Forex Trading Account

When To Buy And Sell

2011-12-18T04:26:00.000-08:00

The mechanism of buying and selling is quite easy. It is as easy as pressing a button in front of your computer screen. The question of when investors should buy and sell warrant a more detailed analysis.

Click on the read more button to continue!

When to sell:
Ideally, we should sell when a stock reaches its fair value. There are 9 other reasons to sell but I won't cover it here. So, what is a stock's fair value? I have covered this plenty of time. But, in general, a stock reaches its fair value when it is yielding 3% above the current free risk interest rate. I am using 10 year treasury bond as a proxy for free risk interest rate. Currently, the 10 year bond is yielding 4.46%. Fair value of a stock is therefore when it is yielding 7.46%. Inverting yield, we then got the widely used Price Earning Ratio. Yield of 7.46% corresponds to P/E ratio of 13.4

When to buy:
This is an easier question to answer. We, of course, should buy stock lower than we sell. If we sell the stock at a P/E ratio of 13.4, then we should buy it when the P/E ratio is less than 13.4. How much lower ? It depends on how much return you aim for. If, say, you are aiming for 50% return, then your buying price is when the stock is trading at a P/E of 8.93. If you are aiming for a 34% return, then your buying price is at a P/E of 10.

In short, we should buy at a P/E of 8.93 and then sell at a P/E of 13.4, correct? Yes, but with a lot of caveats. I've covered those caveats in 5 common misuse of P/E ratio. To emphasize, the P/E ratio used here is not trailing P/E ratio, does not ignore the value of cash in the balance sheet, does not ignore one-time event and does not ignore the change in interest rate. At this point, I am ignoring earning growth simply because the fair value calculation is for a company with 0% growth.

You might be wondering where you might find stocks that are trading at a P/E of 13, let alone 8.93. Here is a few candidates to help you getting started. Seagate Technology (STX) has a forward P/E of 7.5 and $ 2.30 per share of net cash in the balance sheet. Western Digital Corporation (WDC) has a forward P/E of 9.75 with $ 2.65 per share of net cash. OmniVision Technologies Inc. (OVTI) is trading at a forward P/E of 10.3 with $ 5.30 per share of net cash. Magna International (MGA) is trading at a forward P/E of 9.72 with $ 4.58 per share of net cash.

Please note that this is not a buy/sell recommendation. You would do very well if you do your own homework.

What type of investor should I be?

2011-12-18T04:25:00.000-08:00

Getting started in the business of investing is much easier than it used to be. So is improving your returns if you already invest. No longer is the field restricted to the wealthy or large financial institutions. More and more these days every day people like mums, dads, students and even children are trying their hand at what used to be the exclusive playground of the rich.

However before delving into what is a very exciting and potentially financially rewarding world you should assess what type of investor you actually want to be. In the thirty years that I have been investing I have seen people who haven’t answered this question come and go and lately I’ve seen it happen with alarming frequency.

Think about it for a second…. have you really thought about what you need to do to start creating wealth for you and your family. If not you need to seriously consider what type of investment style would be best for your position.

Types of investors

The buy and holders of the community put their money into shares that they feel are good value and hold them for expanses of anywhere between 1 and 50 years. This investment style is most suited to people who are long term orientated by nature, not looking for a quick profit and have an eye for good companies. The most famous proponent of such an approach is the world’s second richest man, Warren Buffet, so you could say that it isn’t such a bad style.

Day trading is the complete opposite of the buy and hold approach and involves individuals who buy and sell shares in a very short period generally within the same day. If you have a lot of time and are prepared to watch market movements very closely then this approach may be for you.

The next thing you need to look at is what sort of analysis you want to conduct on the shares that you are considering. Generally there are two schools of thought, one being fundamental and the other technical. You will always find people pushing one or the other but it makes more sense to incorporate a blend both.

Fundamentalists tend to look at company profits, management direction, future plans/growth prospects, the economy as a whole and such like company and economic factors.

While those with a mathematical or scientific background might look at share price charts employing various technical analysis techniques, ratios, indicators and trends in order to identify which shares they want to look at further.

You should realise that relying wholly on one or the other is not the wisest thing to do. For example a chart that has all the indications that a share is going to be a good choice for the future is useless if the company is going to file for bankruptcy. As I mentioned earlier a blend of the two should be considered.

When you are deciding what type of investor you want to be, one of the most important considerations is your risk threshold. In other words how much you are willing to loose. This again will have an impact on the investment style that you choose and will also have a relationship to the level of returns that you may be seeking.

Investors come in many forms and there is no right or wrong way. Different things work for different people. It is vital that you decide which method best suits you and that you stick to this method.

E-gold Investing: Make Money With Currency Trading

2011-12-18T04:24:00.000-08:00

Many people are already starting to pay attention to the newest online trend: E-gold investing.

E-gold investing is a all about a system that allows you to profit from the money that is being traded everyday on the internet. What you're doing when you are trading e-gold (or e-currencies) is that you are providing the backup for internet money. Let me go back a bit. What exactly do I mean by "backup for internet money"?
There is a cash flow of all of the money that is being moved throughout the internet every day. However, this money has to have, for every dollar that is being backed up, a physical backup of that dollar must exist.

This is a very superficial explanation about how the dxgold system works, but to be honest, to profit from it, you don't have to understand exactly how it works to profit from it. If I were to put the e-gold training courses into a metaphor I would say it's very much like driving a car. You don't need to know how it works in order to use it properly.

What you do need to know is the egold exchange process and every step of the way. This may sound complex, but once you get to know it, it becomes a daily routine that takes about five minutes just to check up on.

Investing in e-gold is something that I could describe as a great investing strategy, if you are investing in the long run.

It isn't as fast as a rising stock in wall street, it isn't something that will double your profits in a couple of days, but it is something you can expect to generate a good income from. And the important keyword in that past sentence would be to Expect, because this is a safe long term strategy that is guaranteed to make a profit for you.

This is why I personally think it is plain silly not to learn this currency trading system. You even know how much money you will make each day in advance.

For some it may be tough, but saving a couple of hundred dollars and investing in e-gold can be a very wise decision. As many people have experienced already, it can even turn into a "hands off" second income without the 8 to 5 job.

E-gold is all about discipline. Is about the discipline of having your money work for you and letting it grow, without getting an urge of a shopping spree and taking your money out of your account.

If you think you can wait for a few months and are interested in getting a second income, then the e-gold system could be a good fit for you.

Commodity Futures Trading – Why It's Not For Average Investors

2011-12-18T04:23:00.002-08:00

If you don't mind losing $5,000 in 10 minutes, you may enjoy trading commodity futures contracts. There's an old saying among commodity traders: "It's easy to make a small fortune in commodities. Just start with a large fortune!" This is not a business for people who are emotionally attached to their money, yet thousands of average "investors" get lured into the commodity markets year after year. Why? Because of the possibility of making high percentage gains using the built-in leverage that is available to commodity futures traders.
The commodity markets include wheat, corn, soybeans, pork-bellies, gold, silver, heating oil, lumber, and numerous other common trade items. The huge companies that operate in these markets use commodity "futures" contracts to lock in their selling prices for the product in advance of delivery. This practice is called "hedging." On the other side of that transaction is the trader, who speculates on whether the priced of the commodity will go up or down before the contract is due for delivery. Because futures contracts may be purchased using leverage, these financial instruments lend themselves to speculation.

For example, control of a corn contract worth $5,000 may only requrie $500 of actual cash, or 10% of the face value of the contract. If the corn goes up in value, and the contract becomes worth, say, $5,500, the speculator has made $500 on his or her original $500, for a 100% return. Compare this with the regular stock market, which limits leverage to 50%, so that $5,000 worth of stock requires a minimum of $2,500 of capital. If the stock goes up to $5,500 in value, the $500 gain is against $2,500 invested, for a return of "only" 20%. The 100% return sure looks a lot better, right?

You can easily see why investors in search of quick gains are hypnotized by the lure of big profits using maximum leverage in commodity futures trading. The real problem, however, is that the leverage works in BOTH DIRECTIONS. You can lose your entire investment in a matter of minutes due to the wild price gyrations that sometimes occur in these volatile markets. Let's say the $5,000 contract drops to $4,000 in value instead of increasing. You've not only lost the original $500 you put into the contract, but an additional $500. You can go broke quickly this way.

So why do people play this game? Average investors do not wake up in the morning and say to themselves, "Right, I think I'll start trading commodities." What happens is, they receive a sales pitch from a commodity trading "guru" claiming to have a "system" for generating sure-fire profits in these wild markets. These "systems" range in price from $25 all the way up to $5,000 or more, and are sold based on the promise of "huge profits" from a small starting investment.

Newsletter writers or commodity gurus regularly pitch the myth about turning $5,000 into a million bucks in less than a year. The typical commodity system pitch comes in a long sales letter or booklet that describes a method for winning on "9 out of 10" trades or similar inflated claims.

