Market Analysis Blog » Trading

Unrealised Points to keep in mind while investing in stocks

admin — Tue, 26 May 2009 00:46:39 +0000

Below is the best approach which i considered for investing or holding positions with stocks.

Don’t follow advisory services. They are not infallible
Be cautious with brokers’ advice. They can be wrong
Ignore market sayings, no matter how ancient and revered.
Don’t trade over the counter stocks- trade only listed stocks, there will be always a buyer for it.
Don’t listen to rumors, no matter how well founded they may appear.
The fundamental approach (long term positions) works better than gambling (short term or intraday).
Hold on to one rising stock for longer period , rather juggle with a dozen stocks for shorter period.

List the stocks as below before obtaining positions:

Stocks with top quality rating.
Stocks the experts like.
Stocks selling below book value.
Stocks with strong cash position.
Stocks that have never cut their dividend.

The stocks belonging to the same industry have the tendency to move together in the market, either up or down.Try to find through fundamental analysis of

a) the strongest industry group.

b) the strongest company within that industry group.

Buy the stock of that strongest company and hold on to it, for such an ideal stock must rise.

Whenever a stock started to behave better than the market generally, immediately looked at the behavior of its brothers— stocks of the same industry group. If found that its brothers

also behaved well, look for the head of the family—the stock that was acting best, the leader. If you could not make money with the leader then certainly you will not make money with the others.

Start compiling earnings of whole industry groups finance, metals, oils, auto, consumer etc., compare their past earnings with their present earnings. Then compare these earnings with

the earnings of other industry groups. Carefully evaluate their profit margins, their price-earnings ratios and their capitalizations.

Ten ways to Keep your protfolio healthy – Trading tips

admin — Tue, 26 May 2009 00:37:30 +0000

1. The market teaches humility. As soon as you believe you know why the market acts, you will be proven wrong. Arrogance can kill a portfolio. You must be able to admit defeat and preserve enough capital to fight again. Following the point and figure charts, which depict the battle between supply and demand, helps keep you out of the “I know why” attitude of investing.

2. When a sector reverses up, wait until you feel comfortable to buy. Falling into this trap is a great way to ensure that you buy the stock at a higher price. We use the bullish percent indicators to track the risk in sectors. These indicators are soulless. In otherwords, they are not emotional and do not get caught up in recent news events and common thinking. When sectors reverse up from oversold levels, it is often when the news is the most dire. Conventional wisdom would suggest this is the last place in the world you would want to invest. Buying at this time is gut wrenching, but to be successful you must have complete confidence in the indicator. As the sector moves higher, the comfort level increases. If you use comfort level as your guidance, however, you will for sure leave a lot of money on the table, or worse, buy as the sector peaks.

3. Be afraid to buy strong stocks. Do this to make sure you stay out of the long-term winners. Don’t avoid stocks just because they have gone up. Doing this will keep you out of the leaders. This mentality would have kept you out of General Electric (GE), which was up 188 percent between January 1995 and December 1997 only to see it rally another 96 percent by the end of 2000. It also would have kept you out of Cisco (CSCO), which was up 376 percent between January 1995 and December 1997, and then it moved up another 312 percent by the end of 2000. These are only two examples, but there are many others. More important than how much the stock is up is its supply and demand relationship. By evaluating the point and figure chart, you can gain insight into this relationship and whether or not the stock is likely to move higher. Stocks that double can easily double again. Don’t miss out on these great opportunities.

4. Sell a stock because it has gone up. Doing this cuts profits short. Buying a stock right is only half the battle. You have to be able to sell it right to win the war. Just because a stock has rallied 30 percent or 50 percent, don’t be tempted to take your trade off for that reason alone. Consider trimming the position and leave part on the table to continue in the uptrend. Let profits run.

5. Buy stocks in sectors that are extended because it’s different this time. On the surface, the stock market appears different all the time. The leadership changes: in come the Nifty 50, and then out they go. Small-cap stocks outperform for a while, then it’s back to the large caps. However, the underlying forces that drive the stock market are always the same. They are true and time-tested and do not change. They are supply and demand. That’s why buying sectors that are extended (overbought) will not be different this time.

6. Try to bottom fish a stock in a downtrend. “The trend is your friend” is a true statement. So don’t go against it without some inkling that the trend has changed. Bottom fishing a stock in a downtrend is the opposite of being afraid to buy strong stocks. Do not buy a stock just because it fell sharply. You want to buy a stock that is likely to move higher, not one that is not likely to fall further. At a minimum, wait for the stock to show a sign that demand is back in control and suggesting higher prices. That may be a simple buy signal on the chart or a reversal back to the upside after holding an area of support. Also remember why you initiated the position. Be careful not to let a trade turn into something else.

