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