Alternative Ways to Participate in the Stock Market

There are more mutual funds available today than there are stocks, and a tremendous industry surrounding them that provides research, facilitates meetings, sells software, hosts seminars, employs spokesmodels, and in general focuses on picking and buying the right stocks. The fundamental assumption is that the stock market goes up over time and will reward long-term investors with a return that will meet their financial goals. But this view has not always been the case. Prior to 1980, the stock market was considered by many to be too risky for retirement savings, and this didn't really change until the creation of 401(k) plans in 1981 and the subsequent explosion of mutual funds. Investors in the 80s and 90s then experienced a market that delivered an average annual return of 13% or more, and throwing darts at the business section of the local newspaper was as good a technique as any for picking stocks. The predominant strategy that came out of this time was to buy stocks or mutual funds, and hang on through the dips. Any other strategy in the 80s and 90s ultimately resulted in lower returns.

If you believe strongly that the stock market will always go higher and will do so within your investment timeframe, then a "buy stocks and hold on" strategy is consistent with your beliefs, but that's not the only strategy available. If you have doubts about what stocks will do over the next 10 years or so (as I do), then it would be prudent to understand the other methods that are available for being involved in the stock market. The stock market has been volatile but ultimately flat for about 13 years at the time of this writing, so we've already lost more than a decade of the 10% annual returns the stock market is supposed to provide, and from all indications it would seem that volatility will be around for a long time. With interest rates at all-time lows, bonds and bond funds are not the safe havens they used to be, so I still think stocks are the best vehicle for achieving inflation-beating returns. However, making money in stocks is going to take a little more work than simply buying stocks and hanging on for the ride.

Making Money When Stocks Go Down

If you firmly believe that the global economy is in a death spiral and you're ready to buy bottled water and find a cave to live in, then shorting stocks is the most consistent strategy with your belief system. Shorting a stock involves selling a stock you don't own (i.e. borrowing it from your broker for a while), with the intent of purchasing it back later at a lower price. If you're right, this strategy can make you look brilliant at dinner parties because you will be making money while everyone else is losing money. However, if you're wrong, you will need to diligently avoid any financial conversations. Investment advisors who aren't afraid of risking other people's money will sometimes feel so strongly about the direction of the market that they will make a big bet on the short side of the market. Those who are successful end up with their own radio shows. Those who are a little off on their timing end up with clients who are losing money while everyone else is making money. In a short amount of time, these advisors are asking "would you like fries with that."

Limiting Losses

Warren Buffett's famous rules of investing are "Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1." Accepting unlimited losses in the hope that stocks will come back violates both of these rules. As a general rule, limiting losses requires giving up some amount of upside potential. One way to accomplish this is to insure your stocks using Put options. Put options establish an absolute floor on potential losses at the expense of the premium paid for the options. Although there are several techniques that can help recover some or all of the cost of the "Put insurance," if the stock price does not fall before the option expires, the cost of the Put option is lost. This is similar to losing the premium on your homeowner's insurance if your house doesn't burn down. Most people have accepted the tradeoff and are not disappointed when they don't end up using their fire insurance. The belief that is consistent with a "limited loss" strategy is that stocks will go up, but that large losses are unacceptable.

Direction-Neutral Strategy (Exploiting Stock Volatility)

The final method I'll cover is for investors more interested in meeting financial goals than in keeping up with the market. Similar to a Limited Loss strategy, a Direction-Neutral strategy (or, more accurately, delta-neutral) involves giving up a little more upside potential in return for an equal chance to profit when a stock moves down. This strategy profits from stock volatility in either direction instead of only when a stock goes up. From a very high level, think of this strategic objective as capturing some of the upside when a stock goes up (say, 5% if a stock goes up 10%), and capturing some more upside when a stock goes down (another 2.5% if the stock pulls back 5%). With this technique, the risk is no longer that a stock price might drop, but rather that a stock price stays the same with very little volatility.

Since Direction-Neutral is probably less familiar to most people than other strategies, it merits a little more detail. It should be noted that "Direction-Neutral", or "delta neutral," is different than the typical strategy used in a long-short or market-neutral mutual fund. The typical fund categorized as long-short or market-neutral uses a combination of owning stocks that are expected to go up and shorting stocks that are expected to go down. The problem is that this raises the possibility of being wrong on both sides. A delta neutral position uses a combination of stocks and options so that the only amount of capital at risk is the cost of the options. If the stock price does not move, the value of the options will gradually decay similar to the Limited Loss strategy. So the trick is to pick a stock that moves. Microsoft is probably not a good candidate for a delta neutral strategy, but Google or Apple would be. Similarly, Johnson & Johnson is probably not a good healthcare holding, but a volatile biotech stock would be interesting. In general, it is easier to pick a stock that has a good chance of price movement in the future (just look at the last several earnings cycles) than trying to pick a stock that will consistently go up in the future.

Another requirement for a successful direction-neutral strategy is the ability to lock in gains and readjust the position. If the stock price moves up or down after a neutral position is established, the position is no longer neutral. If the position has met a performance goal, or if the underlying stock shows signs that it may be done moving, it is important to lock in the gain and readjust the position back to neutral. This requires work that goes well beyond buying a stock and chanting "I will not sell, I will not sell,... " Diligently watching the performance of direction-neutral positions and managing them appropriately allows profits to be captured on moves in one direction and additional profits if the stock bounces are pulls back.

Summary

Below is a summary of the four basic techniques for investing in stocks, along with the belief about the stock market that would be consistent with each technique.

Technique:Buy stocks (or mutual funds) and hold on.

Primary Risk:Stocks may go down

Belief: "Stocks will go up fast enough to meet my financial goals regardless of short-term losses."

Technique:Short stocks (or buy inverse funds or bear market funds)

Primary Risk:Stocks may go up

Belief:"Global conditions are deteriorating and the market is in trouble."

