Be a Successful Trader

Monday, January 25, 2010

The share market today is as volatile as we have seen it, as stock prices continue to fluctuate the only way to preserve your money is to sit on the sidelines and the chaos goes on in the financials and other sectors. With the wild swings in the market as it continues at times to make no sense. We have seen days of down 500 points, followed by days of up 450 points, actual trading sessions moving as much as 1000 points. How do we make sense of these crazy markets and more importantly how do we make money.

Do not worry there is a systems out there that will teach you manage your trades. With this type of knowledge you can go from a learner trader to an Expert Trader
Forex Broker in no time.

Becoming a successful stock market trader requires learning and having a certain level of knowledge, confidence and the ability to control your fear and greed. Stock Market or Forex Trading is best explained as supply and demand, if a lot of people want the stock it goes up, if they don't want it then it falls. There are endless amounts of research available today from online reports, newspapers, education lessons the list is quiet long so how do you decide when and where to start. The first step you need to take is to decide that you want to become a trader. Then you need to right out your goals and your reasons why.

What you now need to do is to learn and understand that in theory things can seem simple however once you are trading in these at times crazy trading markets things can seem confusing. This is why it all comes back to having the right level of education and knowledge and where possible a great mentor or Broker. Using these steps almost anyone can become a trading success.

To learn more on the stock market or forex market feel free to visit the CFD FX REPORT as they have some excellent education lessons available, and they can also help you find the best online brokers in the market.

Buy Sell Hold in Share Market

The "Buy" decision has two important steps: Step one allocates the available investment assets, by purpose, between Equity and Income securities, based on the goals of the investment program. It is done best using The Working Capital Model. Step two establishes strict selection quality measures and diversifies properly within each security class. Investment Grade Value Stocks are the low-risk equity champions; long-term, non-gimmick, managed CEFs produce the best income/diversification mix available in readily tradeable form.

The "Sell" decision involves setting reasonable targets for profit taking for all securities in the portfolio. Loss taking decisions must not be undertaken out of fear, and must be avoided during severe market downturns. Understanding the forces causing market value shrinkage is important and a highly disciplined hand at the emotion control button is essential. There is no such thing as a good loss of capital.

The "Hold" decision is most common, and it regulates and moderates the process, keeping it less than frantic. Continue to hold onto fundamentally strong equities and income securities that are providing their normal cash flow. Hold weaker positions until the appropriate cycle (market, interest, economy) changes direction, and then consider whether to sell or to buy more.

Learn To Trade Stocks

Learning to trade stocks is no easy matter. But it's not impossible. You have to set yourself out to spend some time to do research and to monitor your positions every once in a while. I have been trading stocks for over 15 years. I can remember my early years of trading. I would get into a position and then when I saw that it was going against me, I would get out, often at the very wrong time. I say that because the next day or week the stock surpassed where I had bought it from.

Learning to trade stocks requires some skill but it also requires you to shed some of your ingrained, inbred emotions. It's these very emotions that caused me to sell stocks too early in by beginning days of trading. I have overcome these emotions now and I have a set of rules that I follow religiously. That doesn't mean that I can't change the rules of my system but I have to give myself a good reason to do so. If I don't change my system than I stick to them. That is how I keep emotions out of the equation.

The most important way to help yourself when learning to trade stocks is to come up with your own system and practice. But practicing with real money can be costly. Some people refer to this as your tuition but what if you could avoid putting real money on the line and still get the practice you need?

A way to do that is by a concept known as paper trading. Now, there are critics of paper trading that state that because you are not putting real money on the line you will not have the same kinds of emotions that you would had you put your hard earned cash in. They also state that you will not get the same kind of fills that you would when you trade for real. There is some truth to these statements but it shouldn't stop you from pursuing paper trading because there are ways to reduce the aspects of paper trading that are criticized.

