Online trading is great way for serious investors to make money, but inexperienced traders often wind up with big losses. A good set of instructions can minimize the risks and save months of expensive trial-and-error learning.
Day Trading
Day Trading had its heyday during the bull market of the 1990’s. All the amateurs have since dropped out, but day trading is still being practiced by professionals. There are fewer opportunities in the current market, but skilled investors can still find them if they know what to look for.
FOREX Trading
The Foreign Exchange Market (FOREX), the world’s largest financial exchange market, originated in 1973. It has a daily turnover of currency worth more than $1.2 trillion dollars.
Unlike many other securities, FOREX does not trade on a fixed exchange rate; instead, currencies are traded primarily between central banks, commercial banks, various non-banking international corporations, hedge funds, personal investors and not to forget, speculators. Previously, smaller investors were excluded from FOREX due to the huge amount of deposit involved.
This was changed in 1995, and now smaller investors can trade alongside the multi-nationals. As a result, the number of traders within the FOREX market has grown rapidly, and many FOREX courses are appearing to help individual traders increase their skills.
As a matter of fact, it’s advisable to take FOREX training even before opening a trading account.
It is vital to know the market mechanics of FOREX, leveraging in FOREX, rollovers and the analysis of the FOREX market. Due to this fact, potential FOREX traders would do well to either enroll in a FOREX training courses or even purchase some books regarding FOREX trading.
There are pros and cons to enrolling into a FOREX course. For beginners a FOREX course is a rapid method of learning the basics of FOREX trading. Not much time is spent on history of the market or arcane economic theories.
Often, on-line or phone support from a skilled FOREX trader is available to answer any questions. Also, the information is condensed and practical, often with graphs and charts.
The disadvantage is the price, as courses are more expensive than a paperback from the bookstore. Also,
the course may just teach the approach of the trader who wrote it, and individuals have different trading strategies.
The student may grow accustomed to the logic and focus of the teacher without coming to realise that nothing is predictable in the FOREX market, and many different strategies will bring profits in varying market circumstances.
Also, knowledge of practical applications may not be enough, as the FOREX is highly unpredictable and there are many external factors, such as political issues, affecting the flow of finances in the market.
The best advice would be to do some background research on the FOREX market first, and then enroll in a course.
Why learn to Trade?
Stock trading has numerous benefits as a viable part time occupation.
In contrast to a second job, there are no special qualifications to begin. The stock market doesn’t care about your level of success, education, ethnic origin or any personal characteristics.
Complex employers, office politics or difficult employees do not play a part in trading. Additionally you have the freedom to trade from any location. If you follow a few simple rules you can run your business on your own terms.
The most important factor is to be clear about why you want to trade stocks. What do you hope to gain financially from learning to trade?
Are you looking to:
1. Create an enhanced lifestyle with supplemental income?
2. Replace a full time income with a passive income stream?
3. Become independently wealthy by creating a financial base independent of other income sources?
What would being a successful trader mean you? Imagine yourself making successful trades and gaining financially. Think about what it would feel like to have extra money in your bank account and to achieve your targets. With a clear picture of what you want and how that would feel you will be able to remain focused and motivated.
Your first task.
Your first task is to put one primary goal for your trading plan in writing. Additional goals you set can then support your primary plan.
Know Yourself
As well as learning to trade stocks it is essential that you understand yow you react under stress. Being aware of your own behaviour patterns and common causes of and reactions to stress when trading will help you to master stock trading.
The reason that many people lose money in the stock market is because they lack the proper knowledge base. Independent of trading styles there is one thing common to all successful traders; the use of a tested and proven system.
In learing to trade you must be willing to let go of pre-formulated ideas and start fresh, develop new successful habits, and the discipline necessary to trade successfully over time.
Are you willing to do this?
Successful stock market trading eludes many people because they don’t have contact with an experienced, successful trader or trading system that actually works.
Going it alone can be potentially expensive when learning by trial and error. Investing in a solid education and taking advantage of the insights and experience of successful trader makes a lot of sense when learning to trade successfully.
Open your mind on different brand
While the majority of American investors understand the importance of diversifying across growth and value investments, few are able to achieve a passing grade on a test of their knowledge of the differences between the two, according to a new American Century Investments survey.
Test your knowledge with the Growth & Value IQ quiz below:
1. Which best describes a growth stock?
a) Stock that offers guaranteed rate of growth tied to consumer price index.
b) Stock in a company specializing in agriculture, lumber, landscaping, and other organic products.
c) A stock in a company demonstrating better than average profit and earnings gains.
d) All of the above.
