Thursday, July 27, 2006

Determine Your Risk Tolerance

investments & trading

Determine Your Risk Tolerance By J. Foley


Each individual has a risk tolerance that should not be ignored. Any good stock broker or financial planner knows this, and they should make the effort to help you determine what your risk tolerance is. Then, they should work with you to find investments that do not exceed your risk tolerance.

Determining one’s risk tolerance involves several different things. First, you need to know how much money you have to invest, and what your investment and financial goals are.

For instance, if you plan to retire in ten years, and you’ve not saved a single penny towards that end, you need to have a high risk tolerance – because you will need to do some aggressive – risky – investing in order to reach your financial goal.

On the other side of the coin, if you are in your early twenties and you want to start investing for your retirement, your risk tolerance will be low. You can afford to watch your money grow slowly over time.

Realize of course, that your need for a high risk tolerance or your need for a low risk tolerance really has no bearing on how you feel about risk. Again, there is a lot in determining your tolerance.

For instance, if you invested in the stock market and you watched the movement of that stock daily and saw that it was dropping slightly, what would you do?

Would you sell out or would you let your money ride? If you have a low tolerance for risk, you would want to sell out… if you have a high tolerance, you would let your money ride and see what happens. This is not based on what your financial goals are. This tolerance is based on how you feel about your money!

Again, a good financial planner or stock broker should help you determine the level of risk that you are comfortable with, and help you choose your investments accordingly.

Your risk tolerance should be based on what your financial goals are and how you feel about the possibility of losing your money. It’s all tied in together.

investments & trading
Article Written By J. Foley
http://travelguy.typepad.com/investments

Friday, July 21, 2006

Swing Trade : How To Profit From Swing Trading ?

investments & trading

Swing Trading – How to Profit from Swing Trading? By J. Foley

Swing trading is a trading strategy where you hold stock positions for a short duration of time, but longer than a day trade. Swing trade positions can last anywhere from 2 to 30 days, and generally try to take advantage of short and mid-term movements in stock prices.

This is also quite risky though may seem to be less so than day trading. Since it is not even mid-term and you don't wait for long a time, it is possible that that stock falls as you wait and as you come to the pre-fixed end of your target holding period, you have to sell at a trough. It is also possible that the stock makes a turnaround immediately after you exit, and you either narrowly miss a huge profit or avoid a withering loss.

Before going in for swing trading, one needs to understand the difference between swings and stock market cycles.

A cycle is longer than a swing. A cycle is made of many short swings, up and down. There are swing trading firms making lucrative promises and publishing tall advertisements. Watch out or you may get into some disastrous mistake.

The general principle for winning is the same for all stock market entrants: sell the losers and let the winners ride! Longer term investors make profits by selling their appreciated investments, but they hold on to stocks that have declined, hoping for a rebound. Swing traders often do not have that long a time to get into rebound. They have to infer accurately when it is time to give up a stock within their projected time range.

A personal policy to sell after a stock has increased by a certain pre-fixed multiple often pays off in swing trading. But that way it may never fully ride out a winner. Therefore it is wise to allow for some degree of flexibility within this swing trading period.

It is best not to underestimate a well performing stock by sticking to some rigid personal rule. If you don't have a good understanding of the potential of your investments, your personal rules may end up being arbitrary and too limiting. Hence before entering this type of trading, do extensive research on the behavior of your selected sample of 'good' stocks.

On the other hand, it's equally important to be realistic about investments that are performing badly. That a stock will bounce back after a lingering decline can never be guaranteed. Hence the best time to sell has to be chosen wisely also, and the wisdom has to be carefully based on research. A standard strategy is to wait till the upswing goes on within the period you remain in the market, and then sell at the end of your chosen end time.

Being an active investor involves knowing the in-s and out-s of buying and selling stock. But for becoming a successful swing trader, there is no substitute to working hard watching and analyzing your personal portfolio. In order to obtain the gains and rewards from swing trading, you need to master the science of timing.

investments & trading
Article Written By J. Foley

Saturday, July 15, 2006

Tools You'll Need : Day Trading Must Haves

investments & trading

Tools you'll need: Day Trading Must Haves
 
Day trading previously had been only for the trading firms or the brokers who dealt in the physical market. But with the advent of the internet and a general advance of communication technology day trading has entered the homes of any interested individual who might have not visited the markets in person ever. But to be a successful day trader from your home you need to have the right gear. And by that we mean you need to have the proper hardware and software to build yourself a platform that could help you stay competitive against the market makers and other day traders. Following is a guide to the proper equipment you must have to do well.
Hardware
When you are trading online all you need is a good computer. You need to have only the basic items of hardware installed. But don't compromise on what you get yourself. Remember that while trading you would have to deal with a lot of numbers and figures and so you would require your computer to handle the data well. Get yourself a decent processor (anything above 1GHz) and plenty of memory. A 100GB hard disk drive is suggested as you would need to stack a lot of information. Higher memory also means better speed. Get yourself at least 1024MB of RAM as it would be necessary when you are crunching those numbers. You will of course need a modem to stay connected and a high quality video card would help you get the live feeds better.  
As you would be dealing with a lot of data you should get yourself at least a 19" monitor. You can even go for split screen and use two monitors for a single screen shot.
Connection Speed
While you are day trading you are doing business real time. So you can't allow for any time lag. You would be placing your orders and quotes and you have to get them done on time or else you might miss out on good trading opportunities. So  a dial-up connection isn't the best choice you have. To be a serious day trader it is always advisable to get a cable or DSL connection. That way you will get real-time data in your hand and can trade effectively.
Software
To make full use of the hardware you have got yourself you would also need the necessary software platforms to go with it. If you are in day trading you can go no where without the proper data in your hand. And even if you have the data you need to get the proper tools to store them well and have an easy access to them. The trading software platforms not only help you in getting the necessary data like the stock quotes, market indices, market stories and price alerts in real-time but they also store and present the data for you in an organized way so that it becomes much easier for you to make sense of it all when you read the spread sheets. You can buy these software platforms online or you can even get them from a few stores if you want to. You should however note that you may have to pay separately for access to the data that you need to download.

