Trading
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Butterfly Spreads - A Conservative Trading Plan
Posted by Bryan on 18 Sep 2008 | Tagged as: Trading
The stock market always rides a wave that is not predictable and various factors impact the volatility. Spreads are strategies that manage your investments and are suggested by various experts as the smartest way to invest in options.
New options traders should always start trading with lower investments, learn the craft and enjoy the returns before extending the investment.
• The spreads that should be considered are:
• Calendars
• Double calendars
• Condors
• Double diagonals
• Butterfly spreads
Entry Criteria:
A butterfly spread has options that have the same expiration date. A long butterfly spread will include 3 call (or puts) strikes, buy one at low strike, sell two at the middle strike, and buy one at the high strike. A long butterfly is a combination of a bull and bear spread. For example, a 90, 95, 100 call butterfly will involve buying one 90 call option, selling two 95 call options and buying one 100 call option.
The butterfly spread limits profits and risks. The strategy should be placed when volatility is relatively low.
Pick stocks (or ETF’s) after a detailed research
The IV should be in the lower 30% of the underlyings two year range.
Consider stocks that moving laterally and do not show a lot of movement. Some stocks may remain stable over long periods and are a good choice.
Special events like earning months of a stock should be avoided. High volatility occurs during the months when results are due and announced.
The price movement patterns of a stock should be predictible since butterfly spreads benefit from stocks remaining in a certain range; start-ups and bio-tech industries must be off the list. Index products are preferred.
Timing:
A post-earning month is an ideal time as stock volatility will be low
Intiate the butterfly spread around 4 weeks before expiration.
Profit Goal:
30% (after commissions)
Maximum Loss:
25% to 30%. Once your position is down between 25 to%, close the position
Adjustments:
The adjustments points should be set at the break-even (BE) points of the spread for the first two week period
Once a position is up 20%, set stop orders so that a return of 10 - 15% is guaranteed.
Try to get a fill at the mid-price between bid-ask. Try not to digress from mid-prices - if at all you do, try to give up not more than $0.05 to $0.10 from mid prices since execution is crucial.
Get out of the trade two weeks before expiration. It becomes more difficult to manage a position as it gets closer to expiration.
When stock starts to become volatile showing wider than normal daily movements, close your position as some events cannot be easily managed closer to expiration.
Shop around for brokers that offer low commissions (less than $1.50 / contract & no ticket fee)
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Butterfly Spreads - A conservative trading plan Article Source: http://EzineArticles.com/?expert=Sumant_Zoomer |
Moving Averages and Scalp Trading
Posted by Bryan on 11 Sep 2008 | Tagged as: Trading
Moving Average constitutes a very popular method of predicting the price trend or movement of an underlying holding. With its help, one can quickly understand the trend of a stock or currency.
Moving Averages smoothen out erratic movements in prices or charts. With this method, it becomes easy to see a clear picture about the behavior in the price of a security. This is a very simple and easy method of analysis and prediction. Though simple, it is extremely powerful in establishing the trend.
Short and Long Term Trend
Moving Averages are helpful in both short term and long term analysis. While as short term analysis is used to measure or smoothen short term trends, longer averages are used to measure or smoothen long term trends.
Scalp trading
This is used mainly for taking advantage of a very short term trading opportunity. By taking quick action for either making an entry or exit, day traders are supposed to engage in scalp trading.
Scalp traders are supposed to make several trades a day within a matter of minutes. The assumption behind this is this way a scalper can make quick little profits which will tend to accumulate.
Most important features of scalp trading are getting in and getting out quickly from a stock or holding, avoiding of overnight positions, low price spreads and commissions, fast reactions and intense concentration.
Moving Averages And Scalp Trading
Scalp traders can benefit from moving averages by following very short term DMAs of 5. With a short term moving average, moving above the long term average, one can go long. However, since scalpers are mostly day traders, for them when the longer term moving average goes below the shorter term moving average, they should go short.