Of course, if it was possible to correctly trade 90% of the time, a person could easily amass millions of dollars in a very short period of time. So why are these guys so eager for you to spend $195 on their super-duper trading course? Because they probably aren't making any real money with their own trading program! There's much safer money to be made selling others on the idea of getting into commodity futures trading.

There is no sure-fire way to consistently make money in these markets, simply because the underlying commodity prices can swing wildly back and forth depending on a complex set of variables, many of which are totally unpredictable. That's why the only people consistently making money in the commodity markets are the brokers, who collect a commission for executing the trade regardless of whether it wins or loses.

There are also a handful of successful professional traders who make a living in these markets. But the vast majority of people who dabble in commodity futures lose money. Unfortunately, with the lure of huge returns and easy money, a fresh crop of innocent traders enters the market each year, only to be quickly fleeced out of their money.

Don't be one of them! Leave commodity futures trading to the professionals and stick with the more boring forms of investment, such as mutual fund investing or stocks and bonds.

Commodity Futures Tradings

2011-12-18T04:23:00.000-08:00

Compared to cash contracts, which require payment against the physical delivery of goods immediately or after a specified period, a futures contract is a special type of agreement made strictly under the rules of a commodity exchange, which may or may not call for the actual delivery of goods and payment in cash on a future date.
According to Emery, a futures contract can be defined as a contract for the future delivery of some commodity without reference to specific lots, made under the rules of some commercial body, in a set form, by which the conditions as to unit of amount, the quality and time of delivery are stereotyped, and only the determination of the total amounts and the price is left open to the contracting parties.

Such contracts are meant exclusively for future settlement, though the exact date of the settlement is decided by reference to the wishes of the seller and the established rules of the commodity exchange. Such contracts do not specify the particular grade of a commodity, but impliedly refer to a basic grade called the contract grade, accepted as the common grade for all futures dealings. The details in respect to the amount, the time of settlement, the quality and so forth are mentioned in the rules and regulations, and are common to all such contracts. The contracting parties have to decide upon the price at which the contract is to be settled, sometime in one of the trading months specified by the exchange.

Futures contracts are made only in the ‘ring’ of the commodity exchanges, and not outside the exchanges. Only members of a commodity exchange can enter into such a deal. No outsider can become a party to a futures agreement. Such contracts can be made only in multiples of a fixed unit of trading. No such contracts can be made in fractions of these units.

Covered Calls, A Godsend in a Flat or Falling Stock Market

2011-12-18T04:22:00.001-08:00

It is amazing to me that not many retail investors understand the concept of generating cash flow from their stock positions. When I tell people that I utilize covered calls to generate extra income, hedge my stock positions, and set strict sell disciplines they look at me like I am crazy. I was introduced to the concept from a stockbroker, Scott Masse, who runs Masse Wealth Management, in Smithfield, RI.
Scott is also the owner of a few bars and one night over a few diet cocktails, ie. barcadi and diet cola, he explained the concept to me. The idea of writing covered calls is the only option strategy that you can employ at most of the major brokerage firms for your IRA investments. The reason is that writing covered calls is a very conservative strategy relative to other option strategies.

The strategy is very similiar to selling an option on a piece of real estate. For example, I'll give you $10,000 now, if you allow me to buy your property 6 months from now at a set price. If I choose not to exercise my option, you keep the money and we go our seperate ways.

With a stock, if I buy 1,000 shares of ABC OIL at $10 and the stock goes to $11 in the following month. I can sell someone the "right" or option to buy the stock from me six months from now at $12.50. For that right or option, the option buyer has to give me some consideration, similiar to the above real estate example, let's assume it is .50 per share or $500.

The $500 is immediately deposited into my brokerage account, but an option position also shows up on my statement. I can not sell the stock prior to 6 months unless I buy back the option in the open market. The option price can fluctuate from day to day, therefore, I typically hold my stocks until expiration.

Six months from now, two things can happen. One, the stock goes above $12.50 and the person "calls" me out of the position, which I am more than happy to do since I bought it at ten. Second, the stock has declined below $12.50 and the option holder is holding on to a worthless option. The option holder would not "call" the stock from me at $12.5 when he or she might be able to buy it in the open market at $11.50.

I then start the process all over again and write the calls again.

Let's examine what I accomplished with this strategy: 1. I hedged my position by 5% or $500 2. I set a strict sell price that I was willing to let the shares gor for, $12.50 3. I generated income that I could enjoy or reinvest.

I can not tell you how happy this strategy has made me since the crash of 2000-2001. The strategy has helped me keep my head above water in this depressing market.

A good friend of mine is a computer programmer. He also shares a passion for covered call writing and has written a program that is in beta testing. I am his BETA Dummy. So far, the program has saved me countless hours of research and has narrowed my focus to a short list of 5-10 natural resource stocks to add to my portfolio quarterly. In future articles, I'll discuss some of my picks and income generated from the covered call strategy, plus provide a link to the option software.

As a reminder, make sure you "know what you own" and consult with a tax professional or adviser before investing your hard earned money!

Developing a Successful Trading Strategy

2011-12-18T04:20:00.000-08:00

Anyone who knows anything about stock trading or day trading has heard the term ‘trading strategy.’ A trading strategy is a simple concept – it’s basically the roadmap that a trader follows while trading the markets. A trading strategy is governed by a set of rules that do not deviate for anything other than market action. Faithfully following a sound trading strategy will provide you with your greatest weapon against your worst enemy – your emotions. With a trading strategy, you’ll know exactly when to buy and when to sell, regardless of what the market does or what your emotions are telling you.

About Day Trading Strategies
Every profitable trader will tell you that the key to trading success is an effective, reliable trading strategy. You, as a trader, need to identify a winning system, implement it, and have the discipline to stick to it. Though it would be possible for you to develop a unique trading strategy, it probably wouldn’t be that practical. The best – and most efficient – approach would be to adopt an existing strategy, one which has been used by other traders in the industry and which has already proven to be successful.

Just remember, whether the strategy you’re using is your own or someone else’s, it is critical that you have a thorough understanding of it, especially its entry and exit signals. Do not fall prey to the pitfalls of following untested trading “advice,” especially the free advice available in numerous trading forums and chat rooms. Advice that you receive in these types of venues is likely to be opinion rather than fact, and in the market, opinions are not worth anything. What you NEED is a proven and effective trading strategy, one that will work in any market, under any market condition.

Because of this need for solid strategies, more and more traders are looking for trading success through technical approaches to the markets. One of these approaches is Welles Wilder’s RSI indicator. The general idea behind using the RSI is to buy when the RSI crosses above 30 and to sell when the RSI crosses below 70. As you can see, these rules are clearly defined and don’t leave much room for interpretation. This is EXACTLY what you want from a trading strategy. In trading, you’ll need to make big decisions in mere seconds. There’s simply no time to rethink, or try to interpret the unknown signals and information that come your way. Following a set of simple, easy-to-understand rules – and having a trading strategy that regulates all of your signals and indicators efficiently – is the major key to trading success.

Though the rules of trading are very important, they are not the most essential element of trading success. The most essential element is YOU. The best trading strategy in the world will be useless if you lose your head in the market and panic. You need to remain calm at all times, executing your trading strategy efficiently, without hesitation.

How to Find a Good Day Trading Strategy
So, you’re convinced that trading strategies are important. Now, how do you find one that works for you? Obviously, day trading strategies don’t grow on trees. You’ll need to do some research and either develop a strategy yourself, or find one that is easy to understand and has been proven to be successful. Take your time and do your research. Your strategy is an important step towards financial success, and it’s more than worth the investment of time and energy. There are plenty of books and helpful websites to guide you along your way.

Also, be on the lookout for scams. There are a lot of “educational companies” out there, each selling their own trading systems and strategies, and each claiming that their system works better than their competitors’. Be wary of these companies. Don’t fall into the trap of believing that you can buy a solid trading strategy for $97 and then make thousands in a short period of time. This is a lie.

More recently, some of the “educational companies” mentioned above started offering “free local workshops” in nice hotels. These free workshops, which are typically advertised in late night infomercials, are another danger sign. Most of them are merely a sales pitch for the company’s actual product, and the learning that takes place at the “workshop” is minimal. You’d be better off spending that time researching the trading market on your own.

To avoid scam artists and faulty systems and strategies, you need to educate yourself. Your trading education should focus on exploring and familiarizing yourself with several different strategies; these ought to teach you to take advantage of price direction. You won’t be able to get a solid education after reading only one book or watching a single 60-minute webinar on the Internet. True education takes more time and effort than that.

Fortunately, there are many ways to get a good trading education these days, and your best source of trading information and research is online.

