ETFs are securities that are composed of many different stocks. Each stock in an ETF has something in common with the other stocks. For example their might be an oil ETF that has nothing but oil drilling stocks.
These are often nice trending and can have many benefits over regular stocks. I have listed a few here.
1. They give somewhat of diversification within one group. That allows you to bet on the group as a whole rater then a given stock. One way this might help you would be if you are bullish on say restaurants in general. If you invest in an individual company it may go down from bad earnings or sudden surprises, even if the industry as a whole goes up. In this case buying an EFT can be a great way to get what the majority of the group is doing.
2. You do not get big company surprises. There are times when a stock will have a sudden surprise. This could be something like a government inspection. Surprises like that can give a big shook to an individual stock. ETFs are less affected by a surprise because they are composed of many different stocks.
3. They are also less affected by company earnings announcements. Earnings announcements can have a big effect on a stock either up or down. Trying to trade during this time can be a very dangerous thing. No one knows exactly what the earnings will say and even if you did you don’t know how it would affect the markets. That is why it is best to trade something like an ETF during this time.
4. They often have great trends that could be trending better than regular stocks. I have seen them outperform the majority of stocks at times even if they are diversified.
For more information on ETFs visit http://www.stocks-simplified.com/etfs.html
For more information on stocks visit http://www.stocks-simplified.com
Monday, June 23, 2008
Sunday, June 22, 2008
Figuring out your trading strategy
It is very important to be able to figure out your own trading strategy. That is because not everyone trades the same way. There are many different trading strategies out there for many different trading types. Every new trader should try to find a strategy that fits them well and practice it until they get good at it.
But many new traders do not do this. They either try to trade every strategy at once or they do not have a strategy at all. I would say the majority of unsuccessful traders are those who have no consistency in their trading.
These traders will hear a hot tip from a friend about a company that is going to skyrocket and they will buy it. They will also buy big name companies that have crashed because they have to go up; they are after all huge companies. Then they will buy the flavor of the month because it is in the news.
Traders who invest in without a consistent plan are doomed to fail. Even if they find something that works they will not know what it is because they are going to the next new trade that is sure to make them rich. That is what keeps them from ever making any real money in the stock market.
What someone who wants to trade in the stock market should do is find one or two strategies that match them. Maybe they really like the idea of trend trading or option selling. In that case they should develop their own system to make it work and focus on making that work before they move onto the next trading strategy.
They should have specific buy and sell signals that they use every time they place a similar trade. That makes it easier to know if you can make money with that strategy because it is more consistent. After all if you keep doing the same thing then you are bound to come up with the same results.
To see a list of different trading strategies visit http://www.stocks-simplified.com/stock_market_traders.html
To find out more about the stock market visit http://www.stocks-simplified.com
But many new traders do not do this. They either try to trade every strategy at once or they do not have a strategy at all. I would say the majority of unsuccessful traders are those who have no consistency in their trading.
These traders will hear a hot tip from a friend about a company that is going to skyrocket and they will buy it. They will also buy big name companies that have crashed because they have to go up; they are after all huge companies. Then they will buy the flavor of the month because it is in the news.
Traders who invest in without a consistent plan are doomed to fail. Even if they find something that works they will not know what it is because they are going to the next new trade that is sure to make them rich. That is what keeps them from ever making any real money in the stock market.
What someone who wants to trade in the stock market should do is find one or two strategies that match them. Maybe they really like the idea of trend trading or option selling. In that case they should develop their own system to make it work and focus on making that work before they move onto the next trading strategy.
They should have specific buy and sell signals that they use every time they place a similar trade. That makes it easier to know if you can make money with that strategy because it is more consistent. After all if you keep doing the same thing then you are bound to come up with the same results.
To see a list of different trading strategies visit http://www.stocks-simplified.com/stock_market_traders.html
To find out more about the stock market visit http://www.stocks-simplified.com
Saturday, June 21, 2008
Coming back after a bad trade
Coming back after a bad trade is very important to anyone looking to succeed in the stock market. If you quit every time you lose money then it will be hard for you to make any money trading.
Every trading strategy has wins and losses. That is a simple fact that you have to get used to. If there was a strategy that had no losses in it everyone would be trading it and the markets would probably go bankrupt.