In order to succeed in day trading, it is necessary that traders use both longer term moving and shorter term moving averages. Two or more moving averages will have to used for the purpose of trading. One can use any type of moving average like simple, weighted and exponential.
The concept behind moving averages is quite simple. When the actual prices are rising, these will be above the average. That could indicate a buying opportunity. On the other hand when the underlying prices are below the average, that indicates falling prices and possibly a bearish market.
By constantly comparing average and underlying prices, scalping traders can take appropriate positions. They can fix several points and in between these, they can make an idea about the underlying current in the prices of a stock or currency.
Precautions For Traders
Combining moving averages with day trading involves a quick grasp of the stock prices. In order to be successful in this strategy, it is necessary that one constantly undergoes a learning and educational cycle. It also demands constant practice and trial and error.
The most important factors for this are perfect timing and attention. It should be expected that there are high costs involved in the same and this could be stressful. Traders will have to constantly obtain data, plot them on maps and graphs, understand the movement and quickly react. This could be very intense and stressful.
Traders, who can quickly read, locate breakouts and trends and take quick position, can reap good benefits.
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The author has background in business, economics and finance. He is presently researching in finding ways to make money and working on the following website and blogs: http://www.businesses-jobs-careers.com/ http://makemoneyplans.blogspot.com/ Article Source: http://EzineArticles.com/?expert=Altaf_Sahibzada |
Managed Forex Accounts
Posted by Bryan on 04 Aug 2008 | Tagged as: Investing Tips, Investment Ideas, Mutual Funds, Trading
There is a lot of money to be made by trading the Forex, but it can be very risky. If you do not know what you are doing, you can lose a great deal of money. Having said that, if you invest some of your portfolio into the Forex market through a managed fund, then you can make money with it by using the experience of experts. Currently many real estate and world stock markets are going down in value, but having investments in currency can give positive returns during these tough times. I actually have investments in a currency managed fund through Landau Securities. By using a life bond, I do not need the large capital to enter the fund. I thoroughly suggest that you have a good currency fund, like the one offered by Landau Securities.
Because forex trading is such a complicated business, there are many systems in place to help new or cautious traders get involved without going bankrupt. There are mini accounts that let you invest only small amounts of money, and there are even automated accounts that let a computer program do it all for you. And in between those extremes is the managed forex account, which gives you full access to the market but gives you an adviser to help you navigate it.
A managed forex account is perfect for someone with no experience, or limited experience, in the forex market. It’s also good for someone who wants to invest but doesn’t want to go through all the studying and training necessary to do a good job of it himself. Furthermore, a managed account is a godsend if you want to invest but simply don’t have the time or the inclination to watch the market 24 hours a day.
Managed accounts always require a minimum investment of at least $10,000, and some have the minimum set as high as $250,000. This makes it off-limits to many individuals, especially considering you never want to invest more than you can afford to lose. It is mostly businesses and corporations that use managed accounts, though more and more well-heeled individuals are taking advantage of it in the 21st century.
The reason for the high minimum investment is that a managed account has to have someone managing it — an actual human being, that is, not a computer program. If the minimum investment were more reasonable, too many people would want managed accounts, and the managers wouldn’t be able to handle their client load. Having said that, you can enter a quality managed account through Landau Securities for a low entry point by using a life bond.
In general, a managed account is best for long-term investors. Someone wanting to get into the forex market, make a lot of money through aggressive, risky ventures, then get out again, would not benefit from a managed account. Most managers favor a conservative, slow-growth strategy, usually suggesting that investors stay with the program for two years to show real profits. (Most systems let you withdraw your money and quit whenever you want, though, with no penalties for doing so.)
There is a fee for managed accounts, of course; nothing comes for free. Usually the fee is based on the performance of the market, with the manager taking a percentage of your net profits each quarter. This fee is well worth it for many individuals, though, as they find a managed account gives them peace of mind with regard to where their money is being invested and what kind of return it’s yielding them.
