Candlestick Trading Blog: November 2009

November 26, 2009

How to Stock Trade

There is more to learning how to stock trade then just the fundamentals and technicals. Actually knowing how to stock trade is necessary when you are talking about the actual necessary steps but there is more stock trading. You need to create a trading plan, understand the psychology of investing, and you need to learn how to find a stock broker that you will be happy with. Creating a trading plan is crucial to your success as a stock trader. Many investors simply learn only how to stock trade but they skip this step and find themselves in trouble. You must have a plan that clearly defines your investment goals and your trading strategies. Additionally you should include your style of investing as well as your techniques you will use to minimize your losses. Information such as your stop loss orders and entry and exit points, for example, should be included in your plan. Creating a plan helps you to maintain control in your trades will ultimately prevents emotional trading. Through understanding the important concepts associated with the psychology of trading and investing, you will learn how to stock trade with success. You will learn that to achieve success in the stock market you must maintain discipline in your trades. Creating a stock trading plan is great, but if you don’t follow it then the point in mute. Unfortunately many stock traders create a trading plan, but they don’t stick to it. If you take that first step and create a plan that works, and you stick with your plan, you have a real opportunity to make a consistent profit. The last piece of stock trading advice is to continue to build on your stock market knowledge. Things change and continuing your education is very important. Stay on top of the latest and greatest and ensure that you are growing as an investor. It is also wise to brush up on your education as well to keep your mind sharp and fresh. This will help you to keep your profits consistent and will keep you on target with any new trading techniques that may become available. Trading stocks is a great way to make a living or to provide additional income for your family. It is important however that traders have great respect for the stock market before they begin to invest money. Ensure that you receive the proper training and stock market education before you even consider placing that first trade. You will be glad that you did. Good luck! Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

November 24, 2009

Stock Classes

Two Types of Stock Classes In today’s article we will discuss two types of stock also referred to as two types of “stock classes.” Common Stock – common stocks are the majority of stocks. When people are talking about stocks, they are most likely referring to common stocks because most stock is issued in this form. To own shares in this type of stock means that you own shares in a company and you can claim a portion of the profits in dividends. These dividends are variable and they are not guaranteed. Investors who own shares in stock classes of this type vote per share and they get to elect the board members who represent the company when making important decisions regarding the company’s well-being. These board members actually oversee those important decisions that are made by managers of the company. This type of stocks actually yields higher returns than almost any other type of investment so it shouldn’t surprise you that is comes with higher risk as well. Shareholders of this type of stock have to wait to receive any money in the even of bankruptcy after all creditors, preferred shareholders, and bondholders do. Preferred Stock – preferred stocks also represent ownership in a company like common stocks, however stock classes of this type do not have the same voting rights. Preferred stock holders are typically guaranteed a fixed dividend forever instead of relying on variable dividends that are not guaranteed. These shareholders are also paid before the common shareholders however they still have to wait for debt holders to be paid in the event of bankruptcy. Holders of this type of stock also have the option to buy shares from other shareholders. They can purchase these shares for any reason and at any time but they are typically bought at a premium. Most investors consider preferred stocks to be between common stocks and bonds. There are other different stock classes that can actually be determined by companies. For instance, different classes of shares can be given different voting rights. What this means is that a certain group of investors can be given more than one vote per share while others may only be given one vote per share. Continue to learn about the different classes of stock and about the stock market in general. This is only the beginning of the vast amount of knowledge surrounding the stock market and other markets. Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

November 20, 2009

Stock Market Trading Strategy

All investors must have a trading plan that contains a stock market trading strategy that works for them. It doesn’t matter if you are trading forex, commodities, options, or any other financial instrument, you must have a trading plan. When studying investing and finance, a trading strategy is defined as a predefined set of rules to help investors make trading decisions. In today’s article we discuss shorting stocks, as a stock market trading strategy, as well as leverage and margin trading and hedging. Shorting stocks is a stock market trading strategy that requires the investor to borrow funds in order to invest. Also referred to as short selling stocks and selling short, the goal is to invest in a stock in anticipation that it will decrease in value. Yes, you actually want the value to decrease. This is the opposite of investing in stock where the goal is to the see the value of the stock increase. Many investors have a hard time at first understanding this concept; however once there is a basic understanding it is not so complex. How it works is the trader borrows money from a broker for a specific number of shares. The trader sells those shares and once the price goes down in value, the investor buys the shares back. Then the investor returns the same amount of shares to the broker at the current stock price (or cheaper preferably) allowing the investor to keep the difference. Another strategy that works is leverage and it goes hand in hand with margin trading. Leveraging is the borrowing of money to make more money. Basically, when you place a trade with your own money, and then add the borrowed money, you can potentially double your returns. This is called buying on margin, and is of course risky, because you also can potentially double your losses. That is why you must be sure you know what you are doing before you practice margin buying. Hedging is the last stock market investing strategy we will discuss today. A hedge is an investment that is taken out in order to reduce or cancel out risk in another investment. Techniques that are used in hedging involve the use of derivatives, which are considered by many to be complicated financial instruments. The two most common types of derivatives include futures & options trading. Another method of hedging is the use of hedge funds. Hedge funds pool investors’ money together and invest those funds in a financial instrument in attempts to make a positive return. Now that you are aware of stock trading strategies, continue to learn about more strategies and develop a stock trading plan that works for you. Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