Education and training play a vital role in the molding of a successful trader. If you want to be profitable in the trading market, you shouldn’t be cheap when it comes to high-quality trading education. Find a company that has a proven track record. Check the Better Business Bureau (BBB) to learn about their reputation. Research the internet for company information, especially handy sites like www.ripoffreport.com and www.badbusinessbureau.com.

Get Researching So You Can Get Trading!
Day trading is a very risky venture if you have limited knowledge, weak discipline, and/or poor money management. However, if you approach day trading correctly, armed with extensive knowledge, a sound strategy, and the drive to succeed, it can become one of the most lucrative business ventures you’ve ever embarked upon!

What You Need To Know When Trading Derivatives And Futures

2011-12-18T04:19:00.000-08:00

The Derivatives and Futures Market is the most potentially profitable market in the world. But it can be the most distructive one too!

Derivatives
A derivative is a financial term for a specific type of investment from which the price over a certain time is derived from the performance of the underlying asset such as commodities, shares or bonds, interest rates, exchange rates or indices like stock market index or consumer price index.
This performance can determine both the amount and the timing of the payoffs. The diverse range of potential underlying assets and payoff alternatives leads to a huge range of derivatives contracts available to be traded in the market. The main types of derivatives are Futures, Forwards, Options and Swaps.

Futures
A futures contract is a standardized contract, traded on a futures exchange
to buy or sell a certain underlying asset. at a certain date in the future, at a pre-set price.
The future date is called the delivery date or final settlement date. The pre-set price is called the futures price. The price of the underlying asset on the delivery date is called the settlement price. The futures price, normally, converges towards the settlement price on the delivery date.

A futures contract gives the holder the right and the obligation to buy or sell, which differs from an options contract, which gives the buyer the right, but not the obligation, and the option writer (seller) the obligation, but not the right.

In other words, the owner of an options contract can exercise (to buy or sell) on or prior to the pre-determined settlement/expiration date. Both parties of a "futures contract" must exercise the contract (buy or sell) on the settlement date.

To exit the commitment, the holder of a futures position has to sell his long position or buy back his short position
effectively closing out the futures position and its contract obligations.

Futures contracts, or simply futures, are exchange traded derivatives. The exchange acts as the counterparty on all contracts and sets margin requirement etc.

Forwards
A forward contract is an agreement between two parties to buy or sell an asset (which can be of any kind) at a pre-agreed future point in time. Therefore, the trade date and delivery date are separated. It is used to control and hedge risk.
One party agrees to buy, the other to sell, for a forward price agreed in advance. In a forward transaction, no actual cash changes hands. If the transaction is collaterised, exchange of margin will take place according to a pre-agreed rule. Otherwise no asset of any kind actually changes hands, until the contract has matured.

The forward price of such a contract is commonly contrasted with the spot price which is the price at which the asset changes hands ( on the spot date, usually the next business day ). The difference between the spot and the forward price is the forward premium or forward discount.

A standardized forward contract that is traded on an exchange is called a futures contract.

Futures vs. Forwards
While futures and forward contracts are both a contract to trade on a future date, key differences include:

- Futures are always traded on an exchange, whereas forwards always trade over-the-counter.

- Futures are highly standardized, whereas each forward is unique

- The price at which the contract is finally settled is different:
Futures are settled at the settlement price fixed on the last trading date of the contract (i.e. at the end)

Forwards are settled at the forward price agreed on the trade date (i.e. at the start)

- The credit risk of futures is much lower than that of forwards:
Traders are not subject to credit risk due to the role played by the clearing house. The profit or loss on a futures position is exchanged in cash every day. After this the credit exposure is again zero.

The profit or loss on a forward contract is only realised at the time of settlement, so the credit exposure can keep increasing

- In case of physical delivery, the forward contract specifies to whom to make the delivery. The counterparty on a futures contract is chosen randomly by the exchange.

- In a forward there are no cash flows until delivery, whereas in futures there are margin requirements and periodic margin calls.

Options
An option is a contract whereby one party (the holder or buyer) has the right but not the obligation to exercise a feature of the option contract ( e.g. stocks ) on or before a future date called the exercise or expiry date.
Since the option gives the buyer a right and the seller an obligation, the buyer has received something of value. The amount the buyer pays the seller for the option is called the option premium.

Most often the term "option" refers to a type of derivative which gives the holder of the option the right but not the obligation to purchase (a "call option") or sell (a "put option") a specified amount of a security within a specified time span. (Specific features of options on securities differ by the type of the underlying financial instrument involved.)

Swaps
A swap is a derivative where two counter-parties exchange one stream of cash flows against another stream. These streams are called the legs of the swap. The cash flows are calculated over a notional principal amount. Swaps are often used to hedge certain risks, for instance interest rate risk. Another use is speculation.
Swaps are over-the-counter (OTC) derivatives. This means that they are negotiated outside exchanges. They cannot be bought and sold like securities or future contracts, but are all unique. As each swap is a unique contract, the only way to get out of it is by either mutually agreeing to tear it up, or by reassigning the swap to a third party. This latter option is only possible with the consent of the counter-party.

Enhance your forex trade with official-forex-trading-system

2011-12-18T04:17:00.002-08:00

Forex trade is a part of stock exchange market business that decides the fate of various industries. Given the amount of risk currency trading caries, it makes it an extremely volatile industry. However, if you are a novice who decides to jump into forex trade, make sure you are well versed in the intricacies of the stock exchange along with the trade policies in order to benefit with forex deals.
In order to provide you the best forex strategy system, official-forex-trading-system mechanical trading algorithm that provides trading alerts for two denominations of currencies such as USD/EUR and USD/GBP in the West Economic region in the morning. In the night, the alerts are based upon JPY/USD and JPY/GBP according to Asian Economic region pairs. With the help of official-forex-trading-system, you can avail the facility of short and long day trading positions.

Some of the highlights of forex trading signal include two alerts, along with news dives market action that reads and analyses the business forecast in an east way. You can trade the safest trading system according to the current market condition in consonance with the market as well as country news.

With official-forex-trading-system, you avail the day trading system where positions are opened and closed in the same day. Official-forex-trading-system gives you the option to choose from 3 kinds of accounts such as:

Mini account: As a novice trader, it is best to open such type of account where the leverage is higher in comparison to standard account where you deal with mini contracts. You can start off such an account with $250.

Standard account: If you already have an experience currency trading, you can go forth with Standard account where you trade full contacts. However, in such an account, the leverage is lower in comparison to deposit. You can start this account with $2500.

Demo account: This is a simulated account where you get virtual money of $25,000 to $1, 00,000. You get live quotes and bids that are part of real forex trade.

With official-forex-trading-system, you are saved from brokerage and commissions. In order to maximize your trade profits, it is better to use your risk funds or risk capitals. The advantage of such a mechanical system helps in advanced orders with profit target and stop loss. As a privileged member of official-forex-trading-system, you get daily forex alerts.

As a forex trading signal, official-forex-trading-system helps in boosting your trade in an easy and hassle free. Irrespective of being a novice or a seasoned forex trader, you can improve upon your forex trading with official-forex-trading-system. It is a fool proof system that helps clients from entry till exit with the help of encrypted and secure servers and database. Forex trading was never easy before with the arrival of official-forex-trading-system. This helps you in managing your forex business in a systematic way.

You can subscribe the services of official-forex-trading-system on monthly, quarterly, semi annual as well as annual subscription.

Do You Know Your Currency Pairs?

2011-12-18T04:17:00.000-08:00

When I thought about some of the first things I learned before trading the Forex market, fundamental analysis came to mind. Fundamental analysis refers to factors that affect the price of a currency pair. It is important not only to perform technical analysis based on your charts and indicators, but to also be aware of the macroeconomic events that can affect a currency pair.

What helped me in my forex education was learning each currency's characteristics. Whichever pair or pairs you choose to trade, knowing each of their characteristics is extremely valuable because it aids in the accuracy of any trade you perform.
Europe- Euro. This currency is rather new. It began trading in 1999; however the EURO/USD pair is the most traded. Because of this, the EURO/USD is very liquid. The euro is greatly affected by interest rates. If you are trading the EURO/USD pair, you must pay attention to the Euribor (Europe's three-month interest rate), to watch for any changes in investor reactions when trading the EURO/USD pair since the Usd and Euro rates affect each other. The EURO/USD is my personal favorite pair because of the many opportunities it gives for potential trades.

Japan- Japanese Yen. Japan is the largest economy in East Asia; therefore the yen is used as an alternate for the whole region's economy. If there is trouble in the surrounding countries, the yen may drop in value. The Bank of Japan is known for intervening in the forex market to defend the yen's value. Another factor affecting the yen is the overall strength of its banking sector.

United Kingdom- British Pound. This currency is important to watch because the U.K. is one of the largest economies in the world. The pound is affected by energy and oil prices. As they rise, the pound should strengthen.