Technique:Limit Losses

Primary Risk:Stocks go down or stay the same, but risk is limited

Belief:"I think stocks will go up over time, but I can't or won't accept large losses."

Technique:Direction-Neutral

Primary Risk:Lack of volatility

Belief:"I'm not sure which direction stocks will go, but I'm pretty sure they'll go somewhere."

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How to Understand Penny Stock Symbols

The new as well as seasoned investors sometimes find it difficult to invest in cost-effective penny stocks. The reason behind this can be attributed to their lack of knowledge about these types of stocks. Since these stocks are small cap investments and do not trade on major exchanges, it can be difficult to identify them. However if you are well aware of its nuances, you can get away with all smiles. For this, the very first step involves identifying penny stock symbols.

Most often than not, penny stocks are represented through symbols instead of the company names. As a result, it becomes difficult to spot them. You can overcome this problem by learning about these symbols. These points are discussed below.

Tips for understanding Penny Stock Symbols

• In these symbols, you would notice that the company name is usually represented by a four letter abbreviated form. For instance, Active Health Foods Inc. becomes AHFD on the stock exchange. However, some symbols may represent more than four letters. This addition should be taken seriously as it contains some vital information about the penny share. The additional letters always follow after the four letter shorthand version of the company name. For instance, the Diamant Art Company is symbolized as DIAAF. The first four letters signify the name of the company, while the last letter 'F' informs investors that it's a foreign security company.

• As far as the fifth letter or the additional symbol is concerned, it can be designated by any letter from A to Z. Since the fifth symbol is an identifier or provides extra information in addition to the name of the company, you need to know it well before trying to pick the hot penny stocks in the market. For instance, if the fifth letter is Q, it means the company is bankrupt. E symbolizes that the company is delinquent and so on.

So if you think you are getting confused about which stock to watch, just recall this 4 and additional 5 lettered penny stock symbols system. You can read more about these symbols online. Once you become well conversant with these, you can easily locate your penny stock company by its symbol as well as its company name.

In case you feel you need more help, check the Counter Bulletin Board (OTCBB). There is a symbol directory in the board which can help you find your stock both by full name or symbols. Other sources which can be relied upon include Pink Sheet. You can refer to them as well for help.

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Does Warren Buffett Have Asperger's Syndrome and Does This Make Him Financially Gifted?

Before I tell you about Warren Buffett, I first need to lay some groundwork for the article because there are some very common misconceptions about Asperger's Syndrome, and in this particular case, I mean it as a compliment to Warren Buffett's extraordinary abilities to think that he has this.

Asperger's Syndrome (sometimes shortened to "aspergers" or "AS") is the name now used for a mild form of autism that is thought to affect as many as 1 out of 300 people. People who have Asperger's Syndrome are often affectionately referred to as "aspies" by those who love them. Most experts do not consider Aspergers to be a "mental disorder" but rather an uncommon neurological phenotype. Aspies often come across as "eccentric." They are sometimes deemed to be "oddballs" by others but many blend in so well in society that no one would ever guess they have aspergers. It just depends on the person.

Many aspies have a very high IQ's. In fact, some exhibit "off the charts" intelligence. The most famous aspies throughout history have mostly been highly gifted artists and scientists such as Mozart and Einstein or technical people like Bill Gates. However, aspies can also be financial geniuses because many are very good with numbers and possess other traits that can make them exceptionally good at understanding business and picking stocks (see below).

Warren Buffett, the most famous investor the world has ever known and certainly considered to be quite eccentric, is widely rumored to have aspergers or some other closely related form of mild autism. This of course is a "pop diagnosis" because, to my knowledge at least, there has never been any official announcements of Warren Buffett being officially diagnosed with aspergers. At the very least, however, he demonstrates many of the traits and quirks that are commonly associated with aspies.

Many aspies are highly resistant to change, especially in their personal lives. It is quite interesting that one of the richest men in the entire world still lives in a very humble home in Omaha Nebraska, the same home he has lived in since 1958! He eats at the same restaurant almost every day and orders the same rather bland food almost every time. Most of his day, every day, is spent reading financial reports and periodicals and he very seldom varies from this routine. In fact, he has fixed routines and does not like these to be changed. He considers them to be "distractions" from his ability to work.

People with Asperger's Syndrome usually have some problems interacting socially with other people. They also often have some inner-personal emotional issues with the people they they are closest to. They really are not "anti-social" as some people assume because they do like to be social sometimes (just not all the time) and they do seek out close bonds with family and friends. However, they do often struggle in this department.

Many of those who have worked with Warren Buffett over the years have commented on how odd he is and how he can sometimes blurt out "inappropriate" statements. They sometimes comment on his lack of other social graces. Buffett has freely admitted in interviews how socially awkward he was when he was young. Just the thought of standing up in front of people and talking made him want to throw up. He was not very successful in the girlfriend department either and many classmates considered him a "smarty pants" and hard to get along with. However, as a young man, Buffett discovered Dale Carnegie's book, "How To Win Friends and Influence People," and he put it to the test in his real life. He was quite impressed with the results and later took Dale Carnegie's leadership training course. Buffett credits this course to his success in business and in other aspects of his life. He proudly displays his certificate of completion in his office but does not display his college diplomas! That should tell you how much he values his Dale Carnegie training.

Regarding his abilities with interpersonal emotional issues, Warren Buffett's family, including his deceased first wife and his son, have made public statements about how difficult it is and was to connect with him emotionally. It is quite clear that he loves his family very deeply but expressing this seems to be more of an issue than with most people.

There are many other traits that Warren Buffett exhibits too that are known traits for mild autism. It is well known that he can be painfully honest -- some say "honest to a fault." Although he usually wears a business suit, he is often disheveled, As a child, he had some very unusual interests. He would read toy railroad train catalogs for hours, roll pennies down the bath tub and time them over and over again, record the license plates of passing cars, memorize unusual facts, and sit and stare for hours at a time.Even today, he still has some very unusual "hobbies" such as spotting the square roots and cube roots of large numbers on license plates. It has been pointed out by experts that these are very "aspie-like" traits.