November 17, 2009

Foreign Exchange Broker

When selecting a foreign exchange broker there is certain information that you should find out. Foreign currency trading occurs on the largest and most liquid exchange in the world trading at trillions of dollars. The forex market is considered to be less volatile than the stock market, making it a popular exchange and you can trade forex 24 hours per day. This is very attractive to those investors who need a flexible trading schedule. This exchange is less volatile than the stock market due to the fact that it is unlikely for the value of a currency to move much throughout the course of one trading day. This is different than when trading stocks. Before selecting a foreign exchange broker you must understand that there are many different markets within the foreign exchange. There is the forward market, the futures market, and the spot market. In the forward market the buyer and the seller agree to an exchange rate and a transaction is set for a certain time in the future. The trade is executed at that time no matter what the rates are. In the futures market, a futures contract is bought and sold depending on a standard contract size and maturity date. These trades actually take place on public commodities markets. The spot market deals with those trades that are based on the currency values of currencies. It takes two days for settlement and two traders exchange an equal amount of foreign currency. Now that you understand a bit about the foreign exchange markets, below is a list of those things that you should ask when selecting a foreign exchange broker. What is the business model that the broker follows and how fast is their order execution when trading forex? How user friendly and reliable is their forex trading platform and the software that is used? How many currency pairs can you trade when using the brokerage firm’s forex trading system? Is the broker regulated? What organization is the broker registered with? What do other forex traders think about the brokerage firm? How does the customer service rate against other firms? Are client’s funds insured against fraud when using this broker? What are the requirements for earning rollover interest and is there a minimum margin requirement? What is the minimum amount needed to open an account? Can you earn interest on any of the unused equity in your trading account? Do they offer a forex mini account and if so what are the requirements? Choosing a forex broker is one of the most important decisions you will make and hopefully this article will help you to make a wise decision. Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

November 13, 2009

Futures & Options

In today’s article we discuss futures & options in order to get a basic understanding of both markets. Please continue to further your trading education once you have finished reading this article, to see if futures & options are for you. Futures markets There are numerous futures markets including, but not limited to, interest rate futures on financial transactions and bonds, currency trading such as the United States dollar, the Japanese yen, and the British pound, energy futures on oil and gas, metals, such as gold and silver, and the food sector on items such as sugar, orange juice and coffee. Each market has consumers and producers who hedge their risk from futures price changes. Speculators provide liquidity to this market and they do not actually deal with physical commodities. An orderly market is maintained by the producers since the price changes from one trade to the next are relatively small. When futures trading, investors don’t actually own anything but instead they speculate on the futures direction of the price of the commodity they are trading. Additionally, they must make sure that they deposit sufficient capital in their brokerage account in order to be able to pay losses if their trades lose money. Options Markets Understanding options means to understand what options trading is first. Options are an agreements between two parties in which one party agrees to sell a sock to the other party within a certain time frame and at a certain price. You don’t actually own anything when trading options, but instead you have the right to trade. To understand what this means, you have to understand what a “put” and a “call” are. “Puts” are agreements to sell, and “calls” are agreements to buy. Both types of options contracts define the conditions in which the trader will either buy or sell a particular stock. The holder of the option is able to let the options order expire without investing any further or they can go ahead and buy the stock as agreed to. There is a lot more to understanding futures and options. Please continue to learn about options and futures trading and find out if these markets are the market for you. You should first ensure that you have a thorough education of the stock market in general. Good luck! Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