7. Buy a stock because it is a good value. These days, value is in the eyes of the holder, and therefore it is a subjective term at best. If a stock has become a good value, ask why. This is important, because a stock can stay a good value by not moving for the next decade, or worse, become a better value by dropping another 20 percent. The true value of a stock is determined by its capital appreciation potential, not numbers on a balance sheet. The basis for capital appreciation lies in the supply and demand relationship of the stock. Appreciation can occur only if demand grows stronger for the stock and buyers are willing to pay a higher price. Watch the point and figure charts to determine if a stock is likely to move higher in price and become a good value.

8. Hold on to losing stocks and hope they come back. Hope is eternal, but your portfolio is not. Holding on to a losing stock is the best way to let your losses run. Combine this mistake with selling a stock that has gone up and you can create a portfolio of dogs. When buying stocks, there will always be some losers: Count on it. However, how you manage that loss often determines the success or failure of the overall portfolio. Keep losses small so that you have the capital to play again. Hanging on to losing positions, hoping that they will come back, can be deadly. A $50 stock that is stopped out at $40 is a 20 percent loss. It’s a bad trade, but it is manageable. In order to recoup that loss you would have to make 25 percent on a $40 stock. What if you held on to that $50 stock, hoping that strong earnings would come in and turn it around, but instead it continued lower to $25? Finally, you decide to exit, but now it takes a 100 percent return from a $25 stock just to get back to even. Those results are hard to find, and if you are able to find one, you don’t want to waste it on getting back to even. Learn to recognize your losing positions for what they are. If a stock cannot trade above its support line or is not outperforming the averages, find one that is and swap it.

9. Pursue perfection. There are two types of mistakes to discuss here. The first is the constant belief that there is a better system out there, and you need to find it. Using a new system to invest each week will not get you to your goal. You will become good at nothing and moderate to bad at everything. To be good requires that you stay focused, disciplined, and skilled at whatever methodology you choose. You need to have the strength of conviction in your chosen discipline to learn from mistakes rather than to run away from them and find another methodology. There is no Holy Grail in investing. The second mistake is to wait for the perfect trade. There is no such thing. If you only buy stocks that have all positive attributes you will maintain a portfolio of cash. Rarely, if ever, do you find a stock that has all the pluses on its side. Look for the big ones like relative strength, trend, and signal. Also remember that 80 percent of the cause of price movement in a stock is based on the market and sector. You are better off being approximately right than precisely wrong.

10. Do anything based on a magazine cover. Following the hot news that appears on magazine covers is a shortcut to the poorhouse. Why should you follow the advice of someone who has just

moved from the society pages to the business section?

Various Types of Brokerage Accounts

admin — Tue, 26 May 2009 00:33:35 +0000

When you decide to start investing in the stock market, you have to somehow actually pay for the stocks you buy. Most brokerage firms offer investors several different types of accounts, each serving a different purpose. I present three of the most common types in the following sections. The basic difference boils down to how particular brokers view your “creditworthiness” when it comes to buying and selling securities. If your credit isn’t great, your only choice is a cash account. If your credit is good, you can open either a cash account or a margin account. Once you qualify for a margin account, you can (with additional approval) upgrade it to do options trades.

To open an account, you have to fill out an application and submit a check or money order for at least the minimum amount required to establish an account.

Cash accounts

A cash account (also referred to as a Type 1 account) means just what you think it means. You must deposit a sum of money along with the new account application to begin trading. The amount of your initial deposit varies from broker to broker. Some brokers have a minimum of $10,000, while others let Going for Brokers 95 you open an account for as little as $500. Once in a while you may see a broker offering cash accounts with no minimum deposit, usually as part of a promotion. Qualifying fora cash account is usually easy as long as you have cash and a pulse. With a cash account, your money has to be deposited in the account before the closing (or settlement) date for any trade you make. The closing occurs three business days after the date you make the trade (the date of execution). You may be required to have the money in the account even before the date of execution.

In other words, if you call your broker on Monday, October 10, and order 50 shares of CashLess Corp. at $20 per share, then on Thursday, October 13, you better have $1,000 in cash sitting in your account (plus commission). Otherwise, the purchase doesn’t go through. If you have cash in a brokerage account, see whether the broker will pay you interest on the uninvested cash in it. Some offer a service in which uninvested money earns money market rates and you can even make a choice about whether the venue is a regular money market account or a tax-free

municipal money market account.

Margin accounts

A margin account (also called a Type 2 account) gives you the ability to borrow money against the securities in the account to buy more stock. Because you have the ability to borrow in a margin account, you have to be qualified and approved by the broker. After you’re approved, this newfound credit gives you more leverage so that you can buy more stock or do shortselling.