It is easy to see how some of Warren Buffett's traits that could be considered to be asperger-like have helped him to be the extraordinarily gifted investor that he is. For starters, he has the uncanny ability to hyper-focus for very long periods of time and he can do this on subjects that would bore most people to death. Plus, he has has continued to do this for years. This hyper-focus is just not a trait that can be duplicated by most people no matter how hard they try and it is a known aspie trait.

"Fluid intelligence," which I personally believe Warren Buffet likely has, is a special kind of intelligence that has been shown to be present in highly intelligent aspergians. It is a true gift and allows one to see connections between topics that most people, even intelligent people, can not see. It also allows a person to very easily recognize patterns and trends. I believe this "fluid intelligence" may be another critical key to why Buffett is such a talented investor and why it is very difficult to truly imitate him.

Warren Buffett does not seem affected by the same "peer pressure" that most investors are subject to. In fact, he seems to pride himself on being different and bucking Wall Street paradigms. He doesn't seem to much care if he is different. This is very much an aspie trait that I believe has allowed him to amass a fortune by developing his own very unique and very successful style of trading which has evolved over the years to accommodate his ever increasing amounts of wealth.

Most aspies develop what is usually termed "special interests" which are intense interests in subjects that are esoteric and/or unusual. Aspies will go to great lengths to learn absolutely everything there is to know on their special interest subjects. Often times they have a genius level savant ability in their special interest. These usually start in childhood and Warren Buffett's interest in making money and the financial world certainly started in childhood. Further, he continued to pursue this special interest with an intensity that is very seldom seen in other individuals.

In interviews, Warren Buffett himself has said that he thinks he is "wired differently" than most people. From my research, I agree with him and I believe he demonstrates many traits that are common in those who have been diagnosed with Asperger's Syndrome. I also believe that these very special traits are the reason he is so financially gifted. The human race is quite lucky to have these rare individuals come along ever so often. Given all that he has taught other investors and the enormous donations to charity that he has recently so generously given, he has become one of the most influential people of all time and I believe will continue to make a positive impact for many generations to come.

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Stock Trading Training With The X's And O's

When asked about the relationship between stock trading and athletics, most individuals would say there is no connection. In reality there are similarities particularly in regard to trading training available to investors and coaching available to athletes. Furthermore, when these similarities are understood, it is evident that trading results are dependent on the execution of the fundamentals just as with most athletic competition, such as football.

Starting in their early years, young boys and some girls receive instructional training from their football coaches with the aid of a white board. Diagrams of X's and O's representing the offense and the defense are drawn on the white board with player movements that can be easily visualized. Coaches also spend considerable time teaching the players the fundamentals of the game. In fact, coaches never stop teaching as it's critical for team success regardless of the age of the players. Professional football players also receive training with the aid of a white board and diagrams of X's and O's. The emphasis always includes execution of the fundamentals. Blocking and tackling are given a high degree of attention. In fact, coaches being interviewed after a losing game will often tell the press that his team lost the game because the players failed to block and tackle as they should.

Upon arriving in camp, football players receive play books that define the offensive plays and the defensive formations that the team will use throughout the season. Similarly, stock trading requires a playbook. Included in the trading training that an investor needs, is the wherewithal to write their own Trading Plan. This Plan defines the fundamentals of how the investor will approach all trading activity. The essential part of this Plan is a specific set of rules, the X's and O's, that define how the investor will look at the stock market and at individual stocks in regard to:

What to invest in When to buy When to sell

There's a fourth question that is not in the football players playbook, but it's an issue talked about frequently between players and coaches. That question is, "how do players need to prepare themselves for the next game?" With regard to trading, the fourth question belongs in the Trading Plan. The question is "what does the investor need to do in preparation for the next trading opportunity?" For the stock investor, this requires:

Paying attention to geo-political news and news about the economy that could impact the market. Paying attention to the trend in the overall market as represented by the S&P 500 Index which is a bellwether indicator for the U.S. stock market. Identifying stocks to add to a watch list of potential candidates for future investment. Identifying changes needed to protect profits in stocks the investor currently owns. Getting additional training as needed

There are similarities between athletics and stock trading. In both cases,

Individuals need to be trained in the fundamentals Athletes need a game plan. Investors need a trading plan Assuming it's a good plan, it needs to be followed religiously Failure to follow an excellent plan will undermine the chances of success Where mistakes are made, there needs to be an assessment of what went wrong and corrective action taken to eliminate the mistakes and maximize the successes.

With proper trading training and the right game plan, the investor is prepared to maximize profits while minimizing risk for a lifetime of enjoyment and financial benefit trading stocks.

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Developing A Successful Stock Trading Plan

Before you start trading stocks you need to understand the basics of investing, but you also need to develop your own personal trading plan. Having a well-defined plan will help you make better decisions, including those sometimes necessary quick decisions, and it will help keep you on your defined path. If you stray from this path and let emotions or some other unplanned factor involved you may start making mistakes.

Research

There are a variety of different stock trading strategies, but it is important to find one that fits your personality and style if you really want to succeed. Do some reading and research the different strategies until you find something that clicks. Read about things like risk management, technical analysis and the psychology of trading so you have some knowledge in all of these areas, then focus on an area that you enjoy and refine your skills in these areas.

Back Testing

Use back testing to refine your plan. Here you can alter factors like risk or go points on a trade. Here you can use your plan to experiment on different sectors of stocks. To get the most benefit from back testing don't consider more than three different factors or you may not get very useful results. Keep your plan simple as you do this.

Practice Trading

Practice with paper trading. To get the most accurate information from your practice trades it is important to be diligent about tracking everything. You may be tempted to skim over some things here, but this can skew your results and make this important part of the process far less useful.