Mental Toughness Is The Key To Trading
Posted by Bryan on 27 Jul 2008 | Tagged as: Trading
One of the main reasons that people fail in trading is due to a lack of mental toughness. It along with discipline are 2 of the most important attributes needed in oder to become a winning trader. Joe writes his thoughts about mental toughness and trading below.
Mental Toughness
If you want to be a winning trader, you have to learn to handle extreme levels of stress. The markets are often chaotic and unpredictable; they are, no doubt, stressful. You mind has limited resources; when you feel stressed, a great proportion of your resources are devoted to managing the stress. You tend to have little energy left with which to focus on trading. It’s a lot like “cramming” for an examination in school. It takes twice as long to learn material when you cram. Why? It’s because you are more stressed when you are trying to learn under duress.
When you’re struggling to cope with the wildness of the markets, you are similarly trying to perform under duress, and under less than ideal circumstances. As you push yourself to the limit, you use up mental and emotional energy. As you use up resources, there is little mental and emotional energy left for trading smoothly, easily, and with retaining your poise. You are more prone to panic, and may ride an emotional roller coaster as you face winning and losing trades. You may even begin to panic and behave irrationally. It’s essential for survival to be able to cope with the ever-increasing demands of the markets.
Research has proven that, if you can learn adequate ways to cope with stressful situations, events that usually produce stress need not necessarily produce the stress response. You can develop “mental toughness.” The mentally tough person can endure high levels of stressful events, yet not feel stressed out. Coping with stress is similar to weight lifting. If you lift more than your body can physically handle, you can damage muscle tissue. But, if you never push yourself to the limit, you’ll never develop additional strength. Just as you build up muscles gradually, you gradually build up your ability to handle stress.
The key is to learn how to handle greater levels of stress, but also to find time to recover. When it comes to the markets, for example, it’s tempting to trade all day, then work late into the night back testing and trying out new trading strategies. However, working tirelessly at such a pace is bound to wear you out eventually. It is very important to rest and recover. That doesn’t mean shrinking back from the markets, but learning to deal with the pressures of the markets at a gradual, realistic pace.
By pushing yourself to greater levels of challenge, but at the same time resting and recovering, you can build up mental toughness in the same way that a weight lifter can handle greater and greater physical loads.
There are some basic steps that a person can take to prepare for stress and become adjusted to it. First, as I’ve stated many times, it is essential to get as much rest and relaxation as possible. People who do not get the proper amount of sleep have limited psychological resources to cope with daily stressful events. Getting extra rest is important. This may mean taking planned naps during the day to rejuvenate. Don’t make the mistake of thinking that you’ll be “missing out” on a trading opportunity by taking a break. Look at it this way: how much are you going to make if you are too tired and wiped out to focus on the market action and trade easily? The proper amount of rest can increase your ability to cope with stress.
Second, it is also important to exercise and eat correctly. Emotions are physiological responses. The more energy the body has to cope with stress, the more “tough” the body can be when extreme levels of stress are encountered. Regular exercise helps the body and mind release pent-up stressful emotions. By making sure you allow your stressful emotions to dissipate, your body and mind will recuperate and be ready to deal with extreme levels of stress.
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Joe Ross has been trading for more than 50 years, and is a well known Master Trader. He has survived all the up and downs of the markets because of his adaptable trading style, using a low-risk approach that produces consistent profits. Joe is the creator of the Ross hook, and has set new standards for low-risk trading with his concept of “The Law of Charts™.” Joe was a private trader for most of his life. In the mid 80’s he shift his focus and decided to share his knowledge. After his recovery, he founded Trading Educators in 1988 to teach aspiring traders how to make profits using his trading approach. He has written 12 major books on trading. All of them have become classics and have been translated into many different languages. Joe holds a Bachelor of Science degree in Business Administration from the University of California at Los Angeles. He did his Masters work in Computer Sciences at the George Washington University extension in Norfolk, VA. Joe still tutors, teaches, writes, and trades regularly. Joe is still an active and integral part of Trading Educators. Article Source: http://EzineArticles.com/?expert=Joe_Ross |
Investing During The Onset Of Recessions
Posted by Bryan on 24 Jul 2008 | Tagged as: Investing Tips, Investment Ideas, Investment Protection, Mutual Funds, Overseas Investing, Trading
When the economy is booming it is easy to make profits as just about everything goes up in values. However, during the onset of recessions and depressions investing in any old thing will not work. In fact you should invest as if there is a recession about to happen all the time in my opinion.