What the average new trader will do is develop a strategy through paper trading and backtesting. Then they start trading with actual money with great hope. Then they make their first trade and it was a loss.
They scratch their head, but get over it after all their strategy has many losses as well as wins. They decide to let it go. Then they place another trade. This one is a loss too. Now they are in panic. They can’t believe it lost twice in a row.
It is perfectly normal to lose twice in a row but they lost money. That is the big different thing between paper trading and actual trading. If you lose fake money you tend to keep at it until your account is positive. If you lose actual money you feel like you do not want to trade ever again.
Stopping trading when you are down can have major negative effects on you. It can make you feel like you cannot make money in the markets. And if you do stop you will often see great profits go right pass you.
Some of the biggest profits you will ever have are the profits you would have taken after you had several losses in a row. You might even finish a month like that positive based on that one trade. You never know for sure what is around the corner.
For more information on what to do during bad trades visit http://www.stocks-simplified.com/lost_money_on_bad_trades.html
For more information on the stock market visit http://www.stocks-simplified.com
Every trading strategy has wins and losses. That is a simple fact that you have to get used to. If there was a strategy that had no losses in it everyone would be trading it and the markets would probably go bankrupt.
What the average new trader will do is develop a strategy through paper trading and backtesting. Then they start trading with actual money with great hope. Then they make their first trade and it was a loss.
They scratch their head, but get over it after all their strategy has many losses as well as wins. They decide to let it go. Then they place another trade. This one is a loss too. Now they are in panic. They can’t believe it lost twice in a row.
It is perfectly normal to lose twice in a row but they lost money. That is the big different thing between paper trading and actual trading. If you lose fake money you tend to keep at it until your account is positive. If you lose actual money you feel like you do not want to trade ever again.
Stopping trading when you are down can have major negative effects on you. It can make you feel like you cannot make money in the markets. And if you do stop you will often see great profits go right pass you.
Some of the biggest profits you will ever have are the profits you would have taken after you had several losses in a row. You might even finish a month like that positive based on that one trade. You never know for sure what is around the corner.
For more information on what to do during bad trades visit http://www.stocks-simplified.com/lost_money_on_bad_trades.html
For more information on the stock market visit http://www.stocks-simplified.com
Thursday, June 19, 2008
Be cautious with earnings
Every now and then a company announces its earnings. During this time there can be many surprises. Earnings may change people’s opinion of the stock.
When earning is being announced it is a considered to be a very dangerous time. Because of all the uncertainty you do not know what a given stock will do.
They can cause huge jumps up and down. A stock can be trading at $60 before earnings and $50 after they are announced. Such huge swings can hurt a trader who is long on that position. Every trader needs to have a plan for what they will do during this time.
Some traders will choose to trade the earnings. They will try to predict direction the stock will move. This can be dangerous in a few ways. First of all you do not know exactly what a given stock is going to announce.
Also you do not know how the people will react to what is announced. Stocks can crash to good news or rally to bad news it happens all the time. That is why trading earnings can be much like a gamble.
Other longer term traders may choose just to hold their positions through it. They can justify that by saying that stocks do not always move big during earnings. They can also say that strong stocks have strong earnings. This means that a stock which keeps going up is more likely to get a bust from their earnings announcement then a crash.
Perhaps the safest thing you can choose to do is not to trade a stock that is announcing their earnings. That is not to say that you cannot trade during this time there will always be opportunities in the market. But sticking away from trades that can be so unpredictable can be a positive thing.
For more information on trading during earnings visit http://www.stocks-simplified.com/company_earnings.html
For more information on trading in the stock market visit http://www.stocks-simplified.com
When earning is being announced it is a considered to be a very dangerous time. Because of all the uncertainty you do not know what a given stock will do.
They can cause huge jumps up and down. A stock can be trading at $60 before earnings and $50 after they are announced. Such huge swings can hurt a trader who is long on that position. Every trader needs to have a plan for what they will do during this time.
Some traders will choose to trade the earnings. They will try to predict direction the stock will move. This can be dangerous in a few ways. First of all you do not know exactly what a given stock is going to announce.