Take notes of all of your practice trades as well as the trades you pass on. When you find something that matches your plan and your criteria but you decide not to execute a trade, note why you didn't go with it so you can see if you made a wise choice down the road. Even though you didn't choose it, monitor this stock to see how it performs. As you continue practice trading you will likely see areas of your plan that you need to tweak. It's important to work the bugs out before you start investing with real money.

All of these steps are important as you develop your own personal stock trading plan. You don't want to continue experimenting too much once you begin trading. Use these tools to prepare yourself for greater success right from the start.

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Dealing With The Emotions Of Stock Trading

Many traders fail because of their inability to deal with the emotions of trading. Despite thorough analysis and sound methodology for trading, many failed to recognize their own limits for tolerance and risk, resulting in loss of equity. These types of traders rarely progress beyond the level of textbook knowledge in mediocrity as traders. Success in trading requires more than just a comprehensive study of technical and fundamental analysis. It also requires the careful orchestration of risk management, disciplined, and patience, and keeping tight control of the emotions of greed and fear.

What is risk? For most of us, our knowledge and experience of the relationship between risk and reward is limited to gambling and other events of chance. However, progress throughout history including those that are political, social, or economical, have been achieved through various channels of problem-solving, which often meant taking risks. People realize that by identifying past events, they could anticipate predictable results for the future. The desire to see the future and to choose based on that knowledge is inherent in all of us. The search for this knowledge is what led Pascal to the discovery of the theory of probability, and thus began the study of statistics and the science of quantifying risk. By understanding the nature of risk, its consequences and possibilities, we have been able to transform her fears of the unknown into a catalyst that drives the advancement of science, technology, business, and the quality of life we experience.

Risk taking is manifested in a wide range of their decision-making processes, from having children to buying insurance and doing estate planning, from choosing a career to purchasing an automobile. It is present in her willingness to accept mistakes and failure, with the intent of moving forward toward the possibility of success. The advancement of technology and the overwhelming presence of computers to aid our every day task, and the evolution of the Internet would not be feasible without embracing the nature of risk in managing it to guide their vision of the future.

Many individuals equate trading with gambling for the obvious reason of wagering capital in the hopes of winning or profiting from that risk. The qualities that make up a good gambler are also evident in a good trader. They're always in control of their emotions. But how do you stay calm when you are losing money? Successful traders will admit to being wrong and accept a small loss. They understand what risk is. Rather than avoiding it, they learned the value of risk management as a tool for assessing the profit potential in the marketplace.

Like gambling, trading is a fascinating method of obtaining money, not from labor, but from a game of chance. It inspires their passion for risk-taking, but without the social stigma of gambling. Trading offers the opportunity to realize one's dreams of freedom, accumulation of wealth, and now, with the growth of online trading to the Internet, the sophistication of partaking in technological advances.

However, trading should never be an alternative to gambling. While gambling require some skill and money management, a large part of the gambler's success relies on luck. It is easy to convince yourself that this is your lucky day, or even to be so bold as to think you have an instinct for recognizing good fortune. But luck is only one outcome of probability, and it plays and inconsequential role in the constant success of the trader.

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Trading Stocks in India

Stocks or shares as they are commonly called, are traded in the Stock Exchanges of a country. These are mainly investments by people in different Companies so that these companies can utilize such investments to further their business and pay dividends or bonuses accordingly.

The basis of trading stocks in India is mainly online. There are a lot of companies in India that undertake such trading for some brokerage fees. Investors have to go through such share brokers either to buy or sell their shares.

The stock or share brokers are registered with respective Exchanges in India like the BSE, NSE and a few other smaller stock exchanges like the Jaipur Stock Exchange. The constraints in stock trading pertain to things like localities, miscommunications, and extremely overburdened telephone exchanges.

An investor, by trading online, does not necessarily need a broker. However, if one lacks the expertise in such a field, it is always better to go through a stockbroker. There is software available in the market for the same but this would require a high-speed Internet connection.

Web based trading in shares are on the spot, with checks available for the shares offered in different companies. They also provide graphs of various companies and their performances. They provide alerts for different stocks that the investor might be interested in, either to buy or sell. The best part is that these are absolutely secure online transactions.

A stock derivative is mainly about dealing in equity-based shares which have a high risk but offer greater returns. They should be considered for investment for periods exceeding three years. These stock derivatives are traded either on the exchange or over the counter.

The SEBI (Stock Exchange Board of India) lays out the rules and guidelines for dealing in these equity shares on the market. They even allow foreign investments up to a certain limit, in most cases. Commodity Exchanges, for example spices, coffee, etc., are also governed by the SEBI.

An important issue related to share trading on derivatives is the physical settlement on a daily basis. Reviews of stock eligibility as derivatives are mainly for the mutual funds, where the shares are distributed in various portfolios of the companies listed on the stock exchange.

The objectives of the SEBI are investor protection, transparency in all deals and the provision of honest service providers. A carry forward sort of payment may be made while dealing with future derivatives. There is a limit to the amount of investment in a mutual fund by the company, which cannot exceed thirty times the number of shares traded daily.

To avoid concentration of shares by a broker, no more than 7.5% of the total aggregate of stocks can be traded. There are even disagreements regarding the carry forward system in derivatives wherein a single individual could trade in such shares.

Mutual funds are the best derivatives while dealing with stocks. The exchanges are worth investing in, especially if you are thinking about owning a portfolio with diverse assets.

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Will Speculators Rescue the Housing Market?

After the housing bubble burst there was sympathy for first-time home-buyers who had been enticed in by the easy loans and rising home prices and wound up in trouble.

But investors in single family homes came to be castigated as 'flippers', 'suckers', and worse. They had played a significant role in creating the bubble, signing contracts, often on multiple homes, making virtually no down payments, not intending to ever live in or even rent out the homes, but to simply flip them for a quick profit. Builders could hardly keep up with demand for a while, but wound up with wastelands of partially completed developments and condo projects, especially in the sun-belt states.