James writes an article about recession proof investing, but I would have a different approach. I would always invest in mutual funds that make money whether the markets are going up, down or sideways. They are funds that deal in futures, currencies or other derivatives. Trading can be very lucrative during the onset of the recession, as the market can fall very quickly allowing for many good “short” profits to be made. If you are not confident of trading though, then having some of your portfolio in mutual funds that invest in derivatives is the way to go. I invest in these types of funds via overseas investments.
Recession Proof Investing - Where to Make Money in a Recession
With most Western economies facing economic downturns, if not all out recession it is becoming increasingly hard for investors to find good investments that provide solid returns.
The recent global credit crisis has made it much more expensive for companies to borrow money to fund their activities. Virtually every listed company uses some for of debt to finance part of their trading activities meaning that there are virtually no companies out there that have been unaffected by this crisis. This increased cost of borrowing has forced profits much lower and for some highly leveraged companies it has spelled the end, just as it did for Bear Stearns. All of this has meant that stock prices have been falling and with the economic climate set to get worse traditional equity stocks look set to lose investors money.
Diversification is Key
Traditionally in recessions investors were well advised to move funds into what are known as ’staple sectors’ such as food industries, the theory being we all need to eat and buy their goods. However the impact of increase borrowing costs as well as rising commodities prices has meant that food prices are getting more expensive and hitting the bottom lines of food industry companies.
In order to better recession proof your investments it is essential to learn to not be afraid of investing in new markets or industries. May investors make the mistake of believing they ca only succeed by sticking to investing in their specialized niche. This works when markets are rising however when they are falling it can be compared to trying to pick good apples out of a rotting basket. Instead look for a new fresh basket in which to invest.
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Learn more about exactly how to recession proof your investing or learn to trade commodities. Article Source: http://EzineArticles.com/?expert=James_McKerr |
Lessons For Successful Trading
Posted by Bryan on 17 Jul 2008 | Tagged as: Investing Tips, Investment Protection, Stock Market, Trading
Successful traders can make money whether the market goes up, down or sideways. However, there are some basic rules that apply to become a successful trader. To me they include good money management skills, discipline and a good frame of mind (trading psychology). Darlene Nelson has provided an article below that gives 3 lessons that she believes to be needed in order to become a successful trader. There are quite a few useful tips within it.
Three Lessons That Every Successful Trader Learns by Darlene Nelson
LESSON 1. AVOID THE COMMON THIEF I have noticed that some people display a common error in judgment that can be devastating. It’s kind of like letting a thief into your home and saying, “please turn out the lights when you leave.” The next morning you wake up and the house is empty, the safe is open, and all your deeds are missing. A few days later you get a call from your pension plan coordinator who bears heart-wrenching news “there is nothing left in you account, do you still plan on using our services?”What is this thief? What could people do that would cause them to lose nearly everything before they wake up? The answer is: Many people will start out slow and each time they make a mistake they try to solve it with larger amounts of cash. Over time they can drain their bank accounts, brokerage accounts, pension funds, and every other source of money. Only then do they stop and say, “Oops, I guess my trading methods are not working.”
Do you mind if I make a suggestion? When you decide to invest in the stock market, it’s best to use only a portion of your money for “High Risk Investments.” What is a high-risk investment? Anything that you personally control that can lose value if you make a mistake! Let’s say you have $30,000 of available funds, don’t dive right in with the whole thing, how about starting out with 10%. That means you would start with $3,000. Then you ask yourself a few questions:
“Is it OK if I place this money at risk?” “Can I handle the possibility that I may lose this entire amount?” “Can I accept that risk without losing my mind and self?”
