Hedging is one such major advantage. Hedging is the practice of diversifying positions such that should the market move significantly in one direction or another, the trader is covered either way. For example, if a trader has bought a lot of stock in the technology company QCOM, they might go short of a different company, perhaps RIMM. In this way if the market rises, the QCOM position will make a profit covering any loss in RIMM, and vice versa. Hedging can be performed by diversifying between market sectors as well as direction.

There are however, some downsides to short selling stock. The first issue is that not all stocks can be sold short. To go short, the trader must borrow stock from their broker, which implies that the broker must have some of that stock to lend. Clearly, with thousands of different companies being traded on numerous different exchanges, no broker can hold all available stocks. Instead they hold just the most popular. Each broker carries a list of stocks they hold and which are therefore shortable.

Even if a stock is on this list, there is no guarantee it will be available when a trader wants to short sell it. If many traders wish to go short at the same time, there is a good chance the broker will simply run out. So shorting is not something a trader can assume that they can always do.

The other problem with short selling is one of increased risk. If we consider the traditional buying and selling of shares, the maximum risk the trader is exposed to is the price of the share multiplied by the quantity they have purchased. If a trader buys 100 shares of DELL at $12 each, the most they can lose is 100 x $12 = $1200. For that to happen, the stock price needs to drop to zero. It cannot go below that, so that’s the maximum risk. On the flip side, there is no maximum to the profit that could be made; the higher the stock price goes the more money the trader makes.

When going short however, there is no maximum risk, but there is a maximum profit. If we take the same example, and assume a trader short-sold 100 shares of DELL at $12 each, they now need to repurchase those shares at some point in the future to cover their position and pay back their broker. Therefore they want the price to drop. The most the price can drop is to zero, a drop of $12 giving a profit of $1200. But the price can rise indefinitely, and the higher it goes, the more money the trader loses.

In reality, the broker will usually liquidate the traders position at the point where it becomes clear that they do not have sufficient funds to cover it. So the trader cannot lose an infinite amount of cash. Even so, it is well worth bearing in mind that when shorting, the ratio of maximum risk versus maximum profit potential is reversed.

Despite these two “gotchas”, short selling is still an essential weapon in the traders armoury. Without it, there would be some days when there are simply no profitable trades to be made. Having the ability to profit from rising and falling markets means traders can profit every day the markets are open.

Harvey Walsh is a full time day trader, and part time trading coach. His highly acclaimed day trading course teaches anyone to profitably day trade US stocks, even with no prior experience. Visit http://www.daytradingfreedom.com to find out more.

Article Source: http://EzineArticles.com/?expert=Harvey_Walsh

How you can use options as a strategic investment

1. Recoup some of the cost of your investment – if you own some stock, you can gradually recoup the cost of the stock by selling calls against the stock every month. This called the “covered call” strategy. Over a year, it is even possible to sell covered calls enough times that you can eventually pay off everything that you initially invested in the stock, freeing you up to buy more or to buy a different stock. Technical analysis is not very complex – you already have information for your stock, and you need to add couple of indicators
2. Get paid to buy stocks – if you have stock in mind that you would like to own, but don’t want to buy too high, the “selling naked puts” strategy is very useful. Every month, you sell puts against a stock, but at a lower strike price than the stock is currently trading. If the stock goes up in price, your put expires worthless, and you keep the money (and do it again next month); if the stock drops to your chosen price, then you can buy it and wait for the profit to roll in as the stock bounces back up. After you have bought the stock, you can then sell covered calls to even further reduce the price you paid for it..
3. Buy stocks for half price – buying DITM (Deep-in-the-Money) options for shorter term momentum trading is a great way of buying into a stock for half the price (or doubling the bang for your buck). If you see potential growth of a stock over the next two months, you can take advantage of the high Delta of the option and buy the rights to it at a greatly reduced premium.
4. Profit from volatile markets – don’t hide your head in a volatile market! Look at the opportunities presented. Selling credit spreads, buying straddles or strangles, dealing in iron condors or butterflies – these are all excellent strategies to profit from a volatile market, especially when you are not sure which way the chips will fall.
5. Selling the future – options deal with promises in the future. A great way to make a steady, compounding profit of about 10% per month is the credit spread strategy. Identify a trend, and sell spreads every month to build your portfolio.

Fire in a fireplace is useful and beneficial, but outside the fireplace, is dangerous and destructive. Options are the same – in the context of a solid trading plan, with the right amount and the right kind of technical analysis, they are incredibly useful tools to any serious investor. The range of option trading strategies presented by options allows a trader to take advantage of almost any market condition, and to turn a steady and reliable return on investment.

Article Source: http://EzineArticles.com/?expert=Rob_Forbes

Its a strong statement but allow me to explain.

Some time ago I stumbled onto an article in The New Yorker magazine called The Checklist written by Atul Gawande a multi talented surgeon who is also the author of a interesting book I am reading called Complications: A Surgeon’s Notes on an Imperfect Science.

The article is quite long but it boils down to that in spite of strong evidence to the contrary highly trained people think it’s below them to use check-lists.

They think they know what to do and working through a check-list is an insult to them.

Check-lists work best in a complex environment where the performing of certain steps is critical. In flying it is taken as a given that highly trained pilots work through check-list for virtually every eventuality.

An aeroplane is a complex entity, so are medical procedures and I want to argue so is investing.

When evaluating a company there are so many factors that are beyond our control. We however, through empirical research know what to look for in an investment to increase the probability of us making profitable investment decisions.

What is important is that we focus on what we can control in our research and analysis.

Over more than 20 years of investment experience I have put together the following check-list that I work through for every investment I make.

I hope you find it of value.

* Operating cash flow higher than earnings per share
* Free Cash Flow/Share higher than dividends paid
* Debt to equity below 35%
* Debt less than book value
* LT debt less than 2 times working capital
* Pre-tax margins higher than 15%
* FCF Margin higher than 10%
* Current asset ratio greater than 1.5
* Quick ratio greater than 1
* Growth in EPS
* Management shareholding (> 10%)
* Altman Z Score > 3
* Substantial Dilution?
* Flow ratio (Good < 1.25, Bad > 3)
* Management incentives?
* Are the salaries too high?
* Bargaining power of suppliers?
* Is there heavy insider buying?
* Is there heavy insider selling?
* Net share buybacks?
* Is it a low risk business?
* Is there high uncertainty?
* Is it in my circle of competence?
* Is it a good business?
* Do I like the management? (Operators, capital allocators, integrity)
* Is the stock screaming cheap?
* How capital intensive is the business?
* High Profitability
* High Return on Capital
* Enormous moat
* Profitable reinvestment
* Future growth
* Net share buybacks?
* Strong cash flow
* What has management done with the cash?
* Where is Free Cash Flow invested?
* Share Buybacks
* Dividends
* Reinvested
* ROE & ROCE
* Incremental BV growth

I also have an analysis spreadsheet for companies I have come across using the Magic Formula from Joel Greenblatt. For these companies I use these additional check-list items:

* Magic formula values any outliers
* Bubble industry last 7 years
* Does the cash belong to the company
* EBIT / Assets > 20%

As mentioned I use the checklist to evaluate every company I am thinking of investing in and often make changes as I gain new insights or learn something new.

I do not have a formula that if a company fails X amount of points on the check-list I do not consider it.

The check-list however gives me an indication of what problem areas the company has and where I have to do further analysis.

Feel free to use the above points in your analysis process and let me know if you have any items I can add to the list.

Tim du Toit is editor and founder of Eurosharelab.

On his website he reveals what more than 20 years of equity investment have taught him – sometimes at considerable cost.