Switzerland- Swiss Franc. The Swiss Franc is known as an investor’s safe haven in times of crisis and uncertainty. Since Switzerland's banks controls much of the world's wealth, any reports of bank mergers and/or poor earnings directly affect the value of the franc.

"The Commodity currencies" as they are called refer to the Canadian, Australian, and New Zealand dollars. Since commodities consist of the majority of Canada's exports, the currency will strength or weaken depending on these prices. Usually the Usd and Cad will normally trend in the same direction because most of Canada's exports are shipped to the U.S.

Australia- Australian Dollar. The Australian dollar is most connected to gold prices. The interest rate differential is monitored because it can guide the long-term trend.

New Zealand- New Zealand Dollar. The New Zealand dollar is linked to commodity prices. It is also closely related to the Australian dollar, meaning they can act as alternatives for each other.

Do You Have A Back Up Plan?

2011-12-18T04:15:00.002-08:00

I know a woman in her sixties. She worked for a company for a little more than a decade as an administration and office assistant for a staff of one hundred sales people, who loved her dearly. She always made sure all the faxes got to their desks; the stationery stock was full and each staff member had what he needed.

Beyond her job description, she was like a mother to all of them: making sure the toilets got cleaned, old food was removed from the fridge and decorating the entire floor which the department occupied. She worked hard and never complained. She was always smiling, friendly and polite.
She felt good about being a ‘mother’ to all the people who entered and left that department. She was comfortable with her position. No-one else could do the things she did. And she did them better than anyone else in the building.

One day, she went to work as usual. After doing her morning chores, she was invited to the office, where she was told her services were no longer needed. The company was undergoing certain cost-cutting measures in every department and unfortunately, her role would have to be sacrificed. She was then asked to leave the building as soon as possible. She was assured, however, that before having made the decision, every attempt had been made to find a position for her somewhere within the company.

She has financial obligations to fulfil and she still hasn’t saved enough for her retirement. She still has credit to pay off and she was saving for a trip overseas, something she never got around to doing in her younger years. She wanted to save up to establish a book-selling business. Suddenly, she would have to re-evaluate her plans. Losing a job and nearing retirement age, she will have to relinquish some of the things she had dreamt for herself.

I am sure you have heard hundreds of similar stories like these. Just five months before writing this article, I had already read about companies cutting costs by laying off jobs. Their main reason is to remain competitive, so they would not have to raise the prices they charge to their customers. Companies are outsourcing jobs overseas because the labour costs in other countries are relatively cheap compared to the local currency and sometimes because of significant skills or technological advantages. Other businesses lessen staff when sales drop and they can no longer sustain to pay the same number of people they have on their payroll. No organisation – not even a big, established business – is immune from the need to become leaner in an ever-increasingly competitive market environment.

In the past, most people believed the companies or the governments – whom they work for – could guarantee them a job for life. Nowadays, I think more and more people are becoming increasingly aware that expecting to have a job-for-life is unrealistic. It is a dire predicament to be working everyday, taking care of someone else’s business and realising that at the end of one’s career, years of service do not guarantee one’s well-being. Because of this, I believe that people are now looking to improve their chances of having enough funds to meet their needs and wants after retirement.

I think there is a dawning awareness that the ultimate responsibility for one’s own well-being lies within each individual. People are beginning to understand that their boss or the company they work for does not have an obligation nor the ability to ensure that they are taken care of when they finish working for them.

According to an article written by John Roskam*, based on a forthcoming Institute of Public Affairs (IPA) Backgrounder on self-employment and the self-reliant society, the trend to self-employment will speed up in coming decades. Five reasons explain this change:

1. Our societies will continue to develop knowledge-intensive and service industries.
2. Jobs of the future need more education; however, better educated workers might opt to work for themselves instead.
3. Older workers are more comfortable with being self-employed than the younger workers, which might indicate individuals would prefer to work for themselves as they grow older.
4. Individuals want more control and flexibility over their working arrangements and self-employment allows for this.
5. Individuals are more willing to assume responsibility for the decisions that affect their lives and their families.

In addition to this trend, more and more people are now seeking to gain greater control over their financial assets.

What we can all learn from this article is the idea that we do not have to rely on our employers to be there for us when we desperately need them to pay us our periodic paycheques at the end of our working days. There are alternatives and, while we still can, I believe we owe it to ourselves and our families to have a back-up plan and look at every single opportunity available. The question for you is this: Do you have a back-up plan?

Do Not Lose Your Shirt With a Margin Account

2011-12-18T04:15:00.000-08:00

The key to the FOREX market for the average investor is the margin. Without margin trading currency trading would be beyond most investors. I will explain what the margin is and how it works.
When you have a margin account you are able to control large amounts of currency with a relatively small cash deposit. When you have a margin account with a broker you are in effect borrowing money from the broker to control a larger lot of currency. Currency is normally sold in lots with a value of $100,000. A common term used when discussing margin accounts is leverage. Leverage is how much you can control with a certain amount of money. The leverage is usually displayed as a ration such as 1:100. That would allow you to control currency worth 100 times the amount of money you have invested.
To better explain this in a FOREX exchange with a 1% margin account you could control $100,000 worth of a currency while only investing $1000. Margin accounts can allow you to greatly increase your profit; they also allow you to increase your risk. With a margin account it is possible for a trader to lose more than their initial investment. With a little prudence though losses can be minimized. Most brokers will terminate a trade before the losses exceed the original deposit.

Benefits
As discussed before a margin account allows you to buy more with the money you have which can greatly increase your profit on successful trades. By controlling a $100,000 worth of currency for only $1000 the potential gain is greater. When dealing with large lots of currency even small changes can produce significant results.

Currency on the FOREX market is traded in far more precise units than actual cash is. As an example the American dollar is traded down to four decimal points. So when you were to quote the dollar against another currency you will see a price like $1.7834 instead of $1.78. A PIP is the smallest unit when trading currencies, when dealing with $100,000 lots then each pip is worth about $10.
If the price of the American dollar changes from $1.7834 to $1.7934, you have a net difference of 100 pips. If you have a lot of $100,000 then that 100 pips will translate to $1000 where as if you were not using the margin your original $1000 would only show a profit of $10. Hardly what most would consider a highly profitable trade?
In short the primary benefit of using a margin account is that it can greatly increase the profit margin of a trade.

Risks
Since there is such a significant increase in profit potential when using a margin account it only stands to reason that there is also an increase. In fact it is quite possible to have your entire margin account wiped out fairly quickly. When using a 1% margin account a shift in the currency of a single penny will cost you $1000.
The FOREX exchange has many safety features to help you reduce the risk of this happening. One example is a stop loss order. A stop loss order will automatically close out your position in a currency if the price crosses the point you have set.

This allows you to limit your losses while still having the opportunity to realize a profit.
Another risk that many people overlook is that if the price nears the point where your losses are close to being equal to the value of your margin account your broker may close out your position. If you were trying to rid out a temporary downturn that you expect to turn around soon you could find that your broker has closed it causing you to lose your entire balance and have no option to make a profit if the price moves up again.

This is a basic introduction to margin accounts and how they work, visit the website listed below to learn more about the FOREX market.

Define Your Goals and Make a Trading Plan

2011-12-18T04:14:00.000-08:00

Defining your goals and making a plan is probably the most important task a trader can undertake.
Many traders refer to their day trading plan as a trading system. That's absolutely ok; since a trading system is nothing else than a structured day trading plan.
Let's take a look at the elements of a good day trading plan:

· Financial Goals

How much money do you want to make?
How much money do you need to get started?
What can you expect when trading a system?
In this chapter you'll learn the answers to these questions. Defining your financial goals is extremely important, since the outcome of the next steps all depend on YOUR goals.

· Selecting a market

You need to determine whether you want to trade Stocks, Options, Forex or Futures.
It really doesn't matter WHAT you trade, as long as you're successful. Each market has advantages and disadvantages which we will discuss here. This will make it easy to find the right market for YOU.

· Selecting a timeframe

In this section you will learn the differences between daytrading, short-term trading and long-term trading and how to find the best approach for YOU.
· Selecting a trading style
Trend-following, Swing-trading or Trend-fading? In this section you'll learn which trading style is the best for YOU.

· Detailing the daytrading plan
By now you know how much money you want to make, how much you are willing to risk, what market you are going to trade in which timeframe, and what trading style you'll use. In this section you will learn how to detail your plan by adding specific rules for entries and exits. But don't worry: It's easier than you think, and I already have two ready-to-use trading systems for you.

Let's get started.

Financial Goals
The most frequently asked question of aspiring traders is "How much money can I make?"
Unfortunately there's no easy answer, because it depends how much you are willing to risk.
Day Trading is a function of risk and reward: The more you risk, the more you can make. Here's an easy example: Let's say you start with a $5,000 account and you're willing to risk $1,000. Now you could place a trade to go long at the opening, set a profit goal of $1,000 and a stop loss of $1,000. Let's say you investigated the market behavior in the past couple of months and realized that your chances of achieving your profit goal are 60%.

