Classic Tools of Day Trading

Posted by admin in Investment on Jan 23rd, 2012 | 0 comments

If you love the Internet you’re going to love day trading. modern technology has made it a lot easier to get into the world of day trading, but you’re still going to need to brush up on your overall theory in order to be as successful as possible in this field. Day trading can be brutal, and not every trader makes profit easily. If you really want to make sure that you’re going to fly with strong colors, demo trading is always a good idea.

Still, you’ll probably be curious at what tools you need in order to really make it into the world of day trading. You probably already have a computer and a strong Internet connection, so we can skip those points pretty easily.

What you’re going to need to make sure that you have now would have to be a good brokerage that can handle all of your trades, as well as good trading software. Charting software that is separate from your trading platform is always a good idea, so that you don’t have to be fully dependent on one system for all of your researching needs. Market data is also going to be highly important, and it’s critical that you understand that. If you try to break into this with only “tips” and plays “from the gut”, you’re going to have a hard time making the profits that you ultimately want to make.

Let’s talk a little bit more about the software side of things. Trading software is going to be used to place the entry and exit orders that you need for your trades. This software displays current and most recent price history for every market. Your trading software should always sync smoothly with your charting software so you can plan out your attacks as much as possible.

Every broker is going to have their own trading software, so you’re going to want to make sure that you research not only the brokerage itself, but also the trading platform that they use. You want to make sure that you know as much about who is going to be facilitating your trades as possible.

Keep in mind that not all trading software platforms are going to be free. There might be a restriction that the software is free if and only if you do a minimum number of trades each month. Some people will end up having to pay a monthly or a yearly fee for their trading software. You just have to look at all of the features that you’re being offered and plan accordingly.

Third party software does exist, but not all brokerages allow for this. You’re going to need to actually read the terms and conditions for each brokerage before you sign up. That’s the best way to really make sure that you’re not making a wrong turn before you’ve even gotten to see if day trading is right for you.

While this isn’t a “tool” per se, it definitely needs to be mentioned: you are going to need a lot of capital in order to really get into day trading. This really isn’t an arena of investing that is good for small portfolios. You will need to have a high volume of capital to trade with, because you’re going to need to be able to place a lot of trades. If you’re not doing a high volume, you’re going to get eaten alive with commissions due to the amount of work that day traders do naturally. If you don’t have a good portfolio or “bankroll” to work with, you’re going to need to wait until you actually do have the funds in place. There are plenty of other types of investing out there if you don’t have the budget for day trading yet, so don’t get discouraged at all! There will come a time when you’re ready — take the time before that to demo trade so that you really understand all of the concepts that are involved!

Does Your Risk Profile Change Over Time

Posted by admin in Investment on Jan 7th, 2012 | 0 comments

When you’re trying to think about your investing strategy, chances are good that you might not be thinking about your actual risk profile. You might be thinking about trying to improve returns, or you might be looking at the returns that you’re already getting. However, if mortem investors really took the time to think about their risk profile as it stands and as it changes, they would make better decisions.

The truth is that it’s really all about your risk profile, especially when you really want to get things done. You have to make sure that you take care of your life as much as possible to make sure that you don’t see your investing portfolio veer off course. The more planning that you can do on this score, the better.

So let’s talk about risk for a moment. Risk is simply the willingness to reach for higher rewards while being completely willing to sacrifice capital to get there. In other words, you’re willing to make dangerous plays in order to improve your returns — while understanding that this behavior can lead to losing some if not all of your original capital stake — including the gains that you made in other areas of your portfolio. It just depends on the type of person you are, as well as the goals that you have.

Some people are more risk-tolerant than others. Risk is not something that’s just in the world of investing. When you really think about it, risk is something that we all have to deal with in order to move from one area of life to the other. If you aren’t willing to take on risk, then you’re just going to stay in bed the rest of your life. Everyone takes on risk to some degree, but some people are going to always be more risk-tolerant than others. It’s just a matter of figuring out what you want to do, and how you want to accomplish it.