To discover how you can avoid costly mistakes and enjoy greater profits, sign up for his free newsletter “Investing that makes sense” at http://www.eurosharelab.com

Article Source: http://EzineArticles.com/?expert=Tim_Du_Toit

We will be looking at several different stocks and picking one, which according to our “Trade Triangle” technology, could have a significant move.

As always our videos are free to watch and there are no registration requirements.

Please feel free to comment on this video and let us know what your thoughts are on the market.

http://www.ino.com/info/617/CD3208/&dp=0&l=0&campaignid=3

All the best,
Adam Hewison
President of INO.com
Co-founder of MarketClub

But before we answer that, what are they? “Emerging Markets” refers to countries in the world which have a less developed infrastructure. They tend to be those that are achieving economic growth, but are not as mature as the developed world.

Emerging Market Groupings

To illustrate this it is worth pointing out how Emerging Markets are often grouped together for investment purposes. While it is always possible to invest in an individual country if you know what you are doing, it is more common to group them.

For example:

* The “BRIC” countries include Brazil, Russia, India and China
* “Asia Pacific excluding Japan” means South East Asian countries like Indonesia, Singapore, China, South Korea, and so on
* “Emerging Europe” includes Russia and emerging Baltic countries like Ukraine, Latvia, Romania

Growth and Risk

Recent investment performance in Emerging Markets has been better in many cases than in the developed world. However, these markets are politically and economically more volatile than their developed counterparts, and so investments are subject to higher levels of risk.

The opportunity for growth comes from aspects like the greater investment in infrastructure (roads, water supply, etc.), availability of land and natural resources, and a growing “consumer society” wanting to improve their standards of living.

The risks come from things like bureaucracy which – along with corruption in some cases – hinders smooth development. Human rights records can act as a drag on development, while political instability and international friction can also dissuade investors. Economic experience in managing aspects like inflation is also less developed, although it could be said that banking systems are more stable than in the “developed” world since they have not developed the convoluted products and procedures which caused the credit crisis in 2008!

All in all, Emerging Markets are increasingly significant for investors, and there are plenty of opportunities to invest when appropriate, both in equities of various types, and in bonds (fixed interest issues by governments and companies).

So Should I Invest?

The answer will depend on your objectives, your attitude to risk, and on the balance of your portfolio.

If you are looking for income, then Emerging Markets is unlikely to be the best place to find it. While a high proportion of companies remain in the early stages of their development they need their capital for growth and have not established the stability necessary to pay a regular dividend.

But for growth investors it’s another story. There is much more potential for growth than in the developed world, as I mentioned. But there’s no doubt it may be a rougher ride getting it. Levels of volatility are undoubtedly higher – but by selecting a well-managed fund or an appropriate index to track, the risk associated with individual companies or countries can be spread.

As with any investment, time is what counts, but particularly so with Emerging Markets. If you:

* Are willing to invest for the long term
* Are willing and able to wait for periods of under-performance to pass
* Are looking for growth but don’t mind seeing some short term losses
* Already have other investments providing diversification

…then Emerging Markets could be for you.

About the Author

Peter Lawrence is an Independent Financial Adviser with Prime Time Financial based in Fleet, Hampshire. He specialises in advising over-50s on all aspects of finances including retirement planning, investments, equity release, and estate planning (Inheritance Tax). Keep your finances in good shape – sign up for our email newsletter at http://www.primetimefinancial.co.uk.

Prime Time Financial is a trading style of Keystone Financial Ltd which is authorised and regulated by the Financial Services Authority.

Article Source: http://EzineArticles.com/?expert=Peter_J_Lawrence

Although the standard definition defines the typical length of time in a trade (1-4 days) another definition for “Swing Trading” is used to describe a method or strategy used to profit from “price swings” in the market.

This definition can be used to define trading strategy or method regardless of the time frame used.

A “price swing” is used to describe the ebb and flow of price action.

As price moves from one point to the next it typically does so in back and forth wave like motions typically identified as “swings”.

When price moves from a low point on a chart to a higher point this is typically identified as an “up swing”.

The opposite is true for a “down swing” in price.

When price moves from a high point to a lower point on a chart this is called a “down swing”.

Theses alternating “swing” extremes are further identified as “swing highs” and “swing lows” once they begin to retrace from their highest or lowest point.

Technical Analysts use these “swings” to identify label trends in a security.

A series of “up swings” and “down swings” that create higher highs and higher lows is classically defined as an UP trend.

The opposite being true to identify and define a DOWN trend.

So now that we have the terminology and definitions out of the way lets get back to the original question.

Using the second definition of a “Swing Trader” you can surely see how a day trader can trade the “price swings” in the market.

Our main strategy for overnight Swing Trading is based on locating strong or weak stocks (and sectors) in relation to the market and trading these stocks (and ETF’s) based on the context of the overall market conditions.

When we trade the “price swings” intraday we use the exact same strategy!

If the overall market is strong we are scanning the entire market looking for the strongest stocks and sectors.

Once we locate these strong stocks (and ETF’s) we then use technical analysis to identify the “price swings” in each particular stock and ETF.

We want to be in sync with the market so if the overall market is strong and has made a run up (UP swing) and has now retraced (DOWN swing) we are looking for LOW RISK trade setups in the strongest stocks and ETF’s.

That way if the market decides to make another UP swing we can enter into and hopefully profit from the next price swing (UP swing) in the stocks and ETF’s that we have identified as being stronger than the market.

In a weak market we do the exact opposite.

We locate the weakest stocks and ETF’s and then try to identify the best opportunity to SHORT each “down swing” in these stocks as the overall market trades lower.

Although this article simply scratches the surface when it comes to “Intraday Swing Trading” rest assured that there are many strategies one could come up with to attempt to profit from the intraday “price swings” in the market.

Drew Woronka is an instructor and Technical Analyst at http://swingtradingbootcamp.com. Swing Trading Boot Camp is an educational site providing courses, seminars and newsletters for short term traders and active investors. You can follow their BLOG at http://swingtradingbootcamp.com/blog

Article Source: http://EzineArticles.com/?expert=Drew_Woronka

Let’s look a little closer at how traders can become frustrated, and then look at a few constructive solutions.

How to get Frustrated Trading

Take every loss that occurs and personalize it. Be convinced that the swift market action against your position was done by “them,” on purpose, just to catch your stop or shake you out. Be sure to let your mind run wild with thoughts about how you “always pick bad trades,” and “always lose.” Also, be sure to ask, “why does this always happen to me!”

Make trades outside of your trading plan. When the market starts to move, jump in, even though it’s not a setup in your repertoire. But don’t stop there! Keep trying new trading ideas when the setups in your plan either aren’t triggering or have had 3-4 losses in a row. And, keep trying new indicators. Keep switching from the MACD to stochastics to RSI to CCI to adaptive moving averages and on and on.

Hold onto a bias. Come into the trading day knowing how the market is going to trade. Have the bias, for example, that the market is going to rally. Be sure to keep buying each new low as the market keeps falling, patting yourself on the back for picking each new bottom. Above all else, ignore the market action (and your mounting losses).

OK, these may be a little overstated, but not by much. My point is that our mindset often makes us frustrated. We get into a vicious cycle where we are blaming and condemning, jumping from one thing to the next, or being stubborn in the face of contrary evidence. In the end, we only hurt ourselves.

How to undo the Frustration

Here are some ideas about choices we have in responding to events rather than being frustrated by them:

Reframe obstacles as learning opportunities. Start by accepting responsibility for losses. If you (not “they”) are responsible, you can do something about them. Also, ask better questions. For example, “How can I learn from this experience so that I can improve my trading?” Look at losses as simply events, nothing more. Then, try to learn something new from each event that will benefit your trading in the future.