2. Which best describes a value stock?
a) Stock in fast-growing company specializing in high-value, low-cost products, like a discount retailer.
b) Stock in a company specializing in valuable goods, like precious metals and jewelry.
c) Stock that has a low price-to-book ratio.
d) All of the above.
3. Which statement is true?
a) Value stocks outperformed growth stocks between 1927 and 2001.
b) Smaller company value stocks outperformed larger company value stocks between 1927 and 2001.
c) Maintaining a portfolio with a combination of growth and value stocks generally is considered a prudent investment approach.
d) All of the above.
4. During periods of strong economic expansion, which fund generally performs better?
a) Growth.
b) Value
c) Neither.
d) Both.
5. Generally speaking, value funds outpaced growth funds in 2000 and 2001.
a) True.
b) False.
6. Generally speaking, growth funds outpaced value funds during the 1990s.
a) True.
b) False.
7. Which type of fund is more likely to invest in stocks paying a significant dividend?
a) Growth.
b) Value.
c) Neither.
d) Both.
8. Higher price-to-earnings ratios normally would be associated with stocks in which type of mutual fund?
a) Growth.
b) Value.
c) Neither.
d) Both.
9. What kind of stock is described in this example: “Established baked-goods company with strong balance sheet and good cash flow experiencing temporary drop in reaction to changes in senior management.”
a) Growth.
b) Value.
c) Neither.
10. What kind of stock is described in this example: “Software company, enjoying steady sales increases, is in the process of rolling out an eagerly anticipated update to a popular software application.”
a) Growth.
b) Value.
Get to know the system and the one that works for you
After you have found a profitable trading system that you already back-tested, how can you be sure that this system will produce the same gains in future?
Nobody can predict the future, your system can easily make losses in next years or can be no tradable.
There are some tests you must do before accepting a trading system, these tests swill show the robustness of your system and when passing these tests, it will be more likely to show gain in future.
Test 1 : Make sure that you put liquidity rule, that your entry and exit prices are realizable.
Test 2: Examine again your trading systems and your rules (This is very important).
I made dozen of trading systems that showed great results but after more examination, it showed that i cannot follow them in real life.
Check if there is one stock that made very big gain, the system will maybe become no profitable without this stock.
Test 3: Change twice or 3 times the date of begin for the simulation, if it still show good results then it has passed the test 3.
Test 4: Change values of some parameters or variables you have in your trading system rules, you must change one value and then back-test, change another and then back-test…
If the results are not affected very badly then it passed the test 4.
Test 5: Try to restrict the system from buying 20% or more of stocks you previously bought when doing the back-test. Then re-run the back-test. To pass this test, system must show pretty the same results as before.
Test 6: Equity chart must have a good look, check some statistic values like sharpe ratio, sortino ratio, standard deviation, maximum drawdown, average day for gains recovery…
It depends on the risk you are willing to take but choose only systems that have : higher sharpe ratio, higher sortino ratio, lower standard deviation, lower maximum drawdown…
Exclude systems that have very big max drawdown, standard deviation and average day for gains recovery.
The must important factor i think is average day for gains recovery.
Its the average number of day that you must wait until your equity value will goes back to the same level before the drawdown happen.
Big values will let you wait for long times before recovering gains and for sure many traders will abandon their trading system, and that’s the worse thing that can happen to a trader because just after that, the system will show excellent results. (That’s always happen)
Theses tests are very restrictive and you will reject maybe all your trading systems, but when trading you will put your money, real money, so i think you must be very selective to make all chance in your.
What's actually your goal Grow or Value?
A lot of opinions had been thrown regarding the benefit of value investing versus growth investing. The proponents of each styles of investing insists that their method is superior over the other.
I believe that each has its own merit. Being a proponent of value investing, let me state the case for value investing. First, value investors buy companies in a mature industry. That said, it is easier to predict earning of such company. This is why I lean towards value investing.
I am in favor of reducing risk instead of chasing return. Anybody can make an estimate that a small biotech company A will rake in X amount of profit after several years. But, if your prediction is not accurate, then how do you determine the fair value of the common stock? Your valuation will be out of whack. Disease comes and go. Technology fames and fades. It might defy common sense to some but I prefer a low or no growth industry.
Another benefit of investing in value stocks is that you might get decent dividend yield from the companies. They are growing less and management feel that they do not need all that profits to fund expansion. As a result, they propose dividend payments to shareholders. This helps reduce risk.