In the world of investing, you have to make sure that you’re not taking on more risk than what your goals can handle. In other words, you need to figure out exactly what you’re trying to get out of investing. If you’re trying to invest for a long term goal like retirement, then you might be able to get a little bit more risky than someone that’s trying to buy a house in a shorter amount of time, or trying to send their kids to school. They need strong and steady growth that they can count on, and that means avoiding arenas where they could really lose a lot of money.

This is where some people will play the foreign currency exchange markets, while other people won’t. If you’re the type of person that can set aside part of your portfolio for the ultra high risk areas of investing, then go for it. You only live once, and even when you lose money, it can serve as lessons that will make you become a better investor. It’s just a matter of making sure that you figure out what you’re trying to accomplish and focus on that more than anything else. You don’t want to find yourself being unable to get things done because you’re so caught up in the type of lifestyle of risk.

When it comes to the world of online investing, it’s easy to get sidetracked. A lot of people will fill your head with a lot of different strategies and plans that might not be what you actually want to do. Don’t feel pressured to do something just because other people are doing it, or that they’re making money at it while you’re not making money at what you’re doing currently. It can take a lot of time to grow as an investor, and so you really don’t want to just rush the process. It makes a lot more sense to slow down and make sure that you really take the time to know where you’re going and what you actually want to accomplish. The alternative would be to try to do something that’s only going to make your life harder in the long run, and who wants to really do that?

Make sure that while you’re thinking about your risk profile as it changes over time, that you continue to commit yourself to learning as much as possible about the business of investing. Don’t leave things to change, and don’t invest with your gut — there’s only danger lurking for you if you do that type of thing. It would be a lot better in the greater scheme of things for you to actually invest in things that you have already done the research on. That way, when they appreciate in value, you know why. When they decrease in value, you can make adjustments. This is how people have improved their wealth for generations. You have to make sure that you’re always thinking about the type of life that you want at the end of the day — nobody is going to build it for you!

The Emotion Factor in Forex Trading

Posted by admin in Forex on Nov 19th, 2011 | 0 comments

One of the biggest problems that a Forex trader has to fight is emotion. Unfortunately, you can usually tell by the way someone looks when trading whether or not there is potential for success or not. The entire Forex market forces you to be cold in your approach if you want to make a profit. This is because everything is based on analysis and strict numbers. Whenever you feel overwhelmed by emotions, you are going to make many possible mistakes. There are two situations that can happen.

How Emotion can Hurt Forex Transactions

The first bad thing that can happen when you let emotions take over is when you are losing money. If you react based on your initial emotion, you might not pull the money out of the transaction and thus minimize the losses. There are so many people that will think that the market is bound to change and that the lost amount will eventually be smaller at time passes. This is not always the case. If you do not pull out the money in time, you can lose a lot. The trick in Forex trading is to win as much as possible while losing as less as you can.

The second bad thing that will happen appears when you are going to start winning money. There are so many people that catch a profitable trade and then will simply wait. This usually happens because of the fact that they get greedy. If you do not take out the money at the right time when this takes place, you can end up with less profit than what you could have made or even losses that appear when the market drops too fast to save anything.

So What Should You Do?

You need to understand that it is impossible to keep winning in Forex trading. You will also eventually lose money. By reacting as you should and being calm, you can minimize the amount you lose. Make sure that you take all the factors into account and that you always try to analyze every single transaction as well as you can. Psychological reactions play a much bigger part in Forex trading than most people tend to believe. In the event that you simply get enraged when you lose or stand out in joy when you lose, there is a guarantee that eventually money will be lost. Always remember that profits will come in time and they will not appear overnight.

Digging Deeper Into Index Funds

Posted by admin in Investment on Oct 17th, 2011 | 0 comments

There’s been a lot of bad press about mutual funds lately — especially as more and more people get fed up with the high fees that some mutual funds charge. So where do you go next? Well, you might be looking at the index fund side of things. Yet what if you don’t really know too much about Index funds? You might start feeling like there’s just no way that you could possibly handle everything, but that’s not true at all. In fact, index funds have been praised repeatedly for being much more passive of an investment than if you were to have an active portfolio of single stocks that you have to manage.