Work your trading plan. You put a lot of time and careful thought into your trading plan. Honor yourself and the work you did by committing to it and trading from it. Make it a personal goal to stop reacting to random market moves and start responding to the market through the principles and setups in your plan. When the market suddenly moves, refrain from reacting and jumping in. Instead, when the market offers you an opportunity consistent with your plan, you respond to that opportunity by taking the trade.

Anticipate. In your nightly analysis, consider how the market might trade the next day. Also consider the alternatives. You might assess the market as ready to rally. That’s great. Also anticipate the alternatives. What would it look like if the market started to fall? What price levels would be breached that would tell you that? Now you are prepared for however the market might trade.

Undoing frustration is not just “letting go.” It’s an active process. Trading psychology is an important part of that process. You can learn much more about actively guiding your trading in a free, e-course on trading psychology you can claim at: http://www.tradingpsychologyedge.com

You will receive weekly emails detailing practical trading psychology tips you can immediately use to improve your trading. At the end of the series, you will also receive a bonus – so there are eight great tips in all!

Dr. Gary Dayton – TradingPsychologyEdge.com

Article Source: http://EzineArticles.com/?expert=Gary_Dayton,_Psy._D.

Think about it. The harboring of these misconceptions (that lower market price = loss or bad and/or that higher market price = profit or good) is the greatest risk creator of all. It invariably causes inappropriate actions within the large mass of individuals who are uninitiated in the ways of the investment gods.

Risk is the reality of financial assets and financial markets: the current value of all securities will change, from “real” property through time-restrained futures speculations. Anything that is “marketable” is subject to changes in market value. It is as the gods intended, and portfolios can be designed so that it just doesn’t matter quite so much as you’ve been brainwashed into thinking.

What is abnormal is the hype surrounding market value changes and the hysteria such hype causes among investors. No way should a weak real estate market translate into near zero bank balance sheet entries — it just doesn’t compute, except when it is popular politics.

Similarly, the reality of financial-impact cycles (market, interest rate, economy, industry, etc.) just doesn’t fit at all into the hindsightful, but popular and generally accepted, calendar year assessment mechanisms. Brainwashing again.

The amount, cause, frequency, range, and duration of market value change will always vary in an “I-don’t-care-who-you-listen-to” unpredictably certain way — the certainty being that the change in market values of investment assets is inevitable, unpredictable, and essential to long term investment success.

Without these natural changes, there would be no hope of gain, no chance of buying low and selling higher. No risk, no profits, and no excitement— boring!

The first steps in risk minimization are cerebral, and involve developing an understanding of the fundamental economic purpose of the two basic classes of investment securities.

From the investors’ perspective: (a) equity securities are expected to produce growth in the form of realized capital gains, and (b) income securities are expected to produce spendable (or reinvestable) income. But it isn’t real growth until it’s realized, or real income until it’s received.

Alternative investments? These are the contracts, gimmicks, commodities, hedges, and other creative ideas that college textbooks used to call speculations. Once upon a time, fiduciaries, trustees, and unsophisticated individuals weren’t allowed to use them. The stigma is gone, but the artificial demand adds risk to all markets.

They are especially risky for the millions of 401(k) and IRA investors who probably cannot explain the difference between stocks and bonds, from any perspective. Most investors have virtually no clue what is actually being done inside the products they select, and have even less of an interest in learning about it. They dance knee-jerk style to the daily media buzz.

Wall Street knows this, and takes advantage of it mercilessly. In spite of the recent financial crisis, pension plan fiduciaries (particularly in the public sector, go figure) are falling all over themselves to throw money at the very alternative and derivative speculations that crashed the market just months ago.

401(k) participants are force fed products du jour from self-serving providor menus that make little effort to identify risk, much less minimize it. Very few plans allow participants to develop an understanding of their investment choices with the only education provided by the product vendors themselves.

What ever happened to stocks and bonds, the building blocks of capitalism? Do investors recognize the financial interest they have in the very corporations their elected officials are encouraged to tax, constrain, and regulate into competitive mediocrity?

Another mental step in risk minimization is education. You just can’t afford to put money into things you don’t understand, or which the salesman can’t explain to you in ordinary English, Spanish, French, whatever.

Of course you would prefer to skip this step and jump right into some new product athletic shoes that will hurdle you over the work and directly into the profits. How’s that been working out for you? It was once written (somewhere): no work, no reward.

Risk is compounded by ignorance, multiplied by gimmickry, and exacerbated by emotion. It is halved with education, ameliorated with cost-based asset allocation, and managed with disciplined: selection quality, diversification, and income rules— The QDI.

Real financial risk in equities boils down to: the possibility that a company’s stock (that 30% share of your brother-in-laws’ pizza parlor) will become worthless as management succumbs to economic forces, and/or mandated costs imposed by outside entities whose edicts must be complied with.

In debt-based securities, risk is: the possibility that the issuer of an interest bearing IOU (the money your spouse loaned her brother at 6% to start flinging pizza) stops or falls behind on its payment obligations and/or declares bankruptcy and wipes out both owner (shareholder) and creditor (bond holder) interests.

Here’s an interesting risk in the securities markets, one that governments have cleverly refused to address for fairly obvious reasons. The “Masters of the Universe” routinely get paid obscene amounts of compensation for risking OPM (other people’s money) perhaps a bit too cavalierly.

Company fails, shareholder interests become valueless, debt obligations are worthless, while the fat cats keep raking it in, even suing to preserve their bonuses. Boardroom corruption, and direct lobbying (another euphemism, for bribing) of elected officials are two additional risks that investors need to be aware of.

Google: Part II – Cruise Control Hedging: The Basics of Investing

Steve Selengut

Steve Selengut
http://www.sancoservices.com
http://www.valuestockbuylistprogram.com
Professional Portfolio Management since 1979
Author of: “The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read”, and “A Millionaire’s Secret Investment Strategy”

Article Source: http://EzineArticles.com/?expert=Steve_Selengut

It was later said to have been a slower disaster than the stock market crash, but almost as devastating. Bonds decline in price when interest rates and yields rise. Over the next two decades interest rates began to rise from their extreme lows, and the price of bonds declined. Investors new to bonds discovered it was not a safe haven to be receiving 4% annual interest on bonds if the bonds were dropping 10% in price annually due to rising interest rates.

I bring that up because of reports this week that the major U.S. banks are on a tear to raise huge amounts of low cost capital by issuing bonds while rates are at record lows, and while investor demand for higher returns is on the rise as an alternative to stocks. Some of the low cost capital being raised is being used to pay off the higher cost bonds and debt on their books. Moody’s estimates that U.S. banks have already refinanced $200 billion of the $372 billion in debt that is coming due in 2010.

The Financial Times quotes an executive with one of the big banks as saying, “There’s a bit of a food fight among investors to get hold of paper from U.S. banks.” (It’s not the same situation in Europe where banks need to raise capital but are struggling to issue new debt in the midst of the Eurozone debt crisis).

The large U.S. banks are not the only corporations having an easy time issuing new bonds, benefiting from the flight to safety. Investors have been piling into corporate and treasury bonds for quite some time, and it continues. The Investment Company Institute, which tracks money flows in retail mutual funds, estimates that individual investors pulled another $9 billion from U.S. stock funds in the first three weeks of July, even as the stock market was rallying again, and poured $20 billion more into corporate and government bond funds.

Tom Lee, chief U.S. equity strategist at JP Morgan Chase, speaking at the Reuters Investment Outlook meeting in New York on Wednesday said that, “Retail investors buying bonds today, at a time when the supply of corporate bonds is shrinking… they’re chasing a bubble.”