Also you do not know how the people will react to what is announced. Stocks can crash to good news or rally to bad news it happens all the time. That is why trading earnings can be much like a gamble.
Other longer term traders may choose just to hold their positions through it. They can justify that by saying that stocks do not always move big during earnings. They can also say that strong stocks have strong earnings. This means that a stock which keeps going up is more likely to get a bust from their earnings announcement then a crash.
Perhaps the safest thing you can choose to do is not to trade a stock that is announcing their earnings. That is not to say that you cannot trade during this time there will always be opportunities in the market. But sticking away from trades that can be so unpredictable can be a positive thing.
For more information on trading during earnings visit http://www.stocks-simplified.com/company_earnings.html
For more information on trading in the stock market visit http://www.stocks-simplified.com
Wednesday, June 18, 2008
The leaps advantages
Leaps have many advantages over other strategies in the stock market. This is because they give the buyer both high leverage and a long term approach to the market.
Leaps like options give the owner the right to buy a given stock on or before a given date. But unlike options however the date at which it expires is farther out. Instead of an option contract which might give you a couple months before it expires, a leap will give you a year or two before it expires.
This has a few great advantages. First of all the stock does not always do what you want to do right away. That does not necessarily mean that you change your posture on the stock. If you had a leap you could hold onto it longer without having to worry about expiration.
Another reason is that if a stock is strong it may pull back now and then. However, if it is really a great buy it is likely go head up in a longer term time frame.
Of course you do pay more to buy a leap then you would for a call option. But you pay for time. That extra money makes the investment gives you more time than a call would.
They have advantage over stocks as well. That is because they have much greater leverage then a stock does. For instance say you buy a $40 leap for $8 that is two years out. The stock is trading at $35.
After two years that same stock is trading at $60. If you would have bought the stock you would have made 71.42%. But if you would have bought the leap it would be worth at least $20. That would have given you a gain of at least 150%.
There is a big difference between the return the stock could give you and the returns a leap could give you.
To learn more about leaps visit http://www.stocks-simplified.com/leaps.html
To learn more about the stock market visit http://www.stocks-simplified.com
Leaps like options give the owner the right to buy a given stock on or before a given date. But unlike options however the date at which it expires is farther out. Instead of an option contract which might give you a couple months before it expires, a leap will give you a year or two before it expires.
This has a few great advantages. First of all the stock does not always do what you want to do right away. That does not necessarily mean that you change your posture on the stock. If you had a leap you could hold onto it longer without having to worry about expiration.
Another reason is that if a stock is strong it may pull back now and then. However, if it is really a great buy it is likely go head up in a longer term time frame.
Of course you do pay more to buy a leap then you would for a call option. But you pay for time. That extra money makes the investment gives you more time than a call would.
They have advantage over stocks as well. That is because they have much greater leverage then a stock does. For instance say you buy a $40 leap for $8 that is two years out. The stock is trading at $35.
After two years that same stock is trading at $60. If you would have bought the stock you would have made 71.42%. But if you would have bought the leap it would be worth at least $20. That would have given you a gain of at least 150%.
There is a big difference between the return the stock could give you and the returns a leap could give you.
To learn more about leaps visit http://www.stocks-simplified.com/leaps.html
To learn more about the stock market visit http://www.stocks-simplified.com
Backtesting to Build a System
Backtesting can be a very helpful way to get a stock market system made. It has been used effectively by traders for years.
So, what is backtesting? Well, it is simply using the past performance of certain stocks in order to see if your system will work in their future stock movements. If you were back testing a system you would be following your system rules in past stock movements and see where it gets you.
The idea of this is that history repeats itself. If your system worked in the past movements then it will probably work in the future. That does seem to make some sense after all.
It is considered to be very valuable, but it also does have its flaws. Even though it could tell you your system works it will not show you how it works in different market postures. It could be that it works very well during a bulls market but very poorly during a bears market. It could also be the opposite working well during bears markets but poorly during bulls markets.
Or it might leave you unprepared for such surprises like new events or bigger market news. It is for those reasons that many market professionals will tell you the famous quote “past performance does not guarantee future results”.