Unfortunately the trade you just placed is a loser, and you lose the whole $1,000. Since this was the amount you were wiling to risk, you close your account, transfer the remaining $4,000 back in to your checking account and that's it for you.

Now let's assume you wanted to risk only $100 per trade and you adjusted your profit goal to $100, too. Now you can make at least 10 trades, because only if all 10 trades are losers you'll lose the $1,000 you are willing to risk. I don't want to become too mathematical, but statistics says that the probability of having 10 losing trades in a row is less than 1%. Therefore it's highly likely that you will have a couple of winners within the 10 trades. If your trading system shows the same performance as it did in the past (60% winning percentage), you should make $200: 4 losing trades * $100 = -$400 + 6 winning trades * $100 = $600. Make sense?

Compare these two options:

· The risk of losing your money in scenario 1 is 40%. But if you won, you would have made $1,000.

· In scenario 2 the risk of losing your money after 10 trades is less than 1%, but you have a fair chance of making $200.

Therefore you need to define first how much you are willing to risk, since the amount you can make is a function of that risk. Make sense? I'll give you more specific examples later in this chapter.
Keep in mind that there's a difference between the amount you need to trade and the amount you're willing to risk. Your broker is always asking your for a "margin", and you need to fund your account with that margin requirement + your risk. In our previous example you funded your account with $5,000, but you only risked $1,000. More on that later.

What to expect when trading a system?
There's a common misconception about what to expect when trading a system:

Trading a system does NOT mean having an ATM in your front yard.

There will be months when your trading system is over performing, making more money than your expected, and there are months when your trading system is underperforming. Don't assume you'll get a check at the end of each month!

Here's an example:

The performance report of our e-mini S&P Trading System Coin Collector shows an average profit per trade of $36 over the past 733 trades:

In between March 14-21, 2005 the system was over performing and we realized $963 in profits with 17 trades. These yields to an average profit per trade of $57, way above the "expected" average profit of $36 (see below):

When daytrading system you have to keep in mind that you are working with averages:

If your back testing shows an average profit per trade of $36 then you can be almost sure that the system will not suddenly jump to $57 average profit per trade.

In trading we have good weeks and bad weeks. Losses are part of our business. After a slow week there might be an extraordinary week. After a winning streak we will realize a loss.

Looking at the performance of that week a correction was inevitable. And it happened: Tuesday, March 22nd, we realized a loss of $712.50.

Such a loss hurts. You quickly forget all the nice profits of the past week and focus on the loss. You may start questioning your system and think that it stopped working, and so you stop trading. You start looking around for the next system. You don't give the system a chance to come back to "normal". You see an extraordinary week like the week from March 14 - 21, 2005 and think that you will continue making profits like this forever.

When reality hits you, you stop believing. But take a look what happened after the loss.

Here's the performance report of the 2 weeks combined: The "good" week and the "bad" week with the loss of $712.50:

Now take a look at the first graphic with the performance the system is supposed to make.

We are right on target!

The average profit is back to normal, and so are the winning percentage and the profit factor.

Within two weeks the daytrading system normalized itself. That's exactly what you should expect from a robust trading system.

The next step is finding a market that's suitable for you.

Selecting a market
You can trade stocks, forex and futures.

Depending on your account size "stocks" might not be an option for you, since you need at least $25,000 in your account to daytrade stocks.

Forex trading is very popular, but if you are new to trading I must warn you:
The Forex markets are extremely volatile, and you can easily make (or lose) thousands of dollars in a day. Many Forex brokers offer "free quotes and charts" and "no commissions", but keep in mind that nothing is for free: You are paying a spread, i.e. you can NOT buy a currency and immediately sell it for the same amount. It's like at the exchange booths that you know from your holidays: You exchange $100 into 80 Euro, but when you change the 80 Euro back into dollars, you only receive $96.

Same when trading Forex: You are paying at least 2 "pips". This amounts approx. $20, depending on the currency pair you're trading. Another disadvantage of Forex trading is that you are NOT trading at an exchange: There is no "Foreign Exchange". You are trading against your broker: If you are selling, then your broker is buying from you and vice versa. And that's why your broker is giving you the quotes for free: He can basically give you *any* quote since there are no regulations. Scary, isn't it?

Let's take a look at futures trading:

Futures markets are regulated and you pay very low commissions. They are highly leveraged, since you can trade the whole index worth $66,500 with an account as small as $500. So you can achieve an enormous leverage of 130:1. There are many advantages, especially if you're trading the index futures:

· Index Futures are traded electronically and you can enter the orders through your computer, without ever calling a broker.

· You are getting very low commissions. That's important to keep your costs down and increase your bottom line.

· You have a high leverage of up to 130:1.

· You are trading some of the most liquid and popular markets in the world, hence you will experience little or no slippage.

· Depending on your broker you might get quotes and charts for free.
My recommendation:

If you're new to trading I strongly recommend starting with the futures markets. It's way easier than you might think, and if you follow this guide then you'll have no problem getting started in futures trading.

Selecting a timeframe
Let me be brief on selecting a timeframe, since you'll figure this out very soon:
When you select a smaller timeframe (less than 60min) your average profit per trade is usually relatively low. On the other hand you get more trading opportunities. When trading on a larger timeframe your profit per trade will be bigger, but you will have fewer trading opportunities.
Smaller timeframes mean smaller profits, but usually smaller risk, too. When you are starting with a small trading account, then you might want to select a small timeframe to make sure that you are not overleveraging your account.

Most profitable trading systems use larger timeframes like daily and weekly. These systems work, too, but be prepared for less trading action and bigger draw downs.

My recommendation:
Therefore I strongly recommend that you stick to smaller timeframes like 60min and below. In addition you shouldn't hold any positions overnight in your first couple of weeks of trading, so stick to daytrading.
Selecting a trading style

Basically there are 2 different trading styles:

· Trend-following
When prices are moving up, you buy, and when prices are going down, you sell.

· Trend-fading (or counter-trend-trading)
When prices are trading at an extreme (e.g. upper band of a channel), you sell, and you try to catch the small move while prices are moving back into normalcy. The same applies for selling.
Most indicators that you will find in your charting software belong to one of these two categories: You have either indicator for identifying trends (e.g. Moving Averages) or indicators that define overbought or oversold situations and therefore offer you a trade setup for a short term swing trade.

So don’t become confused by all the indicators and trading approaches that are out there. Make sure you understand what the indicator is measuring and what category it belongs to.

Here are some examples of popular trading approaches:

· Trend-following
o Crossover of Moving Averages
o Turtle Trading
o Parabolics (e.g. SAR)

· Trend-fading
o Overbought/Oversold Oscillators
o Bollinger Bands and Channels
o Turtle-Soup Trading

My recommendation:
In my opinion trend-fading is actually one of the best trading styles for the beginning trader to get his or her feet wet. By contrast, trend trading offers greater profit potential if a trader is able to catch a major market trend of weeks or months, but few are the traders with sufficient discipline to hold a position for that period of time without getting distracted.

Detailing Your Trading Plan
By now you know how much money you want to make, how much you are willing to risk, what market you are going to trade in which timeframe, and what trading style you'll use. In this section you will learn how to detail your plan by adding specific rules for entries and exits.
Entry Rules

Entering the market is easy. You have the following possibilities:

· You can enter the market based on certain conditions,
e.g. prices move above the previous day high or
prices cross the 100-day moving average.

· You can enter at a certain time,
e.g. you are ALWAYS entering the market at the open or
you are entering at noon.

· A combination of both,
e.g. you are entering if prices cross above the 100-day moving average, but only between 8:30am and 12:00pm.

There are dozens of books, magazines and websites that offer you countless entry techniques. But as a famous trader once said: "The exit is more important than the entry". So let's take a look at exit rules.

Exit Rules
Lets keep it simple here, too: There are two different exit rules you want to apply:

Stop Loss Rules to protect your capital and
Profit Taking Exits to realize your profits

Both exit rules can be expressed in four ways:

A fixed dollar amount (e.g. $1,000)
A percentage of the current price (e.g. 1% of the entry price)
A percentage of the volatility (e.g. 50% of the average daily movement) or
A time stop (e.g. exit after 3 days)

I usually don’t recommend using a fixed dollar amount, because markets are too different. For example, natural gas changes an average of a few thousand dollars per day per contract; however, Eurodollars change an average of a few hundred dollars a day per contract. You need to balance and normalize this difference when developing a trading system and testing it on different markets. That’s why you should always use percentages for stops and profit targets (e.g. 1% stop) or a volatility stop instead of a fixed dollar amount.
A time stop gets you out of a trade if it is not moving in any direction, therefore freeing your capital for other trades.

Other Elements
Entry and Exit Rules are the basic elements of your trading plan, and if you have a rather small account then that's all you need to get started.