Assuming the issuer does not default on its bonds, an investor will not lose money on individual bonds if they are held to maturity, when the issuer returns the borrowed money to the investor. However, holding to maturity may be difficult, as bond investors discovered in the late 1930’s and 1940’s, once stocks begin producing 10% to 25% in some years, while the 20-year corporate bond will continue to pay only 4.5% or whatever annually to maturity (and meanwhile may be significantly underwater until maturity due to rising interest rates).

As Tom Lee of JP Morgan also said Wednesday, “Have Americans ever been satisfied with earning a steady but low rate of return? What we have in American history is rolling from bubble to bubble, whether it’s stocks, real estate, commodities, emerging markets, time shares… when one bubble bursts they are moved to the next one.” Lee implies that the bubble currently forming is in bonds.

But it should be okay as long as the Fed holds interest rates at record low levels near zero for “an extended period of time” as they say they will, and particularly if the stock market has another leg to go on the downside (keeping the appeal of safe havens alive). But investors probably need to be aware of the potential that it is a bond bubble, and be prepared to bail out early when rates and yields begin rising, or if the stock market bottoms and begins a new leg up. With so much money in bonds and bond funds, the exit doors will be crowded when the time comes.

Sy Harding is CEO of Asset Management Research Corp., author of 1999’s Riding the Bear and 2007’s Beat the Market the Easy Way. Sy Harding is editor of http://www.StreetSmartReport.com, and the free daily market blog, http://www.streetsmartpost.com.

Article Source: http://EzineArticles.com/?expert=Sy_Harding

When the dot-come bubble destroyed “new economy” gladiators in a gory spectacle destined to repeat itself over time, what investment portfolios cheered unscathed from the coliseum bleachers?

If you reduce the amount of betting in your portfolio (and throw out politicians who don’t have a clue about the workings of free markets) you can safely navigate even the choppiest seas that the market, interest rate, and economic cycles roll your way.

The tide-like change of market values is the normal order of things, and until we embrace the cyclical nature of markets, all markets, our disappointment and disillusionment will continue. Portfolio market values will reflect where we are within the various cycles.

Interest rate sensitive securities (all bonds, government securities, preferred stocks, and relatively high dividend equities) vary inversely with interest rate expectations, most of the time.

Where we are in the interest rate cycle is fairly easy to determine, and you need to position yourself to take advantage of the higher rates that will sneak into the economic formula as the cycle moves further and further from its recent lows.

How do we prepare for higher interest rates? By designing the income bucket of the portfolio so that it refills itself with at least 30% of total portfolio realized income, and by owning income generating securities in a form that is easy to add to.

With a reality-based perspective, investors appreciate that falling market values are opportunities to add to portfolios. Loss taking and cash hording as stop loss measures for income portfolios is a flawed strategy from all but one perspective — that of the salesperson.

That seemingly rational form of attempted market timing reduces the amount of income available for reinvestment and living expenses, in an approach that creates victims of higher interest rates instead of beneficiaries. You need to welcome both higher and lower interest rates, if for no other reason than that you can’t prevent them.

Don’t mess with the investment gods; accept the cycles they throw at you; respect and use them wisely for a better chance of investment success. Find meaningful numbers that signal cyclical change and which chart current positioning. Try the IGVSI and related Issue Breadth, High vs. Low, and Bargain Monitor analytics.

Bohicket Creek, in coastal South Carolina, has tides ranging from four to seven feet, twice a day, every day — not unlike the gyrations of the stock market. If you are in the ocean at high tide, and stay too long, you risk walking home shin-deep in Pluff Mud a few hours later.

Boaters run aground by not paying attention to tides, charts, navigation tools and their GPSes. Investors get swamped with information, media noise, breaking news, politicians, gurus, and derivatives — so much so that they can’t see the oncoming fog banks and tsunamis of cyclical change.

Most investment mistakes are caused by basic misunderstandings of the securities markets and by invalid performance expectations. Losing money on an investment may not be the result of an investment sandbar and not all mistakes in judgment result in broken propellers.

Errors occur most frequently when judgment is rocked out of the boat by emotion, hindsight, and misconceptions about how securities react to waves of varying economic, political, and hysterical circumstances. You are the commander of your investment fleet. Use these ten risk-minimizers as lifeboats:

1. Identify realistic goals that include time, risk-tolerance, and future income requirements — chart your course before you leave the pier. A well thought out plan will minimize tacking maneuvers. A well-captained plan will not need trendy hardware or exotic rigging.

2. Learn to distinguish between asset allocation and diversification. Asset allocation divides the portfolio between equity and income securities. Diversification limits the size of individual holdings in several ways. Both hedge against the risk of loss. Both are done best using a cost based approach.

3. Be patient with your plan and think of it as a long-term voyage to a specific destination — change direction infrequently and gradually. There is no popular index or average that matches your portfolio, and calendar sub-divisions have no relationship to market, interest rate, or economic cycles.

4. Never fall in love with a security. No reasonable profit, in either class of security, should ever go unrealized. Profit targeting must be part of your plan, and keep in mind that three sevens beats two tens — and is much easier to achieve.

5. Prevent “analysis paralysis” from short-circuiting your decision-making powers. Limit the information you allow into your course charting process, and avoid any form of future prediction or bet covering.

6. Burn, delete, toss-out-the-window any short cuts or gimmicks that are supposed to provide instant stock picking success with minimum effort. Consumers’ obsession with products underlines how Wall Street has made it impossible for financial professionals to survive without them. Remember: consumers buy products; investors select securities.

7. Attend a workshop on interest rate expectation (IRE) sensitive securities and learn to deal with changes in their market value — in either direction. Few investors ever realize the full power of their income portfolio. Market value changes must be expected and understood, not reacted to with fear or greed. Fixed income does not mean fixed price.

8. Ignore Mother Nature’s evil twin daughters, speculation and pessimism. They’ll con you into buying at market peaks and panicking when prices fall, ignoring the cyclical opportunities provided by their Momma. Never buy at all time high prices and avoid story stocks religiously. Always buy slowly when prices fall and sell quickly when targets are reached.

9. Step away from calendar year, market value thinking. Most investment errors involve unrealistic time horizon, and/or “apples to oranges” performance comparisons. The get rich slowly path is a more reliable investment road that Wall Street has allowed to become overgrown, if not abandoned.

10. Avoid the cheap, the easy, the confusing, the most popular, the future knowing, and the one-size-fits-all. There are no freebies or sure things on Wall Street, and the further you stray from conventional stocks and bonds, the more risk you are adding to your portfolio.

Compounding the problems that investors face managing their investments is the sensationalism that the media brings to the process. Investing is a personal project where individual/family goals and objectives must dictate portfolio structure, management strategy, and performance evaluation techniques. It is not a competitive event.

Do most individual investors have difficulty minimizing investment risk in an environment that encourages instant gratification, supports all forms of speculation, and gets off on shortsighted reports, reactions, and achievements?

You bet they do!

Google Part I: Risk, The Essence Of Investing

Steve Selengut
http://www.sancoservices.com
http://www.valuestockbuylistprogram.com
Professional Portfolio Management since 1979
Author of: “The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read”, and “A Millionaire’s Secret Investment Strategy”

Article Source: http://EzineArticles.com/?expert=Steve_Selengut

Some large, institutional investors feel one way while others feel the other.

Reasons to Buy

In addition to the oil companies lacking common appeal, there has been a lot of selling pressure which has not only impacted BP’s price (although this one has been the hardest hit) but others in the segment. This “fear” evidently presents tremendous opportunities — Warren Buffett was the one who said “buy when others are fearful and sell when others are greedy.” The market sentiment at this moment is definitely one of fear.

