Candlestick Trading Blog: August 2009

August 28, 2009

Forex Hedge

What is a forex hedge? This type of hedge occurs when a currency trader enters into a trade with the goal of protecting an existing or an expected position from a move that is unwanted in the foreign currency exchange rates. How it works is that a forex trader who is short a foreign currency pair, can protect him or herself against upside risk. On the other hand, a trader who is long a foreign currency pair can find protection against down side risk. There are primarily two ways that you can enter into a forex hedge when investing in the forex markets. You can either use foreign currency options or spot contracts. Foreign currency options one a very popular form of hedging currency because it gives the buyer the right but not the obligation to buy or sell the currency pair at a particular exchange rate at a specified time in the future. You can actually use your basic options strategies, including strangles and straddles, in order to limit losses. Spot contracts are done by retail forex traders at they are your basic forex trade. They have a very short term delivery date so many don’t prefer to use spot contracts when hedging. In fact, spot contracts are usually the reason that this hedge is needed in the first place. When putting together your forex hedging strategy there are four main components to consider. These include, analysis of the traders risk exposure, their risk tolerance, and their forex trading strategy. It is important to identify the types of risk taken with each position as well as the implications could be when taking on the risk in order to determine if the risk is too high or if it is low. Traders also need to determine their own investment risk tolerance so they know how much of a position should be hedged. They need to determine the level of risk that they are comfortable with in order prevent trading anxiety from occurring, which will negatively impact their trading success. Forex traders who practice forex trading and hedging must also determine what trading strategies they will use. They must determine which strategies are proven to be the most cost effective with the forex hedge. Part of coming up with your trading strategy includes coming up with your forex trading plan. Be sure that once you develop your trading plan that you follow it! Too often traders spend time developing their trading plan only then failing to actually follow it. Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

August 25, 2009

Futures Commodities

Futures Commodities Traits for Success Futures commodities traders need to learn how to profit in every type of market condition. In today’s article we focus on traits that that will help the commodity trader to be successful in the futures market. Have the necessary tools – the more equipped you are with the necessary trading tools the better you will perform when trading futures. You must ensure that you can access the market twenty four hours per day, that you have the software necessary to help you analyze the market quickly, and that you have access to real time quotes. These tools will enable you to react quickly to forever changing futures commodity market conditions. Strong futures analysis – strong futures analysis requires that you to understand technical analysis and fundamental analysis. You should learn both types of analysis and decide which one you will utilize when investing in futures commodities. When using technical analysis you will learn about technical indicators that you can use to conduct your analysis. There are books and online forums as well as seminars that you can attend to learn more about both types of analysis when trading or investing in futures commodities. Think for yourself – do your own analysis and research and make trading decisions based on your own analysis. Don’t follow the crowd or jump on the bandwagon of so called hot tips. Ensure that you create a trading plan and come up with those trading strategies that you believe in. Be sure that you don’t trade based on greed and fear and pay attention to what is happening in the world and the economy. While you may follow technical analysis you still should pay attention to what is happening around you. Continued education – never stop learning about futures commodities. Continue to learn about new way of trading futures, and continue to attend seminars or other types of events where you can brush upon your learning. Seminars are great for networking with other investors so that you can compare notes and ideas. You can learn from other trader’s mistakes in order to increase your chances of success. These are traits of successful futures commodity traders but there are many other traits as well. The basis for all traits is to stay informed. Stay informed about what is occurring in the commodities market, different trading strategies, as well as the different types of analysis. Never stop learning and continue to network with other individual investors in order to become a great trader. Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

August 21, 2009

Futures Trade

When placing a futures trade there are many issues that you can run into. Futures traders must understand the common mistakes made as well as what they need to do in the futures market in order to make a profit. In today’s article we discuss some common mistakes made by traders in this market in hopes that it will help some traders to not make the same mistakes. Protect yourself – many traders in this market fail to protect themselves. There is always investment risk involved when doing any type of trading so you must ensure that you find ways to protect yourself and incorporate it into your futures trading. Many investors will use stop loss orders to do this. Sell and buy stops can limit your losses. Many will also buy puts with attempts to keep your losses to a minimum while maximizing profits. Follow your trading plan – many investors do not follow their trading plan and some don’t event take the time to develop one. If you do not have a futures trading plan you must stop trading immediately. Trading without a plan is like gambling. It can also lead to emotional investing (see psychology of investing) which inevitably results in profit loss. You learn to analyze the markets when you place a futures trade and you must learn to see signs of trends so that you can adapt to the market. Having a trading plan will provide you with consistency in your trades and profitability. Never stop learning – the markets are continuously changing and there are always new things to learn. Just like any other industry you must stay on top of changing trends and new ideas. Be open-minded and try new trading strategies that you can implement into your trading plan. Don’t get left behind with old thinking and methodology if there is some new trading strategy out there that you can benefit from. Continued education is the key to successful trading. Stay focused – when placing a futures trade you must stay focused. There are always going to be potential distractions but you need to have as few as possible as you trade futures or any other type of financial asset. Focus means discipline and both are absolutely necessary to achieving consistent trading success. There are many more trading techniques and tactics to learn about when trading futures. Continue to learn about the futures market and see if it is a good fit for you. Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

