Education | - Part 2

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Weekly Ramblings of an Australian Stock Trader - incorporating
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Category — Education

How Much Money Should You Invest?

Many first time investors think that they should invest all of their savings. This isn’t necessarily true. To determine how much money you should invest, you must first determine how much you actually can afford to invest, and what your financial goals are.

First, let’s take a look at how much money you can currently afford to invest. Do you have savings that you can use? If so, great! However, you don’t want to cut yourself short when you tie your money up in an investment. What were your savings originally for?

It is important to keep three to six months of living expenses in a readily accessible savings account – don’t invest that money! Don’t invest any money that you may need to lay your hands on in a hurry in the future. [Read more →]

July 17, 2013   Comments Off

Determine Your Risk Tolerance.

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. [Read more →]

July 16, 2013   Comments Off

A Basic Trading Plan in a Nutshell.

For those of you who are interested here is my “trading plan”.  Here it is in a nutshell:-

1. Do your homework/research.

2. Know the amount you are investing in the stock. No more than 10% of your portfolio’s value.

3. Work out your profit margin. So you know how much you are going to make plus know your exit price. (The price you are selling at.)

4. Put your stop loss on so you will not lose more than 10% ($2,000 = $200 this includes brokerage).

5. Don’t get greedy, panic or fearful. (You can’t afford these emotions in trading.)

6.Have an up to date list of around 15 to 20 future prospects ready at all times.(If in doubt leave it out) and keep them up to date.

7. Dont become impatient; don’t go chasing share prices/ stocks. And make sure you are using “real time data” 20 minutes delayed price is for the birds.

Of course you can add in your own rules as you see fit. Happy trading.  :-)

July 12, 2013   Comments Off

Benefits of Long Term Share Trading vs Short Term Share Trading.

Both short term trading and long term trading can be effective trading strategies. However long term trading has several significant advantages.

These include the opportunity to earn from dividends, reduction of the impact of price fluctuations, and the ability to make corrections in a more timely manner plus there is less time spent monitoring stocks.

1. Dividends

Holding a stock to take advantage of payouts from dividends is another way to increase the value of an investment. Some companies offer the ability to reinvest dividends with additional share purchases thereby increasing the overall value of your investment. Additionally, dividends are more a reflection of a company’s overall business strategy and success than volatile price fluctuations which are based on market emotions.

2. Reduction Of The Impact Of Price Fluctuations

In the long term investment the trader is less affected by short term volatility. The market tends to address all factors that keep changing in the short term. So a trader involved in long term trading will not be affected as much by short term instability due to factors such as liquidity,passing fads or fancies of a particular sector. Or stock which may make the price of a stock over or undervalued.

In the long term, good stocks which may have been affected due to some other factors (in the short term) will give better than average returns.

Long-term investors, particularly those who invest in a diversified portfolio, can ride out down markets without dramatically affecting his or her ability to reach their goals.

3. Making Corrections

It is highly likely that you could achieve a constant return over a long period. The reality is that there will be times when your investments earn less and other times when you make a lot of money in short term. There will also be times when you lose money in short term but as you are in quality stocks and have long term perspective of investment you will earn good returns over a period of time.

There are always times when some stocks will not perform as planned, and it is the wise choice to pull out of such an investment. With a long term perspective based on quality stocks, it is easier to make decisions to change in a more timely manner without the urgency that accompanies short term and day trading strategies.

Chasing volatile changes.

Investors that begin early and stay in the market have a much better chance of riding out the bad times and capitalising on the periods when the market is rising by taking a longer term view using long term trading strategies.

I wish you profitable trading. :-)

July 11, 2013   Comments Off

What is the Difference Between Bulls and Bears.

Firstly the bull is a buyer and the bear is “always” a seller.

The bull buys because he wants to make money,
(don’t we all?).

The bear is more complicated and can sell for different reasons. This can be just to lock in a profit because he thinks the share price is about to go down

The most fearful of the bears sets the lowest price for the day. This is done by offering to sell his shares at this level.

In a “bull market” novice traders rush into every reasonable opportunity they can afford. [Read more →]

July 5, 2013   Comments Off

Here’s Your Six-Point Stock Buying Checklist.