As well, even more strict rules surrounding offshore drilling in the US, the prospects of alternative energy sources and a host of other what-if’s, the fact remains that there will almost always be a huge demand for the service these companies provide. As the technology becomes more and more perfect, profitability will return even after such huge losses.

As an added bonus, even BP pays a dividend. When prices are depressed as they are, that dividend yield looks extremely attractive (although there could be some risk of the dividend disappearing after such monumental losses). This ultimately is yet another reason to buy.

Reasons to Avoid

Avoiding these types of securities is not out of the question. Some of the largest investment funds have dumped these types of securities en masse after the problems in the Gulf, feeling that such disasters are not isolated to BP alone and that it is just a matter of time before worse problems show up. This will result in even steeper losses for whichever company is unfortunate enough to encounter such problems in the future.

As noted above, the dividend that many of these companies could be pulled due to the risk of future losses (or current losses as in the case of BP). Without the dividend, some may not find these securities all that attractive at all. Combine that with the prospect of huge government sanctions that could be imposed on all oil firms and it could appear that investing elsewhere is the more-preferred alternative.

Lastly, this industry is a rather mature one. Many investors seeking better growth opportunities might prefer leading-technology firms that are seeking oil-alternatives. Investing in such companies early enough often yields tremendous gains, even though they are highly speculative in their infancy.

What To Do

Incorporating an oil component to your portfolio is really a matter of choice. Depending on your views as to the future of the industry, you may want to invest heavily, a little, or not at all. However, investing in companies with great future prospects, a good dividend and strong balance sheet should always be an investment priority, regardless of the industry.

–> Dividend Funds Reviewed at the Mutual Fund Site.

Chris has more than 17 years of financial services experience. He currently manages a website about Getting Rid of Ants at GettingRidofAnts.org.

Article Source: http://EzineArticles.com/?expert=Chris_Blanchet

But as many people know quite well these days, fixed income investments like bonds come with considerably more risk. In periods of increasing rates, those bond prices will drop. And while the face value will be repaid at maturity, there is always the “what if” of needing the investment prior to that maturity date. With liquidity such a big concern for a lot of investors, they have had to look elsewhere. And of course, to add salt to the wound, rates are just not as attractive as they used to be.

This is how dividend paying securities have gained a lot of traction recently. With the expected rate increases in the near future as well a need for liquidity thanks to the current economic state, dividend paying stocks have meant a return to higher income while taking on only marginally greater risk. Companies like General Electric, most of the big Energy companies, many solid banks both domestic and international, as well as many other blue chip companies will pay income in the form of dividends. This income, as a percentage of the price of the security, is what is known as the dividend yield.

The dividend yield on any given security will fluctuate each time the security trades at a new price. For example, a $3.00 dividend on a $50 stock is a 6% yield; but once that stock goes to $75, that yield drops to 4.5%. In other words, as the security price increases, the yield drops. This is exactly how things work with bonds. And like bonds, the income stream to the investor remains the same.

For example, an investor who bought at $50 will control the same amount of shares regardless of what happens to price. As well, the income will always be 6% of their investment. If they invest $100,000, the income will always be $6,000, even when the security price rises to $75 and the yield drops to 4.5%. So when the stock price increases, the <i>value of the investment</i> will increase on paper. The income remains the same at $6,000.

Essentially, dividend yield matters only when the original investment is made. As the security price increases, the yield will drop, but the investor’s income in dollar terms remains the same. The biggest difference with stocks versus bonds is that the investor will have a little more pressure to sell at market prices. But the problem will be how to replace the original income.

So while dividend yield only matters when making the original purchase, comparing one dividend for one stock to another dividend on another stock whenever a change is made in one’s portfolio becomes an ongoing concern. And investors needs to stay abreast of these yields, rising or otherwise, so that they know what the “going” rates are.

–> Have you considered Dividend Funds? Find out the Top Dividend Fund Pick by MutualFundSite.org.

Chris has more than 17 years of financial services experience. He currently manages a website about Roll Roofing at Roll-Roofing.com where he discusses different roll roofing alternatives.

Article Source: http://EzineArticles.com/?expert=Chris_Blanchet

But what is hedging all about in the first place?

Conspiracy theorists have their hands in the air. What’s that? Portfolio hedging strategies were created to expand the market for the first generation of derivative products— options and futures contracts. Hmmm, not so far fetched an idea, really. Just back up a bit and think about what they are trying to accomplish.

Hedges are designed to massage your market value numbers, a kind of security blanket that softens the highs and lows of the market cycle. But why focus on the fluff of transient market values in the first place? Cycles eventually correct themselves without the unnecessary drama, guesswork, risk, and trading fees.

It’s not the market value of the portfolio that is of primary importance. It’s the actual content of the portfolio and how you deal with the natural dynamics of the securities you own. Why can’t the media reinforce that kind of stuff instead of the emotion of the month?

If a portfolio has a semi-guaranteed “base income” of 4%, a 4% cushion (or hedge) is always in place, one that grows annually with proper asset allocation management, and adds to the market value in upward cycles— nah, too simple.

Once upon a time (long before Quants, Swaps, and million dollar bonuses) investors knew that they could not know “what the market will do”— in direction, duration, range, or vacillation. They recognized that neither humans nor human created machines could predict the future with any degree of accuracy. So they learned how to deal with uncertainty.

They recognized the cyclical nature of the major variables that moved the market cycle, and they developed a strategy that actually worked for decades. Long-term investors navigated the peaks and troughs of the market cycle with the now obsolete, eyes wide shut, buy-and-hold approach.

This dinosaur lost its potency as soon as the markets became accessible to virtually everyone— professional investors, custodians, and trustees (in the old days) understood investing, risk vs. reward thinking, diversification, fundamental analysis, and income generation.

Those safer “good old days” are gone.

Cultural changes, the need for instant gratification, the paramutual, product mentality of the modern investment arena, and the growth of the financial services industry brought fast and furious directional change that undermined the safety of the playing field.

Today’s unprepared (but well-heeled masses) are quick to accept the candy-coated, easy to own and abuse, gambling chips distributed by the Wall Street gaming institutions and blessed by their over-lobbied senatorial henchmen.

Unfortunately, trustees, custodians, and sales professionals’ job preservation instincts led them to the dark side as well.

Most people paint themselves into a market-value-only-assessment corner by investing in multi-security products and by ignoring the all-important income bucket of their portfolios. Wall Street propaganda doesn’t allow investors to focus on anything but market value, creating the need for “protective” hedging techniques.

But what do these phony insurance policies promise, and what do they actually protect?

The lack of education and general unpreparedness of newly enabled investors opens the doors for all forms of schemes, scams, techniques and hedges — all designed to limit the bottom line impact of perfectly natural market forces.

Why do we jump through all of these “prevent-defense” hoops? Because we just don’t know how or have the patience to design and manage a classic, safer, plain vanilla, stocks and bonds portfolio. The market cycle is the favorite son of the investment gods. You either make it your friend or fail as an investor!

The ultimate investment portfolio hedging strategy is one that only requires simple to understand investment techniques like the portfolio income “hedge” described above— part of the Working Capital Model’s QDI, and the centerpiece of the Market Cycle Investment Management methodology.

The other two features of this approach (one that has guided its users through, around, and over the three financial meltdowns of the past 40 years) are explained briefly below. The “I” in QDI is for income.

“Q” is for quality. If you study the long-term behavior of Investment Grade Value Stocks, and high quality income CEFs, you’ll discover that they hedge themselves more effectively than any artificial mechanism ever could.

Take a look at their histories, put a hypothetical $100 in each whenever they fall 20% from their 52-week high, and sell them when they produce a 10% profit. How many millions would you be worth today?