That 'investor' activity resulted in much of the subsequent pile-up of defaulted mortgages, foreclosed properties, and record high inventory of unsold homes that has had the housing industry in a five-year depression.

But for the past year, real estate speculators and investors have been playing a perhaps heroic role by diving back in on expectation that the real estate market is bottoming.

They may even be single-handedly creating the conditions themselves that have them optimistic.

Recent housing reports have been encouraging. Although home sales stalled again in June, on average they've been rising for most of the year. Home prices have been inching up. Foreclosures are down fairly sharply. The inventory of unsold homes has dropped dramatically. The recent employment report showed that homebuilders added 5,800 workers in July. That's about the same number of monthly hires they were adding during the bubble years of 2005 and 2006. (Of course, the big difference is that then they were adding to already record high levels of construction employment, while now they are hiring back from record levels of unemployment in the industry).

The interesting and perhaps unnoticed aspect of all this is that it is investors and speculators who have been providing much of the activity for more than a year now.

An April report from the National Association of Realtors showed that the number of owner-occupied homes fell 15.5% last year, while the number of investor-owned homes surged 64.5%.

That situation has continued, with sales reports this year showing that 20% to 25% of reported monthly sales of both new and existing homes have been to bottom-fishing investors, swooping in to buy at what they expect to be low prices.

The NAR reports that 41% of investment buyers bought more than one property, nearly half say they intend to buy another property within two years, and they intend to hold the properties for an average of five years.

It has been working out well for them so far. Desire for home-ownership, the age-old American dream, has plunged. Demand for rentals is up, which has rental prices rising.

It's not yet clear whether speculators have got it right or have gotten too optimistic too soon.

New home sales plunged a big 8.4% in June, while existing home sales fell 5.4%.

Realtors say the stumble was only a one-month glitch and demand remains strong.

But bears on the housing industry, who believe the bottom will not be seen until 2014, point out that half of would-be traditional home-buyers can't qualify for a mortgage even with rates at record lows, and that the banks are sitting on a huge backlog of homes with delinquent mortgages they will be foreclosing on, and dumping on the market in coming quarters, sure to push prices into another decline.

Another round of monthly housing reports begins next week, with the release of the Housing Market Index, which measures the optimism of the nation's home-builders, on Wednesday, Housing Starts on Thursday, and new and existing home sales the following week.

Those will be important reports to keep an eye on, not just for the housing industry, but for the overall economy.

The two main driving forces of the economy historically have always been the housing and auto industries. That stands to reason since they have long tentacles that provide employment for so many peripheral suppliers and businesses that feed off whatever success they have.

It has long been my opinion that it's a mistake to watch the employment picture for signs of a recovery. Jobs are a lagging indicator. Employers do not hire more workers until the economy has already improved to the point where they can't handle their increasing sales and activity without hiring more help.

The leading indicators for the economy (in both directions) are housing and autos.

Auto sales have been picking up for more than a year now, which has helped. But autos alone can't carry the entire load.

Apparently investors and speculators, providing more than 20% of home purchases have at least prevented housing from sinking lower that it would have, and may be creating a bottom that will encourage more traditional buying.

Let's hope so. The latest housing reports beginning next week should provide important evidence one way or the other.

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Simplify Your Technical Anallysis and Make More Money Trading

This is how you streamline your technical analysis to give you a better chance of making money in the stock market. The principles are easily applicable for regular stocks or options trades.

1. Use 2-3 Technical Indicators.

There are hundreds of technical indicators to choose from. From MACD to RSI or Bollinger bands to Variance, using every indicator can work against you. It will waste your time or create analysis paralysis if you had to look through all of them.

So what we want to do is simply select a few that you are actually comfortable with, then neglect everything else. The point of these indicators is to help investors determine if it's a buy or a sell. They all say the same thing but in their own way. So it's important to work with what you are comfortable using and throw away the extra fluff.

2. Create an Easy-to-Follow Technical Analysis Based Trading Plan.

Just like any plan of action, your trading formula needs to be straightforward. Take each trade in your arsenal, figure out when it's best to use them, identify key events that need to occur to set the plan in motion, and write down how you are going to act.

In short form it's a) understand how your trades work, b) figure out when it is best to use them, c) identify those key market events / indicator events, and d) implement your trade / look for another opportunity.

3. Have an Exit Plan Created Before You Enter The Trade.

Prudent investors always have an exit plan before they enter a trade. Whether it's a sell stop or adjustment strategy, it should already be thought of before the trade starts.

If you are the type of trader that does not want to be glued to the computer all trading hours of the day, then this is a necessary step to achieve that goal. Even if you do decide to stay at the computer, you still want to have these stops in place to protect you from quick and sudden moves.

It is a recommended to set a stop loss a few points under a natural support level. In fast moving market, trailing stops are not recommended due to the volatility.

4. Back Test Your Trading Plan.

Once you have a solid trading plan in place, it needs to be tested accordingly. There are no fail proof trading plans due to the random walk nature of the market. Therefore, it is important to run several tests to ensure your trading plan can succeed in most market environments.

Positive results of your trading plan does not guarantee profit, but certainly gives you the best chances to obtain it. However, negative results from your back test will almost guarantee that the trading plan will not work.

During your back testing, it is important to run your plan through all types of markets (crashes, booms, periods of high inflation, periods of stagflation, periods of deflation, world events, various seasons, etc). Test every situation so you are certain you have a solid plan to commit to.

5. Paper Trade.

With your newly created trading formula, let us see it in action. Use your favorite paper trading software, identify trading opportunities that fit your strategy, and place your trades diligently.

It is important to not be reckless with your paper trading account because it's supposed to simulate real life trading. If you would not do the trade with your real money, then don't make the trade at all. This is important because those trades that were made frivolously can really screw with your mindset when you do decide to trade with your own money.