Later you want to add additional elements like

· Money Management

How much money are you going to risk per trade?
When do you increase the contract size?

· Diversification
How many contracts will you trade with ONE day trading strategy?
When will you add a second strategy? What kind of strategy?
In which markets will you diversify?

· Payouts
When will you start withdrawing money from your trading account?
How much?

All these elements are becoming important when your account size grows, but in the beginning you can omit these elements to make it easier.

Dealing With Stock Market Corrections: Ten Do's and Don'ts

2011-12-18T04:09:00.000-08:00

A correction is a beautiful thing, simply the flip side of a rally, big or small. Theoretically, even technically I'm told, corrections adjust equity prices to their actual value or "support levels". In reality, it's much easier than that. Prices go down because of speculator reactions to expectations of news, speculator reactions to actual news, and investor profit taking. The two former "becauses" are more potent than ever before because there is more self-directed money out there than ever before.
And therein lies the core of correctional beauty! Mutual Fund unit holders rarely take profits but often take losses. Additionally, the new breed of Index Fund Speculators is ready for a reality smack up alongside the head. Thus, if this brief little hiccup becomes considerably more serious, new investment opportunities will be abundant!

Here's a list of ten things to think about doing, or to avoid doing, during corrections of any magnitude:

1. Your present Asset Allocation should be tuned in to your long-term goals and objectives. Resist the urge to decrease your Equity allocation because you expect a further fall in stock prices. That would be an attempt to time the market, which is (rather obviously) impossible. Asset Allocation decisions should have nothing to do with stock market expectations.

2. Take a look at the past. There has never been a correction that has not proven to be a buying opportunity, so start collecting a diverse group of high quality, dividend paying, NYSE companies as they move lower in price. I start shopping at 20% below the 52-week high water mark... the shelves are beginning to become full.

3. Don't hoard that "smart cash" you accumulated during the last rally, and don't look back and get yourself agitated because you might buy some issues too soon. There are no crystal balls, and no place for hindsight in an investment strategy. Buying too soon, in the right portfolio percentage, is nearly as important to long-term investment success as selling to soon is during rallies.

4. Take a look at the future. Nope, you can't tell when the rally will come or how long it will last. If you are buying quality equities now (as you certainly could be) you will be able to love the rally even more than you did the last time... as you take yet another round of profits. Smiles broaden with each new realized gain, especially when most Wall Streeters are still just scratchin' their heads.

5. As (or if) the correction continues, buy more slowly as opposed to more quickly, and establish new positions incompletely. Hope for a short and steep decline, but prepare for a long one. There's more to Shop at The Gap than meets the eye, and you run out of cash well before the new rally begins.

6. Your understanding and use of the Smart Cash concept has proven the wisdom of The Investor's Creed (look it up). You should be out of cash while the market is still correcting... it gets less scary each time. As long your cash flow continues unabated, the change in market value is merely a perceptual issue.

7. Note that your Working Capital is still growing, in spite of falling prices, and examine your holdings for opportunities to average down on cost per share or to increase yield (on fixed income securities). Examine both fundamentals and price, lean hard on your experience, and don't force the issue.

8. Identify new buying opportunities using a consistent set of rules, rally or correction. That way you will always know which of the two you are dealing with in spite of what the Wall Street propaganda mill spits out. Focus on value stocks; it's just easier, as well as being less risky, and better for your peace of mind. Just think where you would be today had you heeded this advice years ago...

9. Examine your portfolio's performance: with your asset allocation and investment objectives clearly in focus; in terms of market and interest rate cycles as opposed to calendar Quarters (never do that) and Years; and only with the use of the Working Capital Model (look this up also), because it allows for your personal asset allocation. Remember, there is really no single index number to use for comparison purposes with a properly designed value portfolio.

10. So long as everything is down, there is nothing to worry about. Downgraded (or simply lazy) portfolio holdings should not be discarded during general or group specific weakness. Unless of course, you don't have the courage to get rid of them during rallies... also general or sector spefical (sic).

Corrections (of all types) will vary in depth and duration, and both characteristics are clearly visible only in institutional grade rear view mirrors. The short and deep ones are most lovable (kind of like men, I'm told); the long and slow ones are more difficult to deal with. Most recent corrections have been short (August and September, '05; April though June, '06) and difficult to take advantage of with Mutual Funds.

So if you over think the environment or over cook the research, you'll miss the party. Unlike many things in life, Stock Market realities need to be dealt with quickly, decisively, and with zero hindsight. Because amid all of the uncertainty, there is one indisputable fact that reads equally well in either market direction: there has never been a correction/rally that has not succumbed to the next rally/correction...

Dancing With A Gorilla for Better Trades

2011-12-18T04:08:00.000-08:00

This is reported to be an actual radio conversation of a US naval ship with Canadian authorities off the coast of Newfoundland in October 1995. Radio conversation released by the chief of naval operations, 10-10-95.

(Please Note: This story is an example of why it is important to listen and blend with the market. It is not meant as a political statement of any kind.)
CANADIANS: Please divert your course 15 degrees to the south to avoid a collision.

AMERICANS: Negative, Recommend you divert your course 15 degrees to the north to avoid a collision.

CANADIANS: Negative Sir. You will have to divert your course 15 degrees to the south to avoid a collision.

AMERICANS: This is the captain of a US Navy ship. I say again, divert YOUR course.

CANADIANS: No Sir, I say again, please you divert YOUR course.

AMERICANS: This is the Aircraft Carrier US LINCOLN, the second largest ship in the United States Atlantic Fleet. We are accompanied by three Destroyers, three Cruisers and numerous support vessels. I DEMAND that you change your course 15 degrees north. I say again, that's one-five degrees north, or counter-measures will be undertaken to ensure the safety of this ship.

CANADIANS: Uh, Captain, This is a lighthouse. Your call.

The market, like a lighthouse, will send signals and it is incumbent on us to listen and to blend with the market. In a collision, the lighthouse (market) always wins.

Markets Maxims

One of my maxims says… "The stock will never listen to you, but, it will speak to you if you learn to listen". Another one says, " If you dance with a gorilla, don't try to lead". Folks, you must learn to listen (read charts and interpret news) and you must bend and blend with the market to avoid being crushed by it. This is not natural to our independent and proud natures. While we may be on the verge of a market upswing, every market upswing for 3 years has been met by a lower lows. Each upswing was seized upon by hopeful enthusiasm and dashed with the next roll over.

This has been a wonderful market for traders who trade both ways. It has been frustrating and devastating to one directional traders hoping for the return of a bull market. Trading is more than jumping in and holding on. It is dynamic and fluid and bidirectional. You must be trained in dynamic and tactical trading to flow with the market. You can and you must learn to do this. The following thought may help put this into perspective. It is paraphrased, as I cannot recall the author.

"The learners will inherit the earth while the learned will find themselves perfectly prepared and suited for a reality that no longer exists".

Workshop Update

Boy what a week, we have just finished two great days of filming new materials for you in Phoenix and a "Two Days of Tradin'" boot camp in Denver. I was exhausted after the events but very pleased with the results. Both events were a success and the students loved the classes.

"The 1st day was a new course called Power Spreads. It will open you eyes very wide to understanding the power of using spreads to minimize risk and neutralize volatility. We also learned a great deal about option pricing and how to read volatility to select the most appropriate strategies. We used the X-Factor options graphing tool to historically trade QLGC and IBM and we saw price manipulation and how the options you may think is a good choice can be a real disappointment and why. I and sure you will enjoy the class when it is ready for purchase.

The second day we taped the new Market 'Mind' Fields. The class response was powerful. Some said it was like a mirror being held up to show them things they did not want to see but desperately needed to deal with. Almost all of us have land mines planted ion our minds. Market 'Mind' Fields will enlighten you to the reasons why trading is such a difficult challenge for folks and how to gain the mental disciple needed to survive and then thrive in the markets.

Friday and Saturday I was in Denver with a great bunch (mostly locals and mostly women) of students for my "Two Days of Tradin'" boot camp. What a fun time. I worked them pretty hard and they loved it. There were several who were very new and a little nervous but as the first day wore on they got into the swing of Bracket Trading™ and did very well. We traded several stocks on Friday just learning to go long and short at the right times. Back trading is a fantastic way to learn and train your train skills.

Saturday we added options to the mix by using the X Factor Options Graph to back trade several companies. We tracked several option strategies over run ups and sell offs to see which positions performed the best. Not all bullish strategies performed the same over the run ups and downs. It was very instructive to see the effect that different expiration months had on profitability. The students all realized that option trading is a lot more complicated than most people think. Picking the right strike, right month and whether to buy or sell premium can be critical. It is very possible to have two separate bullish option strategies at the same time and the one makes money while the other one loses.

New classes are being added to the calendar for March through May so check out which times and locations may fit your plans. You need to be in the trading simulator workshops. Two Days of Tradin', will hone your trading skills like nothing else can.