“D” is for diversification. Absolutely never allow any position in your portfolio to exceed 5% of total portfolio working capital (i.e., the total cost basis) and never start a position anywhere near maximum exposure.

Be honest now, how many losses would you have reduced, and how many profits would you have pocketed had you respected the QDI?

Put your investment portfolios on cruise control, with a hedging strategy approved by the investment gods— really.

Steve Selengut
http://www.sancoservices.com
Professional Portfolio Management since 1979
Author of: “The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read”

http://www.ino.com/info/589/CD3208/&dp=0&l=0&campaignid=3

There’s an old adage in trading and it goes like this, “they slide faster than they glide.”
This is true of all markets and what it means is they go down faster than they go up.

In my new video on gold, I share with you some of the thoughts I have right now on
this market. We could be looking at some great buying opportunities if just a few
components fall into place.

http://www.ino.com/info/589/CD3208/&dp=0&l=0&campaignid=3

You are more than welcome to watch this video there is no charge and no registration
requirement.

All the best,
Adam Hewison
President of the INO.com
Co-founder of MarketClub

Covered Calls is a name for an option strategy that is flexible enough so that it can be adapted to different market conditions. It is important that you first decide what type of covered call strategy best fits your personal risk profile. Is your focus simply earning extra income on stocks you already own, or protecting the value of your shares? What you are about to read will show you how.

A Stock Owner Who Wants More Than Just Dividend Income

If this is you, then you’re a long term stock holder. You’ve probably purchased a stock some time ago and hopefully, it’s worth more today than when you bought it. Perhaps you have an IRA or superannuation fund and would like to see a greater return on investment? Or maybe you just believe this stock is a good long term investment and want more?

In that case, you need to be aware of a few things. When you sell call options, in return for the premium you receive, you’re exposing yourself to the risk of the stock being called away from you – i.e. you may have to sell it at the agreed ’strike price’ for the options you have sold. If you’ve held the stock for a while, there may be capital gains tax implications to consider. You would want to ensure your strike price is greater than the price you originally bought the stock for, otherwise you could make a capital loss. So your decision to implement this covered call strategy will depend on where your stock is today, in relation to when you purchased it.

If today’s price is above your purchase price, then this covered call strategy could be a nice way to bring extra income over dividends. The best strategy here, would be to sell call options for the next month out. The reason for this, is that during the last 30 days of an option contract’s life, the “time value” in out-of-the-money options declines at an exponential rate. So if you sell call options at a strike price of say, $2.50 above the current market price and within the next month, the underlying stock either goes nowhere, or declines, you get to keep the option premium, or buy it back (to protect yourself from an unexpected price rise) within a few days of expiry, for next to nothing. You have a made a profit from selling high and buying back low, or letting it expire worthless, as the case may be.

You may not be able to do this every month if you want to keep your stock. It will depend on where the current market price is in relation to your original purchase price. You may be prepared to let the stock go, if called away, providing it is above your purchase price. That’s your decision. Either way, your one simple fundamental rule if you’re an investor and not a trader, is to wait until you can sell call options at a strike price above your original purchase price. That way, you can’t lose.

Another use of covered calls for the stock owner, is to provide a form of insurance over your shares. Let’s say you own 500 XYZ shares which you purchased for $15 a year ago and the current market price is now $20. You want to hedge your investment in the event of XYZ falling back to $15 or less. So you sell 5 “deep-in-the-money” near month call option contracts on XYZ at a strike price of $15 and receive $5.50 x 500 in premium = $2,750 credited to your account. At the same time, you purchase 5 near month “out-of-the-money” $15 put option contracts on the share and pay $0.25 x 500 = $125. Your net income is now $2,625 less brokerage.

Should the share price fall below $15 before expiry, your put options allow you to sell them for that price, thus protecting you from a catastrophic collapse due to some bad news. You have covered the cost of these put options with the extra $0.50 above the intrinsic value in the $5 ITM call options. If the share price is close to $15 near expiry date and you are nervous about further falls, you may wish to consider selling the next month out deep-in-the-money call options and purchasing OTM put options at the same strike price of say $12.50. Again, you should receive enough premium from the ‘deep ITM’ call options to cover the cost of the put options plus any potential further capital loss on falling share prices.

The downside of this covered call strategy, is that since you have written deep ITM call contracts, if the stock price is above $15 at expiry date, you are likely going to be called to sell your shares at $15. But you have already received the extra $5 in premium earlier so there is no loss. But if the current market value of the shares has risen to say $24 by now, you have foregone the potential gain on the shares you would have otherwise made. But it’s a great choice in a bear market or at what you believe to be the top of an uptrend.

Owen has traded options for many years. Visit his popular site to discover the advantages of Option Trading and how a well chosen Covered Call Strategy can provide a trading edge over the markets.

Article Source: http://EzineArticles.com/?expert=Owen_Trimball

Gain access to Marketclub’s multifaceted system including analysis, training videos and his proprietary signal system here:

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This offer won’t be live for long don’t miss your chance to test drive one of the greatest values in trading while it lasts:

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*Don’t forget to sign-up for Thursdays webinar. Just look for the link to register in the email with your log-in information to MarketClub. The staff will show you exactly how to use the service, and you can ask questions and interact with other MarketClub users to get the full experience.

Macro Picture

We are in unprecedented economic territory after the giant credit bubble collapse starting in 2008. Though we have experienced credit crunches in the past, this one is bigger and is intertwined with many important developed countries increasing the risk of global contagion. The natural course after a credit crisis is massive re-payment of debt, known as de-leveraging. This de-leveraging on a massive scale can induce a deflationary environment. Deflation is bad and painful because spending, both on a corporate level and personal level, slows to a crawl. In turn we suffer from asset value declines and eroding personal wealth all within a high unemployment environment. Governments are using almost all of the tools in their tool boxes to avoid a full blown deflationary scenario. To counter deflation, governments are trying to stimulate their respective economy’s by using tools that might reflate it.

Follow the Money & the Spenders

Follow the money, but first, follow the spenders. Economic “good times” are often the result of one or more major spenders. Sometimes it’s the corporations that spend and invest and basically spread money around. Over the last many years it has been the consumers who have spent, which also spreads the money around the economy creating growth. Right now the major spenders are the governments. But are they spending in the right places in order to spread that money around? There is a fine line with developed nations swelling their debt to unprecedented levels in order to spur the economy. At some point the effort has to start working because increased debt levels will become unsustainable. We don’t want the kind of debt problem which can lead to government defaults because then the tool box gets thrown out the window and the machine guns come out. This could mean many things none of them pleasant. Extreme examples could be government confiscation of assets such as gold, a global race to currency devaluation (excess printing of money), government default on debt, trade wars, or outright world wars. Such things have happened before, and hopefully policy makers don’t let things get that far.

Now, follow the money. The next wave of spenders will be the ones with the healthiest balance sheets. So far it looks like the corporations who have shrunk their debt loads, cut expenses to the bone, and who now have swelling cash balances waiting to be spent. But they’re not spending. This corporate cash hoarding seems to be the new vogue. They are not spreading the money around to help create economic growth. Perhaps the governments need to focus their attention on using tools to spur a round of corporate spending. Instead it seems that they are trying to get the consumer to spend by offering various incentives like “cash for clunkers”. People with high debt don’t need new cars, they need jobs. Those that do have jobs, need to feel “job security” before they spend money on a new car. Those incentives, in my opinion, were political showcasing to make it look like they cared about Main Street. Seriously it’s like trying to make your cat act like a dog.

Growth or Recession?