For stock trading, the margin limit is 50 percent. For example, if you plan to buy $10,000 worth of stock on margin, you need at least $5,000 in cash (or securities owned) sitting in your account. The interest rate that you pay varies depending on the broker, but most brokers generally charge a rate that’s several points higher than their own borrowing rate. Why use margin? Margin is to stocks what mortgage is to buying real estate. You can buy real estate with all cash, but many times, using borrowed funds makes sense since you may not have enough money to make a 100% cash purchase or you prefer not to pay all cash. With margin, you could, for example, be able to buy $10,000 worth of stock with as little as $5,000. The balance of

the stock purchase is acquired using a loan (margin) from the brokerage firm.

Option accounts

An option account (also referred to as a Type 3 account) gives you all the capabilities of a margin account (which in turn also gives you the capabilities of a cash account) plus the ability to trade options on stocks and stock indexes. To upgrade your margin account to an options account, the broker usually asks you to sign a statement that you’re knowledgeable about options and familiar with the risks associated with them. Options can be a very effective addition to a stock investor’s array of wealthbuilding investment tools.

Trading- online resources

admin — Tue, 26 May 2009 00:28:43 +0000

The number and variations of online resources can frazzle the mind and everyday more and more sites are uploaded to the Internet. Resources range from informational Web sites, online magazines, online educational sites, to interactive trading markets. That doesn’t include online publishers where you can purchase stock investment books from sites such as barnesnoble.com or amazon.com or financial and media business sites.

One of the changes that the online trading market is in the process of instigating is longer trading hours. Traditionally, floor-based trading occurred between the hours of 9 a.m. and 4 p.m., however, online markets are changing all that. Many speculate that 24-hour trading is far away.

Many online trader sites offer stock picks and specific recommendations for people who register on their site and subscribe to email newsletters. You can find online chat rooms and active bulletin boards where you can post messages and follow-up responses. The idea is to provide a market of communication for ex where you can post messages and follow-up responses. The idea is to provide a market of communication for firm experts, experienced individuals, and even amateurs just getting started. You will need to surf through these online trading sites, read as much as possible until you feel comfortable returning to a select few and following the suggestions and advice they provide on their sites. Choose one specific trading site as your homepage which will be most helpful to you, and bookmark any others of interest.

Please realize that not all the information on these sites can be taken as absolute. Many people will offer information based on their opinions, experience and education. The opinions may or may not be helpful, but the experiences and education could be of assistance to you while in the process of learning. Listening and heeding advice can sometimes help you to avoid mistakes that others have made, however, it can also mislead you into making bad decisions. You have to do your own research, self-education, take classes and weigh advice based on other cross-references and your instincts. You will make mistakes. No experience can be error free or it wouldn’t be experience. Use your mistakes wisely, learn from them so that you don’t repeat them.

The following lists are current online Web sites organized by appropriate categories.

Media Web Sites

ABC News www.abcnews.com

CNBC www.cnbc.com

CBS Marketwatch www.marketwatch.com

CNN Financial www.cnnfn.com

MSN MoneyCentral www.moneycentral.com

The New York Times www.nytimes.com

News Alert www.newsalert.com

ReutersMoney Net www.moneynet.com

TheStreet.com www.thestreet.com

$Wall Street City www.wallstreetcity.com

Dow Jones Newswires www.dowjonesnews.com

Standard & Poors ComStock www.spcomstock.com

Multex Investor http://nasdaqeurope.multexinvestor.co.uk

Trading Web Sites

The Daily Trader www.dailytrader.com

Daytraders On-line www.daytraders.com

Online Trading Academy www.Tradingacademy.com

On-Site Trading www.onsitetrading.com

Pristine Day Trader www.pristine.com

TradingMarkets.com www.tradingmarkets.com

Bloomberg.com www.bloomberg.com

AltaVista Finance www.altavista.wallst.com

CyberInvest www.cyberinvest.com

Financial Center www.tfc.com

Interactive Investor www.zdii.com

Invest-O-Rama www.investorama.com

Investor Words www.investorwords.com

The Motley Fool www.fool.com

The Raging Bull www.ragingbull.com

Silicon Investor www.techstocks.com

Stockpoint www.stockpoint.com

Etrade.com www.etrade.com

Quote.com www.quote.com

MassLive.com www.masslive.com

Institutional Investor Online www.institutionalinvestoronline.com

Strictly Stock Online www.strictlystock.com

Online Magazines

Money Magazine www.moneymagazine.com

FT expat Magazine www.ft.com

Fortune Magazine www.fortune.com

Business Week Online www.businessweek.com

Web Finance Magazine www.mfmarketnews.com

Better Investing Magazine www.better-investing.org

Mutual Funds Magazine www.mutual-funds.com

Traders World www.tradersworld.com

Bloomberg.com Publishers publishes four magazines that can be found through

their Web site:

Markets www.bloomberg.com

Personal Finance www.bloomberg.com

Wealth Manager www.bloomberg.com

Bloomberg Money www.bloomberg.com