Please join our Web shops and please consider coming to a Two Day Trading camp with me. I will work you ... but you will come out a better trader.

Ryan with Better Trades

Day Trading With The Camarilla Equation

2011-12-18T04:07:00.002-08:00

Origins of the Camarilla Equation

Discovered while day trading in 1989 by Nick Stott, a successful bond trader in the financial markets, the 'Camarilla' equation uses a truism of nature to define market action - namely that most time series have a tendency to revert to the mean.

The equation produces 8 levels that are meant to predict these reversal points allowing the trader to profit from them. The equation uses nothing more than the previous trading day’s open, close, high and low levels and some interesting mathematics to produce these supports and resistances.

Trading the Signals

Now these levels are numbered L1-4 for the supports and H1-4 for the resistances but it is really the L3, L4, H3 and H4 ones that are most important.

When the price level reaches the H3 level the theory behind the Camarilla Equation says that there is a strong resistance at this point and that a SHORT trade should be made with a stop loss at the H4 level.

Conversely, when the price drops to the L3 level there is a strong support and a LONG trade is the recommendation with a stop loss at the L4 level.

Breakout Possibilities

While the H4 and L4 levels should normally be reserved for setting stop losses on the above trades, occasionally there will come a point when these points are broken through. If this breakout is maintained for a significant amount of time and the price is still on the move then a LONG or SHORT trade should be entered respectively.

These trades are not so common but could provide massive profits (or so the Camarilla Equation suggests)

Choosing entry point with Camarilla Equation

There are two entry points that you may like to consider when using the Camarilla Equation. Firstly you could trade as soon as the market reaches either the L3 or H3 level and go AGAINST the current trend but there is more of a danger that the trend will continue and you will lose out if this is your preferred method.

The alternative is to wait after the market has broken the L3 or H3 level until the reverse actually occurs and enter the trade just as the market passes the respective level once again. This allows you to trade WITH the trend which should prove a safer option.

So does it Work?

If you are interested in whether or not the Camarilla Equation provides a viable trading method then you may wish to follow my experiment which is testing the given levels for the FTSE 100, Dow Jones and DAX 30 stock markets.

Day trader Versus Investor

2011-12-18T04:07:00.000-08:00

The day trader's ultimate objective is to trade expensive and volatile stocks on the NASDAQ and NYSE markets in in increments of 1,000 shares or more, and profit from the small intra-day price movement. The day trader may make many trades in a single day, holding onto stocks for only a few minutes (or hours), and almost never overnight. Day traders are short-term price speculators. They are not investors, and they are not gamblers.
Day trading is not investing. The day trader's time frame of analysis is rather short: one day. Their only intent is to exploit the stock's intra-day price swings or daily price volatility. Unlike stock investors, day traders do not seek long-term value appreciation.

Stock volatility is generally a rule of the market rather than an exception. Most stock prices move up or down in any given day due to a variety of external factors. Even if the market is relatively calm, there are always stocks that are volatile. Day traders seek to identify a stock that has a trend and then go with that trend. "Trend is a friend" is a common motto among day traders. Day traders seek to pick up a relatively small stock movement, 1/8 or more on that stock. If day traders are trading a large block of shares (that is, 1,000 shares per trade), then day traders will profit $125 from a 1/8 price movement. Conversely, if a day trader acquired 1,000 shares and the trader was wrong, which also happens, then the day trader will lose $125 from a 1/8 price movement. Volatility is a double-edged sword.

For expensive stocks that trade for $100 or more, a 1/8 or 12.5 cents movement is such a small relative price change that it happens all the time. Consequently there are plenty of day trading opportunities. It is not common to see a day trader executing many, sometimes as many as 100, trades in a single day. On the other hand, an investor's time frame is much longer. Investors seek a much larger price movement than 1/8 to earn the desired rate of return. That takes time.

In short, day traders seek to extract an income from intra-day price volatility by trading the stock frequently, while the investors seek a long-term capital appreciation.

Day Trading Robot

2011-12-18T04:06:00.003-08:00

A day trading robot? Gee Wiz! Sounds like science fiction, right? It did to me just a few years ago. I would have never imagined that such a thing was possible. First of all, I came from a school of thought that believed nothing could be programmed to trade the markets successfully. I strongly believed this and argued with anyone that crossed my path. “No automated day trading system could tackle the stock market; impossible!” or so I thought. I also said to myself, “How could a computer program successfully factor fear and greed [the emotions that move the market] into an equation designed to extract consistent short-term profits from the market each and every day?” Well…,

...the bad news is that there really isn't a robot to day trade stocks. Sorry to burst your bubble.

But…the good news is that there is one that day trades currencies (you know, the great forex market that I love and have bored you over and over with throughout this website?).

No folks; this is not “Forex Made Easy.” This is “Forex Made Easier”- An automated day trading system that NOT ONLY comes with a highly sophisticated set of conditions to enter and exit the market, but one that also pulls the trigger (that is, executes the trades) for you, using proper money management without which day trading is doomed to failure. [If you have not read why I strongly believe that the forex (short for foreign exchange) market is the purest and best market to day trade in the world, go to the currency trading section of this website]. This automated system is also known as Forex Robot or FX Bot (for frequently asked questions about the trading robot, click here).
Yes day trading fans. This day trading robot (or bot) not only finds the trades, it takes advantage of them when it finds them.

When the forex trading robot was presented to me for the first time, it was difficult for me to accept the whole concept. I got to admit, I was pretty skeptical. If the explanation wouldn't have come from the best two money managers and traders I know (and personal friends of mine), I wouldn't have even listened. But after a while, I was sold. “You, Dan? Mr. Day Trading Tutor?” – “Telling us that you believe in a day trading robot after writing an endless amount of information about how people could learn how to day trade, how much you believe in day trading, how you have helped day traders in the past, etc., etc.?”

Whoa, whoa!!! People, don't get so exited. All of these things are still true. There are people that will learn how to day trade successfully and become successful traders. I am still involved on a very limited basis on the training of some day traders. But there are also many people out there that will never succeed as day traders and others that, after having tried it, will realize that it is not for them.

This is the truth; plain and simple. And even if the day trading robot wouldn't have existed, this would have still been reality. The FX robot is just something extra that I feel can help not just unsuccessful traders, but also investors who can add something different (a new component) to their investment portfolios; and believe me, this is completely different than any investment I have ever seen before.

I created Day Trading Tutor to give you the reality of trading. Well, talking about the trading Bot is an extension of this goal. Since it exists and can help you, I must tell you about it – period!

Ladies and gentlemen; I am sorry if I sound really exited about this trading Bot thing – so exited it made me that I even became part of it in order to be able to offer it to my clients, friends, and family members (read “How are you involved in the day trading Bot and are you doing it just for the money?” below. I like to be very clear about the things I say. It makes me sleep peacefully at night. The thing is that I haven't been part of a great project like this for a long, long time. The money managers and traders that designed and monitor the day trading robot on a daily basis have become personal friends of mine in the last few years. They are great guys and exceptional traders. They have been top-ranked in the past in the forex money management industry. I don't like recommending traders or money managers to people, but this is an exception.

The robot program rocks!

Day Trading or Investing for the Long Haul?

2011-12-18T04:06:00.001-08:00

Among those who buy and sell stocks there is an ongoing debate about whether the most profitable approach to stock market trading is short or long term investment. And the two sides rarely reach agreement, because one side is rather conservative in its approach, whereas the other has a more radical and freewheeling attitude. Day traders are usually considered the mavericks of the trading world, and they are known for taking gambler’s risks and making huge profits in short amounts of time – sometimes buying and selling the same stock several times in a single day. Those who prefer to buy and hold their stocks follow a more risk-averse path, and cite historical trends to back up their claim that their method is actually more reliable and is the real shortcut to wealth.
Most investors can enjoy the best of both worlds, by setting aside some of their money for day trades, and the balance of it for longer-term investment. Because day trading tends to be more volatile, and can result in quick profits or fast losses, most of us would be advised to put only as much of our investment capital as we can comfortably afford to lose, into this kind of trading strategy. That way, even if you encounter a worse case scenario, it will not adversely impact your overall financial situation.

There are pros and cons to both styles of investing. Those who do day trades enjoy the fact that they can get in and out of the market quickly, and make money without waiting for the results. But any kind of stock market investment strategy requires research into the companies you decide to invest in, and research can take time to do. If you are buying and selling so fast that you don’t have time to do adequate background analysis, day trading may not be a prudent approach.

Investing in companies that provide slow but steady returns is a time-tested approach to the stock market. In fact, most historical evidence supports the idea that if you buy quality stocks and hold them for long periods of time – at least five years or more – you will do very well in the stock market. For that reason, those who are young enough to have time on their side would probably be wise to buy some stocks and sock them away for retirement.