The great debate happening amongst many analysts that I follow is whether the US and Euro zone are heading into a great deflation, a double dip recession, or just a very slow recovery. There are very few respectable economists that are looking at the global economic health very positively and the bond market seems to be pricing for a deflationary environment. On Friday July 2nd I was watching BNN and listened to a trader in New York talk about how many of the traders that morning simply came into the office (instead of taking an extra long weekend) in case they had to potentially hit the “sell button”. It’s like they are waiting for any sign of a sell off in the market to un-load their positions. That makes me nervous, yet cash heavy clients would benefit from the aftermath. It’s those investors out there who came into this powerfull bull market late in the game and are fully invested that will get hit the hardest if we do go through another downtrend in the market.

Asset Allocation

There are more signs of trouble than glory at this time, and I suggest an asset allocation shift to be very defensive at this time.

25% – 50% Cash equivalent investments
20% – 40% Canadian dollar fixed income (preferred shares, GIC’s, Government bonds)
10% -55% Dividend paying large cap stocks with good business models, little debt, and good cash flow.

The more conservative investors should go for the higher percentage of cash, and the least percentage in stocks. Investors should also be prepared to re-shift their allocation to take advantage of any market opportunities down the road.

Susan Mallin works with MGI Securities as a Toronto-based investment advisor. As an investment advisor at MGI Securities, Susan is able to offer clients a full suite of investment services and investment products. Her process was designed to guide clients through a sea of choices in order to help them make decisions, in a manner that is simple yet effective, throughout the journey of reaching their financial goals. Susan’s investment practice isn’t focused on account size or age. It’s about desire, attitude and willingness to succeed.

Visit my blog, for relevant, understandable investment resources.

Copyright Susan Mallin. All rights reserved. You may reprint this article as long as you leave all of the links active, do not edit the article and give the author credit.

Article Source: http://EzineArticles.com/?expert=Susan_Mallin

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The death cross does not occur that often, in fact, in the last 2 1/2 years
we’ve only seen this happen three times. The most recent occurred just last
week and is something that every investor and trader should pay close attention
to. I believe that this video will help you understand what the death cross is
and how you can construct it and use it in your own trading. A lot of traders
and investors watch this very closely so you should too.

As always our videos are free to watch and there’s no need for registration.

If you like the video please feel free to comment on our blog and give us your
thoughts on the market.

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All the best,
Adam Hewison
President of INO.com

Well in my opinion it all depends on what kind of stocks you like to invest in. For instance if you are a speculative investor who likes to invest in bombed out stocks that may potentially recover in years to come, then it’s probably best to take your chances without a stop loss. This is because even if a few of these companies went bust, you can still make excellent returns if you manage to find a few stocks that end up multi-bagging, ie where the share price goes up 2, 5 or 10+ times higher than the price you paid.

If, however, you like to invest in mid or large cap stocks, then I think it’s imperative you use a stop loss. The fact is that even the largest and most well-known of companies can see their share price plunge very quickly when the wider market starts to head downwards. Just look at the share price of many of the leading banks in recent years.

So because of this, you really do need to protect your capital by having some kind of stop loss in place. It’s always better to take a small loss and come back to fight another day than to keep holding on to to falling stocks in strong downward trends in the hope that they will eventually bounce back.

You don’t necessarily have to set stop losses with your broker for every stock you hold. I personally set mental stop losses of around 20% and will close out a trade myself if the price of one of my holdings ever falls this much. It’s actually very rare for one of my shares to fall this much because I try to buy high quality stocks at the bottom of a cycle, but on the rare occasions they do fall this much, I will always sell them because it often means there is something fundamentally wrong with the company, and therefore the stock price is likely to continue falling.

So to sum up, I would say that if you have a sizeable share portfolio and like to manage your own money, then you need to protect this capital by managing any losses that you may incur. If you don’t, then there is always the chance that a few of your holdings could fall 40 or 50%, for example, or even go bankrupt in extreme cases, destroying your share portfolio in the process. If you take a loss of 10, 15 or 20%, however, it’s a lot easier to bounce back. Plus of course you can always buy back into these stocks if they start to recover.

Click here to read a review of Stock Trading Nitty Gritty, the new training course that teaches you how to successfully trade individual stocks.

Article Source: http://EzineArticles.com/?expert=James_Woolley

But there are some disadvantages to an ETF when it comes to sound investment practices. For starters, and ETF is more of a “one time investment,” which means investors are unable to use the proven practice of Dollar Cost Averaging as it each time one trades an ETF, he or she will incur a trading cost, which increases total fees.

However, the key advantages to an ETF make a lot of sense for investors with the capital base to take advantage of Exchange Traded Fund benefits. And three of these benefits are as follows:

1. An exchange traded fund has the ability leverage itself, thereby increasing profits (and losses consequently) when the price moves in the right direction. The most common leveraging value is 2:1, meaning that if the class in question moves by 5% over the course of a week, the leveraged fund will move by 10%. This gives the investor the potential for doubling his or her gains compared to a mutual fund investor who is following the same asset class, index, commodity, etc..

2. Unlike mutual funds which a long positions for the most part, an ETF can be “short” certain securities, indices, commodities, etc.. This means that investors who are bearish or who have a short term bullish view can stand to gain from the markets instead of watching helplessly while their portfolios depreciate in value.

The two key benefits above require that the investor be fairly involved with their investments. While mutual funds are more of a buy and hold investments, ETF’s that are leveraged have the potential of increasing losses fairly quickly and short investments often result in losses if not properly managed.

3. You can buy and sell options on Exchange Traded Funds, allowing the investor to use leverage as well. Mutuals are not optionable, meaning that the investor gets what he or she buys. With an ETF, options can be sold to generate income or bought to increase the leverage-like characteristics of the investment. More sophisticated option strategies can also be employed to improve income and gains within the portfolio as well as reduce risks.

These three benefits to an ETF investment are important for investors who are more active and have a good capital base to get started. For investors who do not have the capital or ability to watch their investments from day to day, sticking to a long, buy-and-hold mutual fund typically makes better investment sense.

–> Learn more about whether Mutual Funds Expense Ratios Really Matter at MutualFundSite.org.

Chris has more than 17 years of financial services experience. He currently manages a website about CDL Training at Class-B-CDL-Jobs.com.

Article Source: http://EzineArticles.com/?expert=Chris_Blanchet

Why?

It seems to me that if beginners are taught proper technique and the dynamics of the self discipline required to trade they tend to make fewer mistakes than their more experienced peers. Quite simply, they haven’t learned many of the bad habits that unsuccessful but experienced day traders have learned. This doesn’t mean that beginning traders cannot easily pick up these bad habits, but from the onset they start with a clean slate and a well drilled methodology in their mindset. If they are able to incorporate his methodology as taught, many beginning traders enjoy surprising success.

Traditionalists will scoff at my thesis, but experience with beginning day traders has shown me the wisdom in this line of thinking. To be sure, this success took me by surprise, at first. It took me some time and effort to arrive at an explanation for the surprising success I have seen. The logical conclusion was that they follow rules to the tee and stayed with a single methodology. I would contrast this mental state to that of many experienced traders who are constantly on the lookout for the new set up or trading system that might revolutionize their trading. Oddly enough, it is my opinion that this constant search results in a muddled trading skill set.

I don’t mean to suggest that expanding your trading knowledge is a bad thing; no, all day traders should maintain a “student” mentality when it comes to acquiring trading knowledge. You cannot know too much about a given topic, and the day you stop learning is the day you begin a slow decline in your trading acuity. At face value, the preceding paragraph may seem at odds with my last statement. But it isn’t, not really. Learning more about trading does not necessarily mean that you must revamp your trading style with every new book or article you read. On the contrary, most successful traders have a consistent style of trading which they have nurtured throughout the course of their trading careers.