To counter the first item, paper trading is still experience. Yes, the emotions are not the same but what you are really doing is trying to get a feel for whether your system is working or going to work. The second item's counterpoint is if you take the midpoint of the bid and ask at any given time of the day or at the close, you would likely get filled at those levels had you traded real money. That's because it falls within the range of the bid/ask spread. I have used this technique when trading for real and with the exception of super fast moving stocks, I almost always got filled.

I think if you want to go about learning to trade stocks you need a system and you need to be able to practice trading. You want to be able to do both of these without putting up a whole lot of capital (none if you can get away with it). One system that I have found that is indispensable and reliable is the CANSLIM method.

How To Start Investing

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When you're first getting into investing there are literally tens of thousands of investments to choose from. You can invest in stocks, bonds, mutual funds or some other type of investment.

For the newbie investor just knowing the name of the investment or company you're putting your money in is just the beginning. There are often a lot of minor but important details that you must learn about before you decide to invest. If you had the time and know how you could analyze financial statements, speak with company employees and the company suppliers and so on and so forth. However not many of us have the time necessary to put towards being a full time investor.

Just because you may not have the time to be a full time investor shouldn't scare you away from investing. You can still find quality companies to invest in and it doesn't have to take a lot of your time. The first thing you need to do is get quality information and then you can make purchases of quality investments, you can then leave the management of your investments to individuals who are qualified to manage them.

Having someone else manage your investments will allow you to do the things your good at and leave you with more free time to do the things you like to do. One of the most important parts of investing is knowing what you can do for yourself and knowing what you should hire an expert to do. For example, if you're considering investing in stock in the overseas market then it might make more sense to invest in a mutual fund. Overseas markets can be trickier to navigate than domestic markets, especially for a beginner, so a mutual fund manager would likely be the best place to turn. This would be easier than putting all of your time, energy and money into trying to pick foreign stocks on your own.

The best way to build your wealth would be to invest in businesses which make you an owner, be it a partial owner or a full owner. These types are investments are not always for the faint of heart due to the up and down nature these sorts of investments can have. Investments where you would become at least a part owner include stocks, some form of a small business or real estate vehicles.

UNDERSTANDING PRICE TRENDS

Thursday, January 21, 2010

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In the stock markets, prices are fixed by the interaction between buyers and sellers. The price of a share at any given moment of time depends upon the relative pressures exerted by the buyers and sellers of that particular share on one another. The balance or point of equilibrium reached between these two opposing pressures is the price at which actual transactions take place. Price, thus, represents the point of agreement reached between buyers and sellers.

Price movements are caused by variations in the strength of buying and selling pressures. If the buying pressure increases, the equilibrium is upset and the share price moves up to a higher level where a new balance is struck between buyers and sellers. The price of a share at any given point thus represents only a temporary equilibrium between buying and selling pressures.

Tips For Day Trading

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Day trading the stock market involves the rapid buying and selling of stocks on a day-to-day basis. This technique is used to secure quick profits from the constant changes in stock values, minute to minute, second to second. It is rare that a day trader will remain in a trade over the course of a night into the next day. These trades are entered and exited in a matter of minutes.

The main question that most people ask when it comes to day trading is simple: Is it necessary to sit at a computer watching the markets ALL day long in order to be a successful day trader?

The answer is no. It's not necessary to sit at a computer all day long. There are a number of factors to consider, but generally the rule of day trading is to trade when everyone else is trading. In other words, trade in the morning.

As with all financial investments, day trading is risky in fact, it's one of the riskiest forms of trading out there. The stock prices rise or fall according to the behavior of the market, which is entirely unpredictable. Day traders buy and sell shares rapidly in the hopes of gaining profits within the minutes and seconds they own those particular stocks. Simple to do in theory, harder to do in practice.

If you are constrained by a small amount of capital, you may not be able to buy large amounts of a stock, but buying only a small amount can add to the risk of a loss. And, obviously, it is impossible to predict with certainty which stocks will result in profits and which in losses. Even the best of traders must learn to accept both outcomes.