investments & trading
Article Written By J. Foley
http://travelguy.typepad.com/investments

Thursday, July 06, 2006

Training Basics For The Beginners

ivestments & trading

Trading basics for the beginners by J. Foley
The Share market immediately conjures up stories of fortunes made and lost. A share makes the holder a partial owner of the company and different types of shares have different rights associated with them. If you are able to sell off your share at a price higher than your buying price, you make a profit but you also run the risk of incurring a loss if the share price falls. The business you invested in makes profit and they provide you part of it as dividend.
In the share market you are an anonymous player and many have made a reasonable profit. There is no unique formula to ensure consistent gain but before you venture into this market you should know the basics of stock trading.
 
What does trading stocks mean?

Buying and selling of stocks is referred to as trading in the financial market.

You have to approach a broker in order to trade. You can trade either electronically or on the exchange floor. Exchange floor scene must be familiar to you; the NYSE has been on television as part of news coverage innumerable times. It is here that your broker arranges for your shares to be ordered. . The floor clerk   locates the floor trader from whom the shares can be bought. Once the price is agreed upon, the deal is finalized. 

Electronic transaction is very common today. It is an efficient and fast method of stock trading. Here too you require a broker but you receive confirmations almost immediately .In online investing your broker will connect to the exchange network and search for a buyer or seller according to your order.
How are the stock prices determined?
The stock prices cannot be predicted, they depend on various factors like political unrest, if there is a huge demand for a particular share at a given time, prices can fluctuate, any event that could adversely affect the company will also cause the share prices to drop. 
 
Before you decide on which stock to buy you must answer the following questions.
 
Do you know the company well enough? 
What is the company's reputation in the market?
Have you gone through their annual report?
Do you have the confidence to invest in this company?
Is some negative news about the company circulating?
How are analysts predicting the future?
How is the management of the company?
What are their growth prospects?
Am I aware of the insider activity?
Is it an internationally renowned company?
How is their marketing strategy?
Have there been any changes in the management recently?
How consistent has been their performance?
Has there been a sudden shift in their production?
  Whenever you invest you should be aware of your limits and remember not to exceed them. Share market involves a lot of risk , risk taking could either  lead to fortunate gains or to  bankruptcy.
You should avoid investing money more than you can actually afford.
Know about your investment well and do not blindly depend upon your broker.
Follow regular stock market quotes to keep yourself abreast of the market swings.
 
The share provides you with an earning power, gives you partial ownership of a company and the freedom to buy or sell at any moment. But if you are a novice in stock trading you need to play safe and equip yourself with a lot of information. Unless you are a seasoned player you should invest only after surveying   all the alternatives and never go beyond your risk tolerance.

ivestments & trading
Article Written By J. Foley

Saturday, July 01, 2006

Know The Language : Trading Room Jargon

investments & trading

Know thelanguage: Trading room jargon  by J. Foley
So you are considering taking the big plunge in to the trading market? You have done a lot of research on how to be successful in the market; what are the necessary hardware items and software platforms you have to have; what are the risks you are taking as you embark on the new profession. That's all good, but you can definitely do with a bit of knowledge about the regular trading room jargon that you will soon come across pretty regularly. And if you can't make sense of what you are hearing there is little chance you will go much further. So following is a list of terms that are regularly used in trading rooms which will help you to get at least initiated in the language. 
Blue-chip stock
a reference to the blue chips used in the game of poker, such stocks are of established companies which have performed well regularly over a considerable period of time. Stocks of companies like IBM, GE are considered to be blue chip stocks. 
Bottom fishing
to fish or buy stocks that have suffered significant decline in their prices or are continuing to do so. 
going long
to buy and hold a stock for some length of time. 
Going short
To sell stocks short, i.e., to borrow and sell stock which you do not want to own for the moment but intend to do so later on for a comparatively lesser price. 
Uptick
Uptick means the next trade is at a price higher than the previous trade. However for certain transactions to be executed you have to do it on an uptick. 
Downtick
Downtick means exactly the opposite of an uptick, i.e, the next trade is at a price lower than the previous trade. 
Elves index
a much trusted index, Louis Rukeyser makes an  index of the opinions on the general stock market for the coming 6 months. He polls 10 respected analysts every week (they are the same ones every week), to know what they assume the general trend will be, either bullish (+1), neutral (0), or bearish (-1). Obviously, the index range is -10 to +10. 
Call money rate
Also known as the broker loan rate, this is the interest rate that banks lay on brokers to finance margin loans to investors. The broker in his turn charges the investor the call money rate plus a service charge. Investors who are willing to buy on margin will pay this rate. 
Hope the above guide helps you in your future dealings with the stock market. It is always advisable to learn the language of the trade. The more comfortable you are the more easily would you be able to communicate, grasp and analyze what actually is going on in the market.  
The above guide is only a sample and space here is too short to provide you with an extensive glossary. However there are other websites which are exclusively dealing on this matter which you can have a look at. But we would suggest you to keep a business dictionary near for ready reference as however much you know you can always come up against a new term which would make little sense to you.

investments & trading
http://travelguy.typepad.com/investments