If you can answer each question with a YES, it is indeed risk money that you will be able to use and you will be able to handle the ups and downs of the market. If the money is too important, you will end up making all the wrong decisions because your choices will be made because of fear and worry, not logic and informed choices.
Once you have arrived at the amount you want to work with, use that for a while. Then, as you experience positive results, you might reconsider. You could add a little, if it fits your plan. However, if you are having a difficult time and you feel like you need more money to help you “make up” your losses. STOP. Don’t add another penny. I have seen so many people who are still confused about things; use hard earned cash to experiment in the market. When they have a few bad plays, they go back to their secure funds and get another cash infusion. They continue doing this until they have nearly exhausted everything. Then they finally decide that they need to go back to the basics and find out what’s wrong.
The common thief is thinking that you can solve investment problems by throwing more cash into the system. There is nothing wrong with starting out small and working with that money until it becomes a massive amount.
Don’t get me wrong; I am not trying to say that most people lose money when they start investing in the market. That’s not realistic, I know people that have done great and others that have not done great. I have spent many years teaching people how to invest in the market. That exposure has given me the opportunity to talk with all kinds of people with just as many different experiences in the market.
I realize that using the concepts presented in this series of reports works best when you have a little more than $2,000, but not too much more. I have worked with tons of people that started out investing in the market with $2,000 or less which grew to hundreds of thousands of dollars.
How do you avoid the common thief? Be careful and go back to the basics if things are not working.
LESSON 2. IF YOU’RE WRONG, EXIT QUICK AT A SMALL LOSS One of my favorite stock market instructors is Ryan Litchfield*. Ryan says something like this “IF YOU NEED TO EAT A TOAD, EAT IT FAST BEFORE IT GETS TOO BIG”. The same applies to investing in the market - if a play is going bad or if you discover that your investment choice is wrong, get out ASAP. When a play goes bad take your loss immediately before your small error becomes a big disaster.
Let’s say a stock has reached it’s resistance and has started falling, you decide to short some stock or sell a call with plans to buy back at a profit when the stock falls far enough. To your dismay, the stock stops moving down shortly after you get filled on your sell order and then that stock starts moving like a rocket - IN THE WRONG DIRECTION costing you money. By the end of the day, the stock price has broken up through resistance. That night when you look at the charts, you realize that the stock may continue to go up a lot, make the decision to get out fast. When the market opens the next day, wait a short while (at least until amateur hour is over) then if the stock has not moved back in the right direction - call your broker and close the play!
The problem is people depend on hope too long. The stock shoots in the wrong direction and they keep holding on, hoping and praying for a miracle, until the play gets way out of control and it becomes a substantial loss potential. If you stay in a losing play too long, you will end up riding that nightmare all the way to the poor farm.
If a play moves against you, get out while the cost is small. There is nothing wrong with taking a small loss by closing the play. It is impossible to be 100% correct, all of the time. The stock market has its own mind and it will act the way it wants, regardless of our desires. Rather than looking at losses as a bad thing, think them as the cost of doing business. For example:
A grocer orders 5,000 boxes of cereal because a major kid’s fair is coming to town. The fair is canceled and the grocer is left holding far more cereal than she can handle. She gets out a big sign that says: “Cereal 50% off, while supplies last, hurry in for the big savings.”
Will that grocer spend the next three days crying over the cereal disaster? Nope, it’s never going to enter her mind, she will just look at it as a cost of doing business. She knows that it is far better to sell the cereal at a small loss, so she can use her money and shelf space for the production of income. If she were to hang on to the cereal, refusing to sell at a loss, she could end up losing customers because they are getting old, spoiled products. Not to mention, she can’t buy other supplies because she has too much money into the cereal. Eventually she could be faced with an even bigger loss when she has to dispose of spoiled products that no one wants to buy.