Here’s Your Six-Point Stock Buying Checklist

You won’t find a single person more bullish than your editor here in the Port Phillip Publishing office in Albert Park.

But as positive as we are about the outlook for the market, we’ll admit that yesterday’s 123 point, 2.63% gain even took us by surprise.

Not that we’re complaining. We’ll take a 123-point gain any day of the week. So, what was behind the big triple digit gain?

We’ve got no idea…and we don’t care. Here’s why…

As we explained last Friday, it’s pointless trying to figure out which way the market will turn based on big picture macro-economic events or data.

We showed you this diagram to illustrate how crazy things had become: [Read more →]

July 4, 2013   Comments Off

How to be a Disciplined Trader.

How to be a Disciplined Trader

I’m sure by now that you’re quite used to me blabbing on each day. So for today, I thought it would make a nice change if someone else did the blabbing.

On Friday I asked Slipstream Trader editor Murray Dawes a favour. I asked if I could republish to Money Morning readers excerpts of his weekly update that’s usually reserved to Slipstream Trader members.

He agreed. On one condition. That I didn’t reveal to you any of the open trades.

That’s fair enough, I said. After all, his members pay good money to get his trading advice, and it wouldn’t be fair to give it away for free.

Even so, Murray approaches the stock market from a different angle to your editor. Murray is a technical analyst. That means he spends all day pouring over charts, looking at indicators and trying to identify a buy or sell signal before anyone else has noticed it.

It’s a tough job, but it’s paying dividends.

So, today is a day that you can sit back with a coffee and read Money Morning without worrying whether the boss is looking over your shoulder.

Here’s Murray with his take on the market… [Read more →]

July 2, 2013   Comments Off

How To Trade Successfully During Consolidation Phases.

When stock prices begin to move within a certain range. That is falling to previously established lows and then bouncing back up to previously established highs and then proceed to fall back again, these stocks are then said to be in a consolidation or congested phase.

A lot of the time, these distinctive consolidation patterns can be seen, with the most common one being seen as the rectangle pattern or sometimes traders will call it a channel.

When prices start to drop, this is when invariably traders begin to get extremely nervous, this is also the usual time when the weaker traders will sell their stocks. This of course invariably causes the stock to fall to a support level.

What happens then is that other traders seeing this occurring they will then quite often consider that this is now a good price to buy at. So from that level stock prices will then rebound upwards again, often with increased volume as support comes rushing back again into the stock. [Read more →]

July 2, 2013   Comments Off

How to Trade Gaps.

This week we shall have a look at various ways to trade on the stock market.

How to Trade Gaps.

GAP TRADING is usually done over a two to three day’s trading duration. I am usually buying in at around mid-point of the first day’s trading. I usually sell at around the mid-point of the second day, occasionally in the third day of trading.

The “Selection Criteria” that I use for Gap Trading is:-

1. Volume.
There must be good volume on the buying side. Volume is more important the day before the gap; it must not be last week’s volume

2. Price pattern.

3. Trend pattern.
There must be a definite trend line straight upwards.(Peaks and troughs which are higher than the ones the days before.) [Read more →]

July 1, 2013   Comments Off

So You Want To Become A Share Trader?

Sounds impressive eh? You have visions of dollars floating through your head. Dreaming of fast cars, luxury holidays etc.
Easy money to be made. Just look at the newspapers there are lots of people making millions everywhere, that’s if you believe all that you read in the newspapers and what you see on television.

Well it’s time for a reality check, for things are not as they seem. Sure there is money to be made especially in a bull market, (rising share prices.)It can be very easy to make money. The drawback is that the beginner is unprepared for the inevitable downturn in the share market.

Before they know it they have suffered a couple of reversals only to find that hey have lost a goodly proportion of their capital and having burnt their fingers severely, leave the market very disillusioned never to return.

The market place is littered with the broken hopes and dreams of the would be share trader. And if again in the future they decide to try their luck again they are doomed to failure because their attitude and training hasn’t changed from their last foray into the market. [Read more →]

June 25, 2013   Comments Off