On the other hand, beginning day traders can begin with a time-tested trading methodology and if they execute that methodology with skill and consistency, will find themselves in the same boat as a longtime trader. Of course, I would imagine the temptation to learn more than a single methodology, even though it is successful, would be a natural compulsion. In fact, I have observed this phenomenon on numerous occasions and beginners initial success oftentimes begins to suffer as they intermingle contradictory trading styles in an effort to learn more. It is is nearly impossible to harness an inquisitive mind, and beginning traders are certainly no exception to this rule. But from the onset, when they stick to the initial system which they have diligently learned they can be very effective, and have results which reflect this effectiveness.

My observation is that beginning day traders effectiveness can be short-lived as they began to deviate from the effective and time-tested system they were taught. Unfortunately, I have no answer as to how to keep the beginning student focused on the system they were taught. Most individuals naturally seek to improve themselves, though in this case the quest for improvement might actually sabotage what they have already learned. My experience has shown me that at about the two month mark, beginning students performance begins to wane; a result I theorize that comes from deviating from the affective system they learn and trying new and non-complementary techniques to the system they were initially taught.

I suspect I am not the only trading educator who has noticed this tendency for a results drop-off at two months, though I have never heard it discussed or written about. I suppose that we, as educators, must work hard at reinforcing the wisdom of staying with the original ideas and skills we taught, as they were developed through long hours of trading and study. Of course, I have serious doubts that anyone can curb the thoughts of a curious mind. After all, it is human nature to want to learn more and improve your skills.

I am a long time retail and institutional trader who now only trades part time, usually in the morning. I enjoy writing informational articles about my style of trading so others may benefit.

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How Value Averaging Works

Michael E. Edleson, a former Harvard finance professor, used simulations to compare the Value Averaging method to Dollar Cost Averaging (DCA) and also to the purchases of a constant number of shares in every investment period. While potential differences in risk were not considered, he concluded that Value Averaging provided investors with “an inherent rate of return advantage” in keeping with the time-honored recommendation to “buy low and sell high.”

Edleson, who was also a former Nasdaq Chief Economist, feels that a missing ingredient has been added to DCA that makes Value Averaging a superior method – focusing on a portfolio’s anticipated rate of return, which assists in pinpointing periods of under and over-performance in the stock market.

Dollar cost averaging is based on the principle that, rather than investing a large sum of money at one time, you should make small investments over a designated time period. For example, if you had $12,000 on January 1st that you planned to invest, you would invest $1,000 on a monthly basis through to December. It is felt that your risk would be reduced, especially in times of high volatility, because you would be purchasing stocks in a range of prices over a 12-month period, rather purchasing all of the shares in a lump sum for the same price.

With the Value Averaging strategy, whenever a portfolio under-performs, the share prices will probably also be low, and investors will therefore have to make a larger investment to make up for the under-performance. The converse is also true, and if the portfolio outperforms it’s targeted rate of return, share prices will tend to be high as well, and that is not the time to purchase more shares. Investors may even profit from a sale, as long as they are guided by the portfolio target value, which is a calculated value. While dollar cost averaging has no rules for selling, value averaging forces sales when prices rise sharply and forces larger purchases – more shares purchased – when prices fall.

Value Averaging definitely proves its worth and works best when the stock market is highly volatile, because it forces investors to be disciplined when they invest.

Using Value Averaging

VA is a formula based investment technique, where a mathematical formula is used to guide how much is invested into a stock at a specific time. VA’s goal is to increase a stock’s value, rather than its market price, by a calculated amount on a periodic basis.

To begin, you determine the amount of money you will need to set aside to reach a particular goal, such as financing your retirement. Next, based on the yearly return you expect to realize on what you invest, you calculate what you will have to invest every month in order to attain that goal. For example, if you plan on accumulating $500,000 within a 20-year period and determine that you can earn 8% annually, you would need to set aside approximately $875 each month. This would enable you to track your progress toward that goal on a month-by-month basis.

Note that with this method, the emphasis is on establishing a portfolio target value or “value path”. For example, suppose that at the end of the 12th month you realize that your portfolio value should be at $10,950 according to your plan, but because of a downturn in the stock market, it is only worth $10,000. This indicates that in the following month, you should invest an additional $950 along with your usual $875 for a total of $1,825 in order to stay on track.

Realistically, this is a procedure that you would follow every month, and whenever you fall behind, you would add to your monthly investment. By way of contrast, whenever the return on your investment was higher than you expected and your portfolio was worth more than the pre-determined value, that would be the time to reduce your usual investment or consider selling some of your stock.

Value averaging can also be modified so that no sales take place, which is important when investing in non tax-sheltered accounts.

What You Can Expect

Value averaging has been proven to work better than DCA in almost all market conditions, the benefits of which are really accentuated in a highly volatile market.

Under the Value Averaging approach, the ending portfolio value will be pre-determined before you start your investing program, so as in our example above the ending value is $500,000. In other words, when you start the value averaging program, the ending amount is known, but the amount to be invested monthly varies.

Under the Dollar Cost Averaging approach, the total portfolio value at the end of the period could be any value, but the total amount to be invested is fixed – in this example, 12 months times 20 years times $875, for a total amount invested of $210,000. When you start a dollar cost averaging program, the amount to be invested is known, but the ending amount isn’t.

In summary, Value Averaging is an investment strategy that provides a high probability for investors to reach their investment goals and it is a promising investment technique that merits broader attention from financial advisors, financial institutions and the investing public.

For a more theoretical review of the two strategies and examples of how they compare under different market conditions, you can refer to the paper ” A Statistical Comparison of Value Averaging Vs. Dollar Cost Averaging and Random Investment Techniques” by Paul Marshall.

Bruce Ramsey is the Portfolio Manager of the Blue Chip Value Averaging mutual fund. The worlds first mutual fund that uses the Value Averaging investment strategy to make its buy and sell decisions.

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First thing I did was I found out that many things were just too technical for me. I couldn’t sit there and analyze the charts for hours and see every little candlestick pattern. I couldn’t find Doji’s, evening stars and every other thing consistently.What was my first step to ending the paralysis I had? I broke it down I looked for the trend. As most traders say the trend is your friend and make the most out of good trades and keep your stop loss tight. So I did that. I would look at a 5 min and 15 min candlestick chart to find the best trading opportunities. I found that this combination helped me in the intraday and making daytrades. I also look at the big picture a daily chart see the overall picture of the security I was trading or for me I loved the gold market so to see the overall health for possible swing trades.

Step two if the market was hard for me to see a trend I would look for simple support and resistance lines. Find the support and resistance lines in the security and you will be able to find the opportunity much better. If it breaks through my resistance then I know its headed up and if it moves down through support then I know that the security has a good likelihood of moving the other way. I know you maybe thinking how though do I find the support and resistance? Well find the levels on a chart the the high bounced off of twice and the low never crossed lower. Take a 50 day moving average and lay that in there as well it will help to see movements in the share price. If the candlesticks move above the 50 day then likely it is moving up and the opposite is true for this as well, it shows you the momentum in the share price.

After plugging in the data that fits if you see a movement in the share price bounce above or below the support and resistance lines then you have a good trade. If you see the share price trending up then you know that you can have a good shot at making money of that movement.

In conclusion this is a very simple way to keep profits in your pocket and to use technical analysis in a very simple way. Understanding basic technical patterns will help in any investing you do in the future. Keep profits high and loss’ low and you will be the successful trader that you want to be.

Ors Veress is an Author about a variety of subjects. He mainly writes about investments and ways to invest your money but has an interest in politics. You can get a FREE newsletter on http://PennyPicksBlog.com

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