So, where do you go from here? Well you have to understand that index funds are still mutual funds, but they’re just not actively managed. That doesn’t mean that you’re going to be all alone in the wilderness — the Internet is a great source for information, which means that it’s not going to be the end of the world to actually focus on something other than your manager’s high fees. Of course, if you really do want to have someone with expertise managing your fund, then you’re going to have to be willing to pay the price. It’s completely up to you, so don’t think that we’re trying to pressure you.

The best thing that you can do for yourself is take some time and really do some research on the many different index funds out there. This is going to be about what you’re willing to risk, what areas that you want to explore, or even what areas that you don’t want to explore. If you’re not keen on biotech, you can avoid that sector completely without losing in the index funds game.  It’s always your show.

The index funds get their name from the fact that they represent a segment of the stock market — or even the bond market. There’s a lot of different ways that you can go with index funds, so it’s not like you have to be stuck with one option over another.

Make sure that you’re looking at the fees — some people are so ready to run from actively managed portfolios that they think that they’re going to automatically have some sort of paradise waiting for them in the world of index funds. This is just not the case at all. You’re a lot better off really thinking about the idea of going back to the research board and really making sure that you’re comparing apples to apples. As an investor, there’s no way that you’re ever going to find a zero-fee solution. Why should you be the only one making profits, after all?

It’s not always fair, but it is an opportunity to grow your portfolio that you should definitely consider.

What else do you need to know about index funds before you buy them? Well, understanding the fund structure is really important. An index fund can be anything from a closed-end fund to a unit investment trust all the way up to a mutual fund. You will need to understand fund structures before you can feel comfortable with any index fund.

From there, you will also want to track your performance for a while even after you close on the fund — just to make sure that things are solid before you let things just go on autopilot. Hands free money is often a pipe dream. If you really want the most control over your investments, you’re going to need to make sure that you think about the road that your investments are taking. Don’t get into the myth of passive investing to the point where you never check your portfolio. That could lead to some very costly mistakes!

Relative valuation

Posted by admin in Investment on Sep 28th, 2011 | 0 comments

Relative valuation involves using similar assets to value another asset.

One common example is in real estate, where prospective buyers will use the value of other properties of a similar size in the same area to determine the amount they are willing to offer for a particular property.

Relative valuation is proven for a range of assets every day – as fundamental issues are often relevant across sectors, or even markets, assets within those sectors or markets often move in tandem.

If we use share trading as an example, some of the common factors used to measure stock value include:

1.    Price to earnings ratio
2.    Return on equity
3.    Operating margin
4.    Enterprise value
5.    Price/cash flow per share

Example

Westpac and the Commonwealth Bank (CBA) are Australia’s two largest banks. On September 26, CBA shares were priced at AUD43.89, while Westpac shares were AUD19.11. CBA has a market capitalisation of AUD69 million and Westpac has a market capitalisation of AUD57 billion.

A share trader can use this information to determine whether investing in CBA or Westpac would be better value. Both companies’ market capitalisations are very similar, along with their enterprise values, so we’ll focus on the price to earnings ratio, return on equity and operating margin.

Although Westpac has a lower price to earnings ratio, the CBA has a higher return on equity despite having a lower operating margin. CBA also has a higher cash flow per share than Westpac and if it can continue churning higher cash flow, it’s a sign that it is creating more value from shareholders.

Limitations

Although relative valuations have their benefits, they also have their limitations. The greatest limitation is when the market has valued a business incorrectly – in the case of a bubble, it wouldn’t matter what either companies’ fundamentals were.

Also, company valuations are based on past performance, and future performance is what drives stock prices. Relative valuation accounts for the current and past value of a share, rather than future growth.

That being said, relative valuation is a simple tool that any trader can add to his arsenal, and the information required to perform your own evaluation is readily available.