Because of that this should always be coupled with paper trading. Backtesting will give you a general idea of how your system worked in the past. Paper trading will help you determine how your system is working in the present market. It will also help you decide the best way to trade your system. What rules as far as risk management, or such, do you need to make your strategy work the best? Those are very important things to figure out.
For more information on back testing visit http://www.stocks-simlified.com/backtesting.html
For more information about the stock market visit http://www.stocks-simplified.com
So, what is backtesting? Well, it is simply using the past performance of certain stocks in order to see if your system will work in their future stock movements. If you were back testing a system you would be following your system rules in past stock movements and see where it gets you.
The idea of this is that history repeats itself. If your system worked in the past movements then it will probably work in the future. That does seem to make some sense after all.
It is considered to be very valuable, but it also does have its flaws. Even though it could tell you your system works it will not show you how it works in different market postures. It could be that it works very well during a bulls market but very poorly during a bears market. It could also be the opposite working well during bears markets but poorly during bulls markets.
Or it might leave you unprepared for such surprises like new events or bigger market news. It is for those reasons that many market professionals will tell you the famous quote “past performance does not guarantee future results”.
Because of that this should always be coupled with paper trading. Backtesting will give you a general idea of how your system worked in the past. Paper trading will help you determine how your system is working in the present market. It will also help you decide the best way to trade your system. What rules as far as risk management, or such, do you need to make your strategy work the best? Those are very important things to figure out.
For more information on back testing visit http://www.stocks-simlified.com/backtesting.html
For more information about the stock market visit http://www.stocks-simplified.com
Tuesday, June 17, 2008
Protecting yourself from the downside
Protecting your money from the downside is very important. This is especially true when the markets are volatile and you do not know what they are going to do.
The reason for spending a lot of energy protecting your capitol is important is simple. As a trader you need money to make money. Your investment is very important. If you lose all of your money during a rough time you will have no money left to make a profit when the markets turn favorable.
Now that we have talked about why you should protect yourself from losses when the markets start acting up let us talk about how you can do that. The most widely used strategy for big corporations during this time is called a protective put strategy.
This strategy protects us from downward movements while at the same time allows us to keep any profits that we might get in the stock. The strategy involves buying a put on a stock that you already own.
A put gives the buyer the right to sell a stock at a given strike price on or before a given date. In other words if you own a stock that is trading at $96 and want to protect from the downside you can buy the $95 put for say $4.
Now you have the right to be able to sell that stock at $95 if you need to. So even if the stock crashes to $30 you can still sell it at $95. Many traders see protective puts as an insurance policy. You pay money to the insurance company and if your house burns down you can get compensation for it.
That is similar to how this works. Of course all puts eventually expire and should be used only when you are worried about the market. It would not make sense to pay $4 every month or two on a $96 stock to protect it from the downside.
For more information about protective puts visit http://www.stocks-simplified.com/protective_put.html
For more information on trading in the stock market visit http://www.stocks-simplified.com
The reason for spending a lot of energy protecting your capitol is important is simple. As a trader you need money to make money. Your investment is very important. If you lose all of your money during a rough time you will have no money left to make a profit when the markets turn favorable.
Now that we have talked about why you should protect yourself from losses when the markets start acting up let us talk about how you can do that. The most widely used strategy for big corporations during this time is called a protective put strategy.
This strategy protects us from downward movements while at the same time allows us to keep any profits that we might get in the stock. The strategy involves buying a put on a stock that you already own.
A put gives the buyer the right to sell a stock at a given strike price on or before a given date. In other words if you own a stock that is trading at $96 and want to protect from the downside you can buy the $95 put for say $4.
Now you have the right to be able to sell that stock at $95 if you need to. So even if the stock crashes to $30 you can still sell it at $95. Many traders see protective puts as an insurance policy. You pay money to the insurance company and if your house burns down you can get compensation for it.
That is similar to how this works. Of course all puts eventually expire and should be used only when you are worried about the market. It would not make sense to pay $4 every month or two on a $96 stock to protect it from the downside.
For more information about protective puts visit http://www.stocks-simplified.com/protective_put.html
For more information on trading in the stock market visit http://www.stocks-simplified.com
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