Trading with the trend

“The trend is your friend,” This is the famous line that stock market guru’s will tell their students. Anyone who has ever gone to a technical analysis seminar has heard it. But few people actually know what they mean? Basically it means you want to trade with the trend and not against it. Don’t try to find the time were the top or bottom of a stock is.

As opposed to top picking, which is normally a bad idea, a trader should look at stocks that keep going up like and assume that they will probably keep going up. No one knows when an up trending stock will go down until it already has. For example if a stock goes from $60 to $140 1 year, then to $190 the next we should assume that it will go even higher the next year. Provided it is still trending up.

So, how can you tell if a stock is in an uptrend? Well if the stock is making higher highs and higher low, so that the overall movement is up, that is considered an uptrend. We would assume that this stock is going to keep going up.

On the other side when we are in a down trend is when a stock is making lower lows and lower highs so that the overall trend is downward. In this case we should assume that this stock will continue going down.

Trend traders will buy a stock when they make a higher low and ride it up until it is not in an uptrend anymore.

When a stock, that was previously making higher highs and higher lows, makes a lower high and a lower low it is said to be in a down trend. It is time to get out of this stock. Trading with the trend is possibly the most important part of technical analysis. To make money in the markets you should not be bullish on a stock that is in a downtrend, or bearish on a stock that is in an uptrend.

For more information on how to make money in the stock market visit my site