It's also important to know that in day trading, it is the number of shares rather than the value of shares that should be the focus. If you day trade, you WILL face losses, but even for the more expensive stocks, the loss should be marginal, because prices do not usually fluctuate to an extreme degree over the course of just one day.

The day trading industry deals in a large variety of stocks and shares. Here are just a few:

Growth-Buying Shares: shares made from profit, which continue to grow in value. Eventually, these shares will begin to decline in price, and an experienced trader can usually predict the future of this type of share.

Small Caps: shares of companies which are on the rise and show no signs of stopping. Although these shares are generally cheap, they are a very risky investment for day traders. You'll be safer to go with large caps and/or mid-caps, which are much more secure and stable thanks to a premium.

Unloved Stocks: company stock that has not performed well in the past. Traders buy these shares in the hopes of generating profits if and when the stock rises in value. As with small caps, unloved stocks can be a risky choice for day traders.

These examples are NOT your only options when it comes to day trading stocks. The best way to determine which type of stock is right for you is to invest some time for careful research, a knowledge of market patterns, a solid strategy, and a disciplined trading plan.
You need to learn to trade ONLY when the market gives the right signals, and ONLY when the volume of activity in the market supports a successful trading opportunity.

MARKET INDICES

Sunday, November 15, 2009

The purpose of a stock market index is to provide a means for measuring the overall movement of share prices in the stock market. The index helps provide market operators with a quick fix on market behavior and the likely trend in share prices. Ideally speaking, the best and most accurate way of measuring the overall price movements of the market would be to use an average based on the individual price movements of each and every share listed on the stock market. This may sound fine in theory but in practice it is physically cumbersome and time- consuming way to measure stock market behaviour. A stock market index provides a better and more practical alternative. The stock market index is an average based on the price movements of a select list of securities that are believed to represent the market as a whole. The usefulness and the value of a stock market index lies in how closely and accurately it reflects the overall and broad movement of share prices in the market

SHARE PRICES AND FACTS

Friday, November 13, 2009

Share prices are determined by investor perceptions of value. There is no such thing as the intrinsic value of a share. There is also no objective yardstick for measuring the value, or price, of a particular share. All perceptions of value are subjective in nature. They reflect what investors, in their collective judgment, perceive the value of a particular share to be at a particular time. And, what is more, there is not stability about either the individual investor's perception or the market's collective perception of value. Both are subject to frequent, and often unpredictable, changes. This is the main reason behind the high volatility observed in daily share price quotations. By and large, an investor's perception of value is determined by his expectation of how a share will perform in the future. This expectation is, turn, strongly influenced by numerous factors, some of them factual and others purely psychological, like prevailing market sentiment, current market behavior, economic and corporate news, views of widely followed analysts, dividends, bonus and rights issues, the international exchange rate of the rupee, threat of war, monsoons, rate of inflation, interest rates, fears of political instability.

In the short run there is often little connection between the success of a company's operations and the performance of its share on the stock markets. In the long run, however, there is a strong, an almost hundred percent, correlation between the performance of the company and the movement of the market price of its share. In the long run, share prices must move to reflect the strengths and weaknesses of their underlying companies. This short-term divergence between the company's operational success and the market performance of its share provides an opportunity to make money. However, this opportunity can only be exploited by investors who know that this diverseness is short-lived and will narrow down over a period of time. The key to making money on the stock market is to look for successful companies whose current share prices, because of negative or lagging investor perceptions, do not reflect the fact they are successful.

BULL MARKET TOPS

In the stock markets, the surest way of making the biggest gains is to buy when a bear market touches rock bottom, and to sell when a bull market scales a major peak. The only snag in this strategy is the fact that its successful application depends upon the timely identification of bear market bottoms and bull market tops. This is easier said than done because such tops and bottoms are always easier to spot through hindsight (often described as an exact science)than ahead of time. Time and again, it has been observed that the advance identification of such tops and bottoms often eludes even the most knowledgeable and seasoned of investors. However, this does not mean that spotting such major turning points in the bull-bear cycle is an impossible task. It may not always be possible to catch the exact tops and bottoms in every bull bear cycle, but there are some time -tested signals that can give sufficient advance indication that such tops and bottoms are close at hand. This knowledge is usually all that is required to ensure investment success.