November 10, 2009

Learn Currency Trading

Many investors opt to learn currency trading as a way to make money. As they begin to learn to trade currencies they find that foreign currencies are only bought and sold in pairs and a currency’s value is determined in comparison to another currency. The price of a currency pair equals the ratio of one currency valued against another currency. This tells you how much of the quote currency is required to buy one unit of the base currency. The base currency is the first currency in a currency pair and the second currency is called the quote currency. Many investors prefer to learn currency trading because they can trade currency 24 hours per day. Investors new to currencies should note that currency trading is also referred to as forex trading, FX trading as well as foreign currency trading. These terms all refer to the same exact thing. You will also hear terms such as currency market and forex market. Keep in mind that these are the same markets. In addition to understanding what base currency and a quote currency are, investors will also learn what it means when you buy currency pair and when you sell a currency pair. Basically, when you buy a currency pair (longing) you are actually buying the base currency and selling an equal amount of the quote currency in order to pay for the base currency. Conversely, when you sell a currency pair, (short selling) you are selling the base currency and you are buying an equal amount of the quote currency to buy the base currency. Additionally, when forex traders place their order to buy or sell a currency pair, they must take a position. They actually take a position based on the currency exchange rate, also known as the opening trade. Once the order is placed they have to then wait and see if the value of their position will turn profitable. This depends on whether or not the forex trader shorted the position or went long. Investors looking to learn about the forex market and how to trade forex, should also learn about the various factors that can affect the currency exchange rates. These include things such as inflation, government budget, trade levels, economic growth, politics, and trading psychology. To learn more about forex trading and the forex markets, continue to read the Candlestick Forum blogs and newsletters. Find out how you can trade using Japanese Candlesticks. Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

November 6, 2009

Currency Day Trading

Currency day trading is the buying and selling of currency within the same day with no positions held overnight. In the early days of currency day trading, only large banks and financial institutions, as well as the wealthy participated in trading currency. Now, however there are numerous smaller investors who trade in the currency markets. It is important to note that currency trading and forex trading are the same, and so the terms are often used interchangeably. There are basically two groups of currency traders that participate in this sort of day trading. They include those traders who work for the larger institutions noted above, and those who work alone. Those who trade currency along will typically manager other people’s accounts or trade their own accounts. They typically have more limited resources and they trade on a smaller scale when compared with those traders that trade for larger institutions. Those that trade for the larger institutions have more resources including expensive software, large amounts of capital, and leverage. They also often have access to a direct line to a dealing desk when trading currencies. Trying to understand the foreign exchange rates when trading currency is not extremely difficult however it can be a little confusing at first. The basic foreign currency exchange rates are based on a pretty simple formula. The formula is basically Y-to-X exchange rate = 1 / X-to-Y exchange rate. Forex trades are bi-directional which means the ratios are also bi-directional. This means that when you compare US dollars to Euros, it is different than comparing Euros to US dollars. For example, 1 US dollar is worth .75 Euros, but one Euro is worth 1.34 US dollars. Forex traders use foreign currency trading charts and these charts have a basic structure to them. The first column in the charts contains the country code which is a three letter code that designates the currency. For example, the United States dollar is USD. The second column in a foreign currency trading chart reflects the name of the country and its currency. The last columns in the chart show comparisons between the base currency of interest and other currencies. As with any other type of trading it is important that the investor develops a trading plan. This trading plan should consist of things such as trading strategies, stop loss strategies, as well as entry and exit strategies. The trader must have a plan of what they will do before he or she attempts to do it. Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

November 4, 2009

Understanding Options

There is quite a bit to understanding options so in today’s article we will focus on a couple of things. First we will look at the definition of an option, a call option and a put option. Second we will take a quick look at some facts crucial to understanding options. Lastly, we will take a look at what it means when a company grants employees stock options, not to be confused with trading options. An option is a contract (see options contracts) giving the owner the right but not the obligation to buy or to sell a security at a certain price on or before a specific date. Call options give the buyer the right to the underlying security at a specific price on or before a certain date, and put options give the owner the right to sell the underlying security at a certain price on or before a certain date. Investors buy a call option if they think that the price of the security is going to rise before the option expires. Options traders buy a put option if they think the price of the security is going down before the option expires. Facts that every trader should know when options trading include the following: The strike price is the price in which the stock or underlying security can be sold or bought per the options contract. The expiration date of an option is the month that that the option expires. Options actually expire on the third Friday of the month. Options are actually quoted in per share prices but they are only sold in 100 shares lots. This means that you would pay $400 for a call option that is quoted at $4. Investors new to trading options should not confuse employee stock options with trading options. When a company grants stock options to its employees the following details are provided: Grant price – this is the price in which the employee can purchase the stock. (This price is given on the day the stock options are granted) If an employee exercises the option and the grant price is lower than the stock market price on that day, then the options are “in-the-money.” Shares – the employee is told the number of shares of a company’s stock that he or she is allowed to purchase under the options grant. Options are not only granted by publicly traded companies, but are also granted by companies that plan to go public in the future. Vesting date – this date is the first date that options can be exercised and they must be exercised before the expiration date. Employees buy shares at the grant price when exercising an option regardless of the price the stock is trading at that day in the stock market. Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

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