Having said that, I believe that the return of growth stocks will be higher than value stocks. No, I don’t mean you can profit handsomely buying overpriced stock. You should of course buy it at a reasonable price.
You should not overpay for any stocks, including growth stocks. Growth stock is companies that are growing or expected to grow rapidly in future. Is advertising a growing industry? Yes, but it is not growing big.
How about pay per search or pay per call advertising? Oh, yes. If you invest in these types of companies, you are investing in growth stocks. These new forms of advertising is less than 5 % share of total advertising budget.
Can their share grow? You bet. Just like television gets some share of advertising pie, pay per click advertising will get more of its share if it is cost effective for advertisers to do so.
We can say that value investing takes less return for engaging in little risk. Growth stock, on the other hand, takes in more risk in order to garner greater return. That is fine. There are, however, other kind of investing that will burn your pocket. A lot of investors engage in an investing style that get little reward while taking a big risk! Buying a stock at any price is one example.
Do not misunderstand growth stocks with buying at any price. It is just plain silly. There are calculations and predictions involved in buying a common stock. Determine its fair value and decide whether you want to invest on a stock based on the risk/reward that it offers
How to become a successful trader
I’ll be telling you about 15 characteristics of a very successful trader.
Trading in stock isn’t everyone’s cup of tea. Some people can do it and some can’t. Even among the some who can, not everybody can be successful at it. While there are no hard and fast rules on what makes or doesn’t make a successful stock trader, those Wall street Wizards that you hear about who made the most in the least amount of time, all appear to have certain characteristics in common.
1. Successful stock traders are able to go against their natural instincts.
2. Successful traders have a simple system. No matter which technique you use as long as you stick to it. A Successful trader knows their technique and makes trades based ONLY on their system. “The secret to being a winner is consistency of purpose”. You want to improve a separate strategy for getting into a position and for exiting one.
3. Successful traders are risk Adverse. Successful traders don’t like losing money and prohibit themselves before losing too much, even if it means admitting they made a mistake.
4. Successful traders are willing to make mistakes. Successful traders have the right and ability, not to do the right thing, but to do the wrong thing. It’s the ability to make your own mistakes.
5. Successful traders don’t care about being embarrassed by taking a loss. Successful traders expect to take losses and know when to cut them.
6. Successful traders know, or learn how to explore stocks. Many traders only use precise analysis, but you may want to learn to use fundamental analysis as well.
7. Successful traders lead balanced lives. We all know the pleasure of the pursuit and the stock market can be addicting, a successful trader is one who knows when to move away and can.
8. A successful trader is Patient. A successful trader let’s winning positions run, but is able to back out when proven wrong. Patience can mean resilience, courage, and conviction for when markets go against you.
9. A successful trader has a biting Desire to succeed. Triumph takes steady work not a chaotic effort, a biting desire to succeed can make all the difference in educating yourself about what you want to know and sticking to your strategy when the going gets rough.
10. A successful trader is disciplined. Very disciplined. A successful trader will do what he needs to do, even if he isn’t in the mood. Discipline also means Sticking to your strategy, not abruptly buying or selling on a whim, or because of a” hot tip”
11. A successful trader knows the difference between defensive and offensive behaviour, and when to use each. – protect your money first, profit later.
12. Successful traders don’t eavesdrop on rumours or get emotionally involved. To be a successful trader you have to be very hard on yourself. Your have to be able to resist the urge to prove you are right and be ready to make mistakes. . You also want to be able to not let emotions affect your decisions.
Setting up stop loss points for every decision you make is something that you are going to have to do. That will mean more than occasionally admitting that you are wrong. You and your portfolio will survive and you will be able to get back into the position again when trends signify that the time is right.
You will have to learn to disregard any emotional ties you have to your stock and make quick stock trends your master. You will miss the lowest entry points and the top selling points, but you will be able to sleep at night. You will need to learn to get out of a stock position before your profits turn into losses.
13. A successful trader knows themselves. Successful traders must be attentive of their strengths and weaknesses. Your strengths and weakness will become very important. Play on your strengths when you can.
14. A successful trader knows their investments. Your investments are almost as important as you are. Know the past history of the stock and their strengths and weaknesses as well.
15. A successful trader sticks to the rules. The system is there for a reason. Nothing can ruin a successful stock buyer as quickly, or as certainly as flouting the rules.
Get to know these 15 characteristics and you are on your way to becoming a successful trader.
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