With most investments, it is usually best to diversify to minimize risk and maximize potential gains. One way to accomplish this in the stock market is to employ both strategies, and use a portion of your investment capital for short-term trades, while leaving another portion in long term investments. If one basket of investments doesn’t do well, the other probably will. And if both do well, you will enjoy twice as much success.

Day Trading Indicators and Indicator Trading

2011-12-18T04:05:00.000-08:00

Did You Begin Day Trading As An Indicator Only Trader?
Did you start day trading after buying a book on technical analysis, and getting a charting program - probably a free one that you found online - in order to save money? While reading your book you learned about trading indicators which could 'predict' price movement, and what do you know, the 'best' indicators were actually included in your free charting program - let the games begin.
Now that you have all the day trading tools that are necessary, the book for education AND the free charting program with those 'best' day trading indicators, you now need a day trading plan so you can decide which ones of those 'magic' day trading indicators you are supposed to use. This really is a great book, besides telling you how to day trade using indicators to 'predict' price - it also said that you need a trading plan to day trade.

So what should this plan be? The book told you about trend following using an indicator called macd, and it also told you how it was possible to pick the top or bottoms using an indicator called stochastic; my guess is that you picked the stochastic indicator to start your day trading - this must be the 'best of the best' since this indicator was going to ensure you of entering your trades with the 'best' price. Amazing, simply amazing how easy this day trading stuff really is. In fact, why even bother taking the trades, each time your indicators give a signal - just call up your broker and tell him to stick $100 in your account.

My book was Technical Analysis of the Futures Markets. My charting program was TradeStation with an eSignal fm receiver; that was the one that if you hung the antennae wires just right, and you put enough foil on the tips, you might even get quotes. I had sold a business before I started trading so I did have some capital - isn't that how everyone gets into trading, you either sell a business or you lose your job? My indicator was the macd as I had decided that I was going to be a 'trend follower' instead of a 'top-bottom picker'. I also decided that I was going to be 'extra' clever, if one indicator was good than two indicators must be better, so I added a 20 period moving average. My first trade was a winner, then after many months of extensive therapy, I was finally able to forget the next twelve months..

Learning To Day Trading - The Learning Progression
Beginning to day trade, or learning to day trade, as an indicator trader is very typical. This is also logical when you consider - HOW are you supposed to initially learn how to trade? Trading indicators are available to anyone who has a charting program, and simply using line crosses, or histogram color changes, provide 'easy' signals to understand. If you will also take the time to learn the arithmetic behind your indicators, as well as learning what each indicator is specifically intended to do, not only is this a logical way to begin, it is also a good 'step' in your learning progression - understanding the WHAT you are doing, instead of attempting to create 'canned' indicator only trading systems, without any regard as to WHY you are trading this way.

This does become one of the 'sticking' points in your learning progression, as you come to find out that you are unable to profitably trade indicators as signals only - now what? Now what - you 'can't' develop your own indicators, so you start doing google searches for day trading indicators and start buying your 'collection' - they don't 'work' either. Now what - you buy a mechanical trading system - what does hypothetical results may not be indicative of real trading or future results mean? Now what - you start subscribing to signal services OR you start joining the 'latest and greatest' chat room - am I really the only person using the signals who isn't profitable?

Now what - you never learn how to trade.
I began trading as an indicator trader, and I did try to learn everything that I could about the various indicators, as well as trying to combine indicators that were consistent with how I wanted to trade - I just could never develop a mechanical day trading system from what was available to me. I read a couple more books that didn't really help me, so I then started looking for someone who could teach me. From what I now know about gurus -vs- teachers, I am very lucky that I got involved with a money manager-trader who taught me a tremendous amount, but I still couldn't get profitable, in part because there was also 'pressure' to learn how to trade using real money. As well, any discussions or thoughts about trading psychology and the issues involved, especially to beginning traders, was non-existent.

Now what - learning but losing - I stopped trading.
Learning to trading using real money, and 'scoffing' at trading psychology as simply individual weakness, really was something that I now regard as misinformation. I always mention this as I now feel that this cost me as much as a year of time, and was very close to costing me my trading future, as stopped trading was VERY close to quitting trading. How can't trading psychology be real to a beginner, when you consider that you are risking losing money at a very fast pace as a day trader, and when you further consider that you are also doing this when you really don't know what you are doing - this is NOT by definition being weak. And if trading psychology is real, how are you going to learn to make 'good' trading habits with real money while you are fighting the implications?

Now what - not trading and not ready [quite] to quit - still studying and searching.
Probably the single most important 'thing' that got me to a next step in learning how to trade, was the concept of a trading setup, and that a setup and a signal were not the same. This was extremely meaningful to me, as it also led to an understanding of how to better use trading indicators for the information that they can provide, but not to use them as trading signals - in essence I began learning about trading method where discretion could be consistently applied -vs- trading system that was mechanical and arithmetic rules.

Traders who are indicator only traders, are also what I refer to right side only traders, that is they are always looking at the right side of their charts for an indicator signal. BUT what about the left side of the chart, what about price and patterns, what about market conditions - WHAT about the relevant 'things' that are 'moving' price, instead of indicators only as an arithmetic derivative of price, and thus, one that is dependant on the time frame that you have chosen to trade from? These 'thoughts', along with the concept of trade setup, became instrumental in the development of a trading method, and how I came to turning my trading around.

When I think about the steps in my learning progression - I would list them as follows:

2/95 - 6/96
indicators only
teaching service that included signals
learning to trading with real money and trading psychology issues
stop trading

6/96 - 3/97
understanding of trading psychology issues
learning about trading setups concept
trading method -vs- trading system
trade setup - trade trigger are not the same
method development
understand the importance of the left side of the chart and what is happening 'across' the chart
related trading setups and how/when they triggered

indicators + pattern
indicators + pattern + price
indicators + pattern + price + market conditions

3/97 - 11/97
able to paper trade profitably
able to real money trade profitably
able to trade for a living

Indicator Only Day Trader - Setup Including Indicators Method Day Trader

I have attempted to discuss the way I started day trading, and the way I think many-most traders typically begin. Along with this, I have pointed various issues and problems that I had - those regarding how to learn to trade, and then progressing into a profitable trader. My experiences have been both personal, as well as those of many traders that I have worked with over the last 8-9 years through Tactical Trading - that a very large number of these problems are due to day trading only with indicators, the specific indicators used, along with trying to turn these indicators into a mechanical trading system.

This is not to say that this can't be done - I simply couldn't do it. However, I would strongly suggest that anyone who is in the early stages of day trading, or struggling with their day trading, consider these things that have been discussed.

Day Trading Forex

2011-12-18T04:03:00.001-08:00

This is a fascination. Here is a wide open field that almost anyone can take advantage of. It use to be only for the mega rich people, the big corporations and banks. They are trading foreign currency's..

            Can you imagine this is a 1.2 trillion dollar a day being traded. Thats 1.2 TRILLION a day.
Now with the Internet you you too can trade the foreign currency's. You can set up a account with as little as $300.00 up to whatever. Regular accounts usually start with $3000.00. You are able to leverage you funds 100 to 1. SO you will be controlling 10,000.00 or one lot in currency's for $1,000.00 and for every pip on movement you can make $100.00. With the mini account you will control 1 tenth of a lot. $1000.00 for $100.00 and your pip is worth $1.00. Just so you will understand a pip is what an increment movement in a currency is.
You buy it if you think it will go up and sell it if you think it will go lower. Of course there are charts and all kinds of ways to tell what is going to happen. It just takes learning the in's and out's, ups and downs.

There are a lot of different currency's but here are the main ones that are traded.

USA/YEN      USA / Japanese                          GBP/USA   British Pound

USA/EURO   USA/ Euro is European              USA/CHF   Swiss Franc

USA/CAD     USA/ Canadian                           EURO/YEN

           There are no commissions and no fees only narrow Dealer spreads. These spread vary depending on the trades. Major pairs are 3 to 5 pips. You will learn more about all of this when you start out. The wisest thing to do is to start out with a demo account or what we call a paper account where you do everything as if it was real money but it is only on paper. So you get to learn the in's and out's and learn to read the charts and how to understand the fundamentals. These are the world events that effect the currency's.

           There are many different strategies. Each have their strength's and weaknesses. They each deal with different ways at looking at the charts and their movements. Want some ideas? There are Scalping
trades, surfing charts, sailing and many more. It fun and exciting, and sometimes a drag. Sometimes you will win 100 to 500 pips. Then there are times you will lose pips too. YOU will never win all the time. But thats where there account management comes in. You learn to control your risk taking.
Usually the biggest sin or failure comes when you let your emotions become involved. EVEN the big shots sometimes let their emotions get involved. Most the time it doesn't work and will cost you.

So with good account management understanding the various charts you can take $300.00 and turn it into $6000.00 in 6 months or less.