Under normal circumstances there is no rational reason why any stock market index should appreciate by 100% in any particular year, over the peak of the precious year. Even under the most optimistic of economic conditions, an across-the-board jump in share prices of this magnitude would not be justified by corporate fundamentals. The reasons for such a steep appreciation in share prices must then logically be ascribed to uncontrolled euphoria and the emotional excesses of and over-enthused market to sell, even if your selling decision happens to be premature and dose not exactly coincide with the highest bull market peak.

A bull market invariably scales a major top only when hundreds of thousands of small investors, motivated by dreams of instant wealth, make a frenzied bid to grab whatever shares they can before it is too late. At such times, excitement runs high, emotions replace reason, greed replaces caution and market sentiment is feverishly bullish. Since an individual investor has limited capital at his disposal, he tends to get attracted towards shares that appear to be cheap and affordable. As a result. he usually ends up purchasing shares which quote at around, or below, their par values. These low-priced shares give him the feeling that he is acting prudently and with caution. He also persuades himself into believing that these below-par purchases are genuine bargains which will give him the twin benefits of limiting potential losses and unlimited potential gain. This is the main reason why at a major bull market top it often becomes difficult to find shares which quote at below-par prices.

As a rule-of-thumb, the selling signals flash red when the number of shares quoting at below-par prices falls to around 0.5% of the actively traded shares on any stock exchange. At such times, it pays to sell _and to sell heavily_without giving a second thought to whether one has made the right decision or not. When the market is close to a major top, the shares of closed-end mutual funds tends to quote at high premiums to their net asset values .

TEN TIPS FOR A INVESTOR

1. Do not visit your stock broker every day. The more frequently you go to your broker's office, and listen to the rumors that circulate there, the greater the chances of your being influenced by the crowd opinion of the moment.

2. When you go through the stock market quotations in your daily news paper or through internet, do not focus your interest exclusively on the shares that interests you, the shares that you own, or the shares that you want to buy. Try to also read and remember the quotations of other shares. It will help you to acquire a wider and more balanced perspective.

3. Avoid talking freely and loudly about your investments in social gatherings. In fact, try to steer the conversation to subjects other than the stock market. This is particularly important during periods of extreme optimism and extreme pessimism. People who are habitually prone to be vocal about their investments are normally the first to get drawn into vertex of crowd emotions.

4. Do not take large loans for the purchase of shares. The very fact that you have taken such loans means that your thinking is already being strongly influenced by greed. There is also another disadvantage. In a falling market, heavy loans and the need to pay interest on them periodically, will make you particularly vulnerable to fear and panic. People who are not burdened by heavy loans are seldom pushed by greed and fear into taking foolish decisions.

5. Do not speculate, that is don't buy on margins or try to make money through short-term fluctuations in share prices. Speculators or invariably motivated by greed. They are also normally the first to panic whenever share prices begin to fall.

6. Adopt a long-term investment strategy. A long-term vision and perspective or seldom influenced by current market sentiments.

7. Diversify your portfolio. A concentrated portfolio will make you more vulnerable to fear and anxiety.

8. Invest only what you can afford to loose. Don't depend upon stock market games for running your kitchen, providing the school fees of your kids, meeting medical expenses or paying your apartment rent. In any case, even if you happen to be extremely rich, it would not be prudent to invest more than 50% of your assets in the stock market.

9. Investing your working capital of your business in the stock market is a risky job. That is a sure sign of uncontrolled greed.

10. Do not invest in shares offered through private placements from the promoter's quotes of new and upstart companies.