August 18, 2009

Future Contracts

Future contracts are contractual agreements to buy or sell particular financial instruments, such as commodities, at a pre-determined price in the future. Two parties agree to a set of terms in order to transact a set of financial instruments for future delivery at a particular price and they agree to the quality and the quantity of the underlying asset. Buyers of future contracts agree to buy an asset that a seller has not yet produced at a set price. Some futures contracts require physical delivery of the asset while others are settled in cash. The futures market is very liquid, complex and is seen by many as risky. Once it is understood however many are able to make great profits. Most buyers and sellers that participate in this market enter primarily to hedge risk (hedging) or to speculate rather than to actually exchange physical goods. When opening this type of contract, the futures exchange will give the minimum amount of money that must deposited into your margin account. This deposit is called the initial margin and once the contract is liquidated, you are refunded this initial margin amount plus or minus any gains or losses that occurred over the life of the future contracts. This initial margin amount is typically about 5% or more of the contract but they can change depending on market volatility. There is also the maintenance margin, which is the lowest amount that an account can reach before more money needs to be added. The amount of money in your margin account fluctuates daily as the market fluctuates, but if your account drops below this maintenance margin amount, then brokers are required to make a margin call. This margin call requires that you deposit more money into your account to bring it back up to the minimum maintenance amount. (See margin buying) Leverage, as it relates to future contracts is another factor to take into consideration in addition to margin. You can enter into a contract of this nature that is worth a lot more than your initial investment. Leverage refers to having control large cash amount of commodities with a small level of capital. Basically, what this means is that you can enter into a contract that is worth more that you initially have to invest, with a relatively small amount of cash. (See margin trading) Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

August 13, 2009

Buy Online Shares

In today’s article we discuss stock market terminology that is helpful to those individuals who would like to buy online shares. See definitions below. Outstanding shares – also known as “issued” stock outstanding shares are those stocks that are currently held by investors. These shares can be restricted shares that are owned by the company’s insiders and officers in addition to publicly held shares. You can see this information on a company’s balance sheet and it is used in the calculation of many different metrics such as earnings per share and market capitalization. The number of outstanding shares per company fluctuates as the company issues new shares, retires existing shares, as shares are repurchased or when other financial instruments are converted into shares. Weighted average – when you buy online shares you should learn what the weighted average is. This average takes into account the amount of outstanding shares over a certain reporting period. The weighted average determines the importance of each quantity of the average and it is also used in calculations pertaining to the earnings per share and other financial calculations. Issued shares – issued share are shares that are authorized and sold to as well as held by shareholders of a company. Just as defined above, they are also known as outstanding shares and can be insiders, the public or institutional investors. Before you buy online shares it is important to understand that a company issues shares in order to generate capital. The stock that is provided to insiders is part of their compensation and the amount of issued shares can be a part of the total amount of authorized shares of a company or it can be all of the authorized shares of a company. Earning per share – the earning per share is the net income minus dividends on preferred stock divided by the average outstanding shares. The earnings per share indicate a company’s profitability and it is seen as the most important things when determining a share’s price. Fully paid shares – when discussing stocks and shares, fully paid shares are paid once a company receives the full amount from shareholders. Shareholders are required to pay a certain amount for issued shares when a company issues those shares. They are fully paid when no additional money is required to be paid by the shareholders on the value of those shares. Fully paid shares are different from partially paid shares. Partially paid shares are those shares in which only a portion of the face value must be received by the company. Shareholders are still required to pay the remaining balance due to the company on those shares. Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

