The Basics | - Part 2

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Weekly Ramblings of an Australian Stock Trader - incorporating
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Category — The Basics

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

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

Are You Keeping Yourself from Getting Rich?

Are You Keeping Yourself from Getting Rich?

I believe people are a product of their environment, and that the most successful investors embody five key ‘traits’ for lack of a better term.

So here they are…the five traits I believe will help boost your profits and keep the bears at bay.

Get Out of Your Comfort Zone
Every investor falls into a comfort zone sooner or later, whether it’s because they ‘know’ theirinvestments or become overly familiar with certain methodologies. Sometimes this works for them, but the majority of the time it works against them for one simple reason…the markets change over time.

Really successful investors will deliberately go outside their comfort zones. They’re the ones who have stacks of magazines and books all over their homes. They read voraciously and make it a point to engage others around them in a never-ending process to learn more about the world.

Dr. Mark Mobius, Executive Chairman of Templeton Emerging Markets Group, is perhaps the ultimate example of what I am talking about. Overseeing research in 18 global emerging markets offices, he’s always on the go and commands an almost encyclopaedic knowledge of the investing landscape.

He revels in change because it’s synonymous with opportunity. [Read more →]

June 25, 2013   Comments Off

The 12 Most Important Rules Every Investor Must Know.

The more I see, the less I know for sure.’ – John Lennon

When you’re younger, your limited life experiences tend to cloud your judgement. At eighteen you know everything (at least if you’re male).

The more you experience life, the more you realize how little you actually know. And that which you think you know, may not even be correct.

Twenty-six years in financial planning has taught me a lot. None of it came from textbooks. No amount of theory can replace experience.

Just when you think you know about markets, along comes a surprise.

Allow me to share with you what my experiences have taught me and what I think I know about theinvestment business… [Read more →]

June 24, 2013   Comments Off

The Single Biggest Mistake A Technology Investor Can Make.

Technology helps the world advance. As humans it’s in our nature to investigate, innovate and solve problems.

This curiosity means we make things, create things and develop new technologies.

You can look back thousands of years for basic examples of technology pushing civilisation forward.

Stone Age: it might sound simple, but the development of stone and bone blades and tools was vital to the development of mankind. The earliest example of innovation and technology is a shovel that was fashioned from the shoulder blade of an Ox.

Iron Age: in the Iron Age, iron smelting was all the rage. It helped make better, more efficient tools. This helped construction, agriculture and civilisation continue to advance.

Industrial Revolution: the industrial revolution sparked a wave of new technology. Manufacturing went from being hand produced to machinery made. New efficiencies and tools helped to bring an era of unprecedented wealth.

Of course I’ve skipped a few different ages. Importantly though you can find examples in the Bronze Age, the Atomic Age and the Information Age too. [Read more →]

June 23, 2013   Comments Off

Small Profits are Better Than No Profits At All.

Once you have learned to know the traps and pitfalls of trading in the stock market, (Usually by bitter experience) you can then more readily avoid them.

Making small mistakes are par for the course when you first begin to trade. It is quite easy to enter the incorrect stock symbol or wrongly set a buy level price too high.But these are excusable.

The traders main concern is to avoid making the mistakes that are due to bad judgment rather than just basic errors. These are the “lethal” mistakes which can ruin a traders trading career.To make sure that these pitfalls don’t occur, you will have to watch yourself very closely and stay alert.

Greed is a visible but serious mistake which most traders make some time or other in their trading career. No one is immune. [Read more →]

June 6, 2013   Comments Off

How to Stop Getting Your Fingers Burnt While Trading.

There are Four basic stages that a stock will go through at some time other in their trading history. It would be very prudent to recognise what these four stages entail as it could quite possibly save you from getting your fingers severely burnt and having a negative impact on your wallet.

Stage One.

This is the stage right after a stock has been experiencing a prolonged down trend. The stock which had previously been heading downwards begins to level off and now has begun starting to trade sideways forming a base a resistance line. What is now happening is that the sellers who once had the whip hand are now beginning to diminish because  buyers are beginning to get more numerous. Usually what happens now is that the stock just drifts happily sideways without indicating any clear trend either up or down. [Read more →]

June 4, 2013   Comments Off