Stick to the plan and don't waiver from it. This is important because you are testing your strategy and will have to make tweaks to in in the event that it doesn't work for you. You want to be able to make the tweaks during this stage before you actually begin using real money. That is not to say, that you can't make adjustments when you are trading real money. It's just best to make the adjustments during this stage.

6. Trust In Your Technical Analysis.

Once your trading plan passes the back-testing phase, you can start trading with your own account money. Everything should be the same except during this stage we introduce investor emotions. Fortunately for us, we are robots and we can run our trades without any distractions.

So look for your trading opportunities and make 1-2 trades while being cognizant of the exit plans. See your trades through and don't waiver from the plan. The faster you can separate emotions from trading the better you are.

Once your trade is done, do a post-trade analysis. Either tweak out your plan some more, scrap it, or continue using it.

And that's how you streamline your technical analysis process.

Importance of Setting Stop Losses: The Key to Being a Successful Trader   Why Does Warren Buffett Like to Buy Stable Companies That He Understands?   How I Go About Picking Stocks   What A Stock Market Course Should Contain   Investing In Penny Stocks - Is It a Good Idea?   

Fun, Educational and Risk-Free: Playing The Stock Exchange For Real, Without High Cash Investment!

We've all heard of the Stock Exchange, and we've all heard about stocks, shares, Forex and markets and the like.

We all know there's money to be made. And many of us would dearly love to join in and trade.

But let's face it, not many of us have the nerve to put our money where our hearts are.

After all, it's just too damn risky... isn't it?

Well yes, probably. But that's half the fun and why those who get rich actually get rich! They are not afraid to gamble and take a punt in the real world.

Now if only there was a way to try it without breaking the bank?

Well, guess what. There is.

Yep, it's true, you can now try trading in stocks and shares with this brand new stock market game.

Okay, it's only a game and you don't get to make any real serious money... but there are prizes to be won if you trade well, which is a bonus and a bit of an incentive maybe.

But mainly playing the stock market game is more about experiencing real-life trading so you get to learn all about the techniques and trading strategies, when is a good time to buy, and when you should get rid.

It's simulation in other words, but not in a Nintendo video game way. You use a computer yes, and play via the Internet, but it doesn't take you to some razzmatazz CGI trading floor in London, New York or Japan.

It's more real than that. Very real, because you are actually "buying" real stocks and shares, all be it in simulation.

So what exactly is the stock market game I hear you ask?

Basically, stock market simulation or the stock market game is where you make fake trades with no real money used and it's where most traders learn to trade.

Once in the game, you may make decisions, try different techniques, trade freely and ultimately validate various investment strategies.

This is how you may learn how the market works. So, you may wonder if the stock trading game is a worthwhile trying?

The short answer is yes.

In fact, it's the only answer.

Do you know what the learning curve is? This is basically a graphical representation of cost versus skill.

At the beginning of the curve, the experience level is low and the costs high because it takes more time so more costly to execute anything than with skilled resources.

This is applicable to any activity including the stock market trading. In other words, it is crucial to any trader to practice, make mistakes and learn from these mistakes to be a better trader.

Heard that before? You bet!

One more thing, this virtual stock market game also allows you to get a better understanding of the various trading platforms and financial market terminology.

Besides, there are various sites available from the web which allows traders to start on such trading. You can choose your stocks and build a portfolio on such a site without committing any real money.

Stock prices of these simulation sites tend to mimic the real stock market where they are traded. Thus your portfolio will move up or down depending on how the stocks you traded behave in real life.

Some people say that the biggest downside of a stock market game is that no matter how good you do, you will never get a penny from your good transactions.

Well, not anymore because there is now one such stock market game that actually pays for your gains.

In short, you may redeem your gains for gift cards at discounted rates. That way the game remains challenging and exciting which will keep up your motivation to learn.

So to conclude, if you're new to trading, then yes it is a good idea to trade on a stock market game.

Because the real-life financial markets don't forgive.

Importance of Setting Stop Losses: The Key to Being a Successful Trader   Why Does Warren Buffett Like to Buy Stable Companies That He Understands?   How I Go About Picking Stocks   What A Stock Market Course Should Contain   Investing In Penny Stocks - Is It a Good Idea?   How Does the Stock Market Work   

Why You Continue to Lose in the Stock Market

Statistics show that most traders leave the market in the first year of trading. Reason being: they simply run out of money. Yet some traders do exceptionally well. What differentiates them is often not what you think. They win; you lose.

Understand your own head space first. Nothing reveals your true self more assuredly than trading the stock market. Like it or not, here are the top five reasons traders continue to lose.

1. You have not lost enough yet.

Until you have seriously lost money in the stock market, you will be unwilling or unable to learn what you need in order to change your thinking and adapt to new, winning techniques. Some folks have to hit rock bottom before rising out of the ashes. The winners in this business are also those who lost the most over time.

2. You are too stubborn.

When you are presented with new information, a new methodology or concept, soak it in. That does not mean it's valid or necessarily works for you. Question it by all means but do be receptive. Take it all in. Then decide. Just maybe, there may be something there you haven't considered.

3. You already know it all.

If that's the case, then why are you still losing, assuming you are? (Otherwise why would you be reading this?) Clearly, you do not know it all... not even enough to make money on a consistent basis. The market has a way of humbling the most savvy traders into submission. Accept that you are not the all-knowing, all-wise stock trader.

4. You need to understand your position in the market.

Unless you are a market maker, an investment banker or a corporate CEO directing the price of your stock, consider yourself a follower. The market does not care if you are a doctor, lawyer or anything in between. Following is not so bad, if you know the direction of the market. Don't try to lead; just learn to follow.

5. Be open to new ideas.

If yours are not working, then just maybe someone has some thoughts that do work. Be open but selective. Adopt those concepts that match your style, your personality and your capabilities to trade. If a regular job is keeping you from trading, then watching charts all day will not work in your case. Many strategies work. Find the one that's most fitting.