There is nothing wrong with selling groceries at a loss, if that is what it takes to move the product, providing it does not happen too many times. Even if you take a loss, it is better get out. Just like the grocer, you still have your capital left for other products (plays), which will bring you profits in the future. And you can always make a profit by getting back into the stock as it provides you with another window of opportunity. If you get out of a play because a stock moves the wrong way you will be happy that you got out early when you see that it kept moving the wrong way. Sure, you had to get out at a loss but you rescued some of your money. You can take that rescued cash and do other plays without having to watch a loser play get worse day after day. Believe me - that’s no fun!
Everyone has a few bad plays, mixed in with their good plays. If you win seven out of ten times, you will be ahead of the game at the end of the month. If you are sure to keep the losses small, your account will go up 7 down 3 up 7 down 3 up 7 down 3. If you are not having enough successful plays, it’s time to stop, go back to the basics, go back to class, do more practice trades, and get back on track.
LESSON 3. EVERYONE PAYS FOR EDUCATION In life education always costs us something. We can learn by attending the school of hard knocks or getting a formal education. Either way, we will invest time, money, and energy. The stock market is no different than any other profession or opportunity: if you want to make a profit, you have to learn how. There are no short-cuts or easy tricks; if it was easy, then everyone would be millionaires. I have seen people lose $10,000, $20,000, $50,000 and even more before they finally get the message - you have to know the rules before you play the stock market game.
I teach many online, free, stock classes each week. These classes are intended to be introductions to stock market investment concepts. You can get enhanced education by attending one of my live classes. I invite you to come spend two days with me. I promise to share two information-packed days with you and other serious investors. Many students tell me that if they could start over again, they would have attended my live class when they were first invited, instead of “wasting months, wandering in the dark, guessing.”
When you attend my live workshop you will learn in two days what has taken me many years to discover. I am constantly updating the subject material and improving the tools so that I can be sure to teach you everything I can in two days. Join me, it’s going to be an exhilarating experience.
Happy Trading,
Darlene Nelson
About the Author
Darlene Nelson is a professional stock trader and educator affiliated with BetterTrades. Visit the BetterTrades website to find out about online stock market classes.
Forex Trading Strategies
Posted by Bryan on 08 Jan 2008 | Tagged as: Trading
A good forex trading strategy can mean the difference between failure and success.
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No sane person would jump into the forex market blindly. You might as well set your money on fire if that’s what you’re going to do. Sensible investors study the market carefully first, learn the ins and outs of currency trading — and even then, before they launch into it, they devise a smart forex trading strategy.
The market is constantly changing and is not always predictable. That is true, but you still need a strategy, one that allows for unknowns and surprises.
Your strategy should begin with how much money you can afford to lose. That may sound like a negative outlook — after all, the goal is to MAKE money, not lose it — but common sense tells you that the forex market will not always make money. There will be many times when you will lose money. You just have to make sure that you make your wins bigger than your losses. There are many strategies in how much you should trade at any one time, but a simple one is to not invest more than 10 percent of your available funds in any one trade.
There are precautions you can take that will make you less likely to lose your initial investment, but there’s no way to guarantee it. Your strategy must allow for the possibility that you’ll take a bath, and for that reason you should never invest more than you can afford to lose.
Another good tip for your trading strategy is to avoid putting all your investments in one currency. What’s the old saying about eggs and baskets? Yeah, don’t put ‘em all in one. Spreading them out makes it much, much less likely that you’ll be wiped out, the way you would if you relied on one currency and it bottomed out.
As you prepare your trading strategy, make yourself aware of what the market is doing right now. Is it trending upward, or downward? What’s the general mood among traders? They all have a strategy, too, and are eager to know what others are thinking.
Consider also what your timeline is. How long do you want to stay in the market before taking your profits and getting out?
Your strategy must also involve learning the timing of the business. Timing is everything: Too late or too early and your potential profit evaporates. As you learn to gauge the market and make trades at just the right time, your profits will increase. A good strategy will factor in this learning curve and allow for a few mistakes at first.
Above all, to prepared to accept surprises when it comes to forex trading. Strategy can only get you so far. The rest is ingenuity and a little bit of luck.
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