August 12, 2009

Dividend Yield

When learning about finance it is important to understand terms such as dividend yield, ex-dividend, cum-dividend and more. In today's article we discuss some of the terminology associated with dividends. Dividend yield – this is a distribution of a piece of a company's earnings. The board of directors decides on this distribution amount and they distribute it to their shareholders. The shareholders receive so many dividends per share and the shares are quoted as a percentage of the current market price. It is calculated by taking the annual dividends per share and dividing it by the price per share. It is the return on investment for a stock with the lack of capital gains. When learning about stock dividends it is important to the first know the definition of a dividend itself. Dividends exist in the form of stock, property or cash and they are offered mostly by stable and healthy companies. Those companies that offer dividends don't typically have share prices that move up or down in price very much but the dividend makes up for that lack in movement. When looking to invest in dividends it is important to note that many high-growth companies will rarely offer dividends. This is because they reinvest their profits back into the company in order to continue growth. This is referred to as dividend reinvestment and is another term that you should familiarize yourself with in addition to the term dividend yield. Ex-dividend – a stock is called an ex-dividend is an investor is confirmed by the company to receive the dividend payment. Basically, it is when the dividend belongs to the seller instead of the buyer. When trading shares, you will come across this definition. Cum dividend – this is what happens when the buyer of a security entitled to a dividend that has already been declared but it has not been paid. Dividend payout ratio – more mature and healthy companies have a high dividend payout ratio and it is calculated by taking the yearly dividend per share and dividing it by the earnings per share. Another way to calculate it is to take the dividends and divide them by the net income. In other words the dividend payout ratio is the percentage of the earnings that are paid to shareholders. This ratio gives the investor insight into how well the earnings actually support the dividend payments. The dividend yield is one of many terms that investors will come across as they learn how to find dividend paying stocks. Continue your dividend education and learn about mutual fund investing and stock investing in order to build a diversified portfolio. Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

August 7, 2009

Sell Short

In order to learn to sell short you must first understand the basics of trading stock. Some think that short selling is confusing at first, but once they understand it they find it very useful and not as complex as they originally thought. In today's article we discuss some of the risks involved with selling short for those investors looking to participate. Keep in mind however, while there are risks involved, the benefits of selling short make it worth while as long as you know what you are doing and you trade with discipline and focus. To sell short means to bet against the overall direction of the stock market. Over time stocks typically go up and appreciate in value. If it doesn't do so on its own, the stock price usually raises a small amount due to inflation. When selling short you must be sure that you don't hold positions open for a long period of time. That can be very risky since again you are betting against the overall direction of the market. There are no limits on how much you can lose when shorting stocks. When buying and selling stock in the traditional sense your upside is limited because your stock cannot go below zero. When shorting stock, in theory the stock price has no limits to how high it can go. It is considered risky because you can actually lose more than your original investment. That is why it is extremely important that you have a clear understanding of what you are doing when short selling stocks. Margin trading is a part of short selling. You must have a margin account in which you actually borrow money from your broker in order to sell short. This margin account requires that you meet a minimum balance and if your account dips below that amount you will get what is called a "margin call." This margin call requires that you add more money to your account or you can also liquidate. This is considered risky because you are borrowing money and using your investment as collateral. There is a phenomenon known as a short squeeze that occurs as a result of short selling stocks. This occurs when stocks prices increase and sellers' losses also increase. The sellers then rush to buy the stock so that they can cover their positions. As a result of the now high demand for the stocks, the stock price is driven up even further. There are risks to short selling just as there are risks to stock trading in the more traditional sense. The important thing is to ensure that you are educated about the stock market and about the strategies that you use to short sell. Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

August 4, 2009

Buy and Sell Stocks

How Fundamental Analysts Buy and Sell Stocks There are certain steps that new investors can take when learning to invest in the stock market. In today's article we discuss those steps that an investor would take if he or she practices fundamental analysis as opposed to technical analysis. Typically fundamental analysis practice long term investing while technical analysts practice short term investing. The first step investors must take is they must understand how stocks operate. When you buy and sell stocks you are equity investing. You actually own part of the company when you buy shares of stock and as the company does better so does the value of those shares. The next thing you must do is know the stock exchanges. Stocks are traded on three major exchanges including the New York Stock Exchange, the American Stock Exchange and the NASDAQ. Some of the largest companies in the world are traded on these exchanges. You should then familiarize yourself with the different types of stocks that you can buy. These include growth stocks, income stocks, value stocks, cyclical stocks, and international stocks. You will also need to look at companies whose products you know and that you are familiar with as you buy and sell stocks. After deciding which types of stocks you should invest in, you then must clarify you investment goals. Are you beginning to invest for retirement or are you looking to produce income. You will also determine the investment risk and your risk tolerance as you determine investment goals. As you buy and sell stocks you must determine how these stocks fit in with you entire investment portfolio. Construct asset allocation for your entire portfolio and decide how much should go to stocks. You may need to adjust your stock portfolio as stocks gain and lose value in order to maintain portfolio diversification. The next step is to understand the fundamentals of those companies whose stock you are buying. This includes information such as the market they are in, their balance sheet, and their competitors. You will also need to look at the company's past and present earnings per share. You should also calculate the company's price to earnings ratio. This ratio divides the price per share of the stock by its earnings per share. You will also need to find a brokerage firm that you are comfortable with and that you can afford. You will need to determine the type of broker you will use and this will depend upon the level of services that you need. There is a lot more to buying and selling stocks, but this article should get you headed in the right direction. Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

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