No one was ever born a great trader. Those who stay the course and change accordingly are the ones who rise to the top.

Importance of Setting Stop Losses: The Key to Being a Successful Trader   Why Does Warren Buffett Like to Buy Stable Companies That He Understands?   How I Go About Picking Stocks   How Does the Stock Market Work   Investor Relations 101   

What Is the Graham Number and How Can It Be Used to Generate Great Stock Picks?

During the great depression, one of the most famous investment authors was writing his prized work, Security Analysis. Although some call this book the bible of value investing, many have a difficult time deciphering the financial code that Graham discusses throughout the book. As a financial analyst, Graham developed a new ratio that many have deemed The Graham Number.

One of Graham's prized pupils was a boy from Omaha named Warren Buffett. Before Buffet amassed 44 billion dollars from reading Graham's books, Buffett worked for Ben Graham in New York. During this time, Graham and Buffett didn't have the luxuries of immediate stock screening search results from the internet. Instead, they faced monstrous books that housed all the newly printed data from Wall Street. Each page of these mammoth books had a line entry about each company and their corresponding financial data on the stock exchange. For example, if they wanted information about the Ford Motor Company, they might turn to page 643 and find the Book Value, the EPS, the Debt to Equity Ratio, the average volume, and many other numbers and ratios.

Since sorting through all this data was extremely difficult for Buffett and Graham, Ben Graham developed a simple formula to quickly separate the cream from the crud. In order to filter the stock results, Graham decided to focus on three important aspects; price, earnings, and Safety.

Price This was probably the easiest piece of the puzzle because the price was nothing more than the market price the company was trading for on the stock exchange. Like any investment, the price you pay has an enormous impact on the value you get. For example, few people would pay $1,000 for a pair of jeans. Most won't do this because the purpose of jeans is to cover your legs and to look appropriate. This can usually be accomplished for $50 or less. For the person who paid way too much, they have less money to allocate to other assets. This idea is no different for buying stocks. If you pay too much, your return will already be handicapped by the overvalued price you paid.

Earnings Now if you had the chance to buy jeans with $10 in the pocket, would you rather buy the jeans for $1000 or $50. Obviously the later would give you a 20% return on your investment. Whereas the first would give you a 1% return. You see, when we compare the earnings (or profit) of a business, the price is very important. What I just did was compare the price to the earnings. In stock investing there's an important ratio called the Price to Earnings Ratio that does exactly that. It takes the current market price and divides it by the company's profit (or earnings). The P/E ratio was clearly something that held a lot of value for Benjamin Graham and Warren Buffett. When they were trying to find companies in these massive stock books, they always looked for companies with a P/E less than 15. That means, at the most, they were willing to pay $15 dollars for a stock that would earn $1 annually.

Margin of Safety Benjamin Graham felt that the safety of an investment was directly related to the price an investor paid for the assets the company already owned. The difference between a company's assets and liabilities is called its equity. Graham believed that if a company's equity was equal to its market price, the company possessed no risk to the potential investor. The reason Graham felt this way is because if the company would simply end its operations tomorrow, it could be sold for the same price an investor paid for it. When a company is divided into smaller pieces, or shares, the equity no longer called equity. Instead it is called book value. So, as you can see, the price to book value ratio is really important because it shows an investor how much margin of safety, or risk, is associated with any given stock pick. If the P/BV ratio is a 1.0, that means that for every 1 dollar you spend buying a particular stock, it possesses 1 dollar of equity. When Graham and Buffett would peruse these massive stock books, they always tried to find companies with a Price/Book less than 1.5. By doing this, they felt their risk in the company was minimized. With this ratio, they were essentially saying they wanted $1 of equity for every $1.50 they spent buying the stock.

Putting it all Together Now that we understand the key terms that Graham and Buffett consider important, let's put them together. We know that Graham considered a P/E ratio below 15 a decent buy and a P/BV below 1.5 less risky. As a result, he simply multiplied these two numbers together to get the Graham Number.

If we take the two highest values for each variable (P/E and P/BV), the product is 22.5. As a result, Graham would multiply the P/E by the P/BV, and try to find companies below 22.5. Companies that met this gate were paying a healthy return for the price and they also possessed a nice margin of safety.

Importance of Setting Stop Losses: The Key to Being a Successful Trader   Why Does Warren Buffett Like to Buy Stable Companies That He Understands?   How I Go About Picking Stocks   What A Stock Market Course Should Contain   Investing In Penny Stocks - Is It a Good Idea?   

Using Online Stock Brokers To Trade Stocks

An online stock broker is an accredited individual, agent or organization approved to undertake transactions on behalf of themselves or their customers. Before a broker starts its operations, it must pass rigorous certifying processes in order to certify its eligibility to take part in stock transactions through the stock exchanges.

The brokers work is very essential in the operations of the stock market. For you to engage in the trading of stocks, you must have an account with your preferred broker. At present, the majority of brokers also provide online brokerage services to their clients. Basically, the work of brokers is to submit stock orders to the stock exchanges on behalf of their clients, and they are compensated for their services through commissions paid by their clients. Even if the stock transactions are carried out through the internet, such orders are normally channeled through the site of the broker.

There are different kinds of stock brokers, some of which are full service brokers, direct access online brokers, and regular online brokers. Full service stock brokers are stock brokers who offer a wide range of stock transactions besides the buying and selling of stocks, and these extra services come at an additional cost to their clients. Some of these additional services may include carrying out research for their clients to provide recommendations on stocks to consider for investment and advising their clients when to buy and sell stocks.

Direct access online brokers provide their customers with direct access to the exchanges and provide them with essential tools to carry out financial analysis to enable them make the right decisions on when to buy and sell their stocks. And, although they may charge smaller commissions for their services, they carry out limited functions to their clients compared to full service stock brokers.

Regular online brokers, also referred to as discount brokers, provide discounts on their commissions. These brokers perform limited functions to their customers compared to the other type of brokers.

If you want to choose an online broker to trade stocks, you should go for the one you are most comfortable with. For example, if you have enough experience on how the stock market operates, you are better off if you choose a direct access stock broker or a regular online stock broker. On the other hand, if you are not very much experienced, you should go for a full service stock broker. Although this will come with added costs, the benefits you will get are huge.

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Laws Of Technical Trading - The Modern Approach!

We all have read John Murphy's laws of technical trading. Haven't we? Well, folks who are yet to read them will get a chance to glance at them here. But, my target readers are those who have not only read them, but perhaps even mugged them by heart. I present to you the commandments of technical trading in an entirely refreshed manner keeping in view my trading experience and modern trading techniques. All observations and opinions are solely mine and I do not intend to disagree with the original rules. They may have worked the best in those times as well may be working still for modern traders in the same old style.

Map the Trends

What is meant by mapping the trend? Mapping is a technique that involves at least 2 entities. Remember those school times when we used to map the left and right columns. Mapping object images on left with their respective names on the right. Mapping those objects on the left with their definitions on the right. And so on. If we try to map this golden rule with modern world of technical analysis, we are talking about trading multiple time-frames in this rule. Essentially, what we are saying is that the trade must be opened in the direction of higher time-frame. So, if you trade using 5-min chart and the trend in 30-min or hourly chart is long, you should look for trading opportunities in long side alone and ignore the opportunities on short side since the underlying trend is long. The same fact holds true for any timescale which you prefer to trade in. Mapping the trend means mapping the direction of your traded timescale with the higher timescale trend. If they do not map or violate in some manner, avoid the trading opportunity.

Spot the Trend and Go with It

You must determine the trend and choose to ride the same. Determining the trend correctly is indeed the most important and time-consuming step in trading. However, buying dips of up-trend and selling rallies of down-trend does not seem to be a flavor of modern stock markets. Rather, I don't mind buying a stock if in a up-trend and has even crossed and stayed above the resistances and selling a stock which is in down-trend and crossed and stayed below the support levels. This I recommend based on my experience in trading the stock markets. The old golden rule of buying low and selling high seem to have been exploited a little too much over the years.

Find the Low and High of It

Find support and resistance levels. Yes. They are indeed important to mark on a chart. However, the best place to buying today is beyond resistance levels and sell below support levels. Breakouts are the flavor of today and not merely buying at support and sell at resistance. No matter how smart we get, markets will overshadow our smartness with time. Time changes the rules of stock trading like it changes everything else.

Know How Far to Backtrack

Backtracking refers to Fibonacci retracing method which is widely used by traders even today. This technique is still seen as working effectively. However, I don't rely even on the retracing technique. The reason is that I tend to dissolve in numbers and levels when I start to consider retracing levels. The retracing is a subjective technique. Let me explain how. Say, you trade using 5-min chart and calculate the crucial retracing points. But, what about retracing points for 15-min, 30-min, hourly, daily, weekly charts. They are bound to be different. So, you calculate all retracing levels for all charts and keep them with you to hope that market will reverse from any of them. I have seen the market reversing beautifully from crucial retracing levels. It all depends on which levels are your favorite to trust, which ones to ignore. It is indeed a personal choice. No wonder different traders using this technique tend to predict the market differently. Personally, this technique is what I stay away purely because of my personal choice. Also, I keep myself away from any technique which tends to time the market which retracing technique does in a subtle way. If it works for you, stay with it. Having said all, it is indeed a remarkable technique to use while trading.

Draw the Line

Trend lines. The first lesson to learn for each trader. Those trend lines whether connecting the lows, highs, bottoms or tops really seem to be very effective. You must draw as many lines as being noticed on your charts. Even in the modern trading world, trend lines are indeed a good resource. However, they are subjective again. In my experience, I have seen these lines break more often than retained. Hence, although I love to draw those lines, but, to look for the trend break signals and not retain signals. Again, it is a personal choice. Anyway you use them; the lines prove to be magical many times.

Follow that Average

Moving averages are by far the sole technique not needing any evidence of surety. And, I believe they will continue to be winners at all times because markets will remain to be disturbed forever. When you have disturbance, averages will help you in some way surely. Averages are built on the unchanged principle that disturbance is followed at some time by normalcy. But what we do not know is when and for how much time. All technical indicators use averages whether to smooth-en the output or assist you in taking trade decisions. No matter what your trading style, moving averages must be relied upon as a great trading tool.

Learn the Turns

Oscillators are being referred to here in this rule. Your stochastic and RSI are contained in this rule. Although the old rule refers to spot the over-bought and over-sold levels hinting a turn could be on the cards, with my experience with stochastic, you will see more winners and with greater profit percentages when you buy in the over-bought zones and sell in over-sold zones. You must ask yourselves why a stock is in over-bought zone. We call it a over-bought zone which gives us a feeling that the stock is stretched a bit too much. However, with my experience, I have noticed that there is nothing called stretched stock. On the contrary, a stock which is apparently stretched is the one in demand. I would call it over demand zone and not over-bought. The old rules were a result of a certain degree of predictability of the markets. Markets were saner at that time. But, today, I would call the markets as more insane. They can show you levels which you could never even imagine despite more regulations. Why? Because markets do not move as per regulations, but as per human mind. The human mind though was always mad or insane; it truly is far close to being mad today than it was 20-25 years ago. More mad is your mind, more insane shall be the markets. Hence, I would say do not learn the turns. But, learn to grab a seat while the stock is heading towards even more mad levels. Oscillators can surely help you there.

Know the Warning Signs

This is where I agree even in today's trading climate provided you really can know the warning signs. No matter what you use, whether A-D-X for directional sense or M-A-C-D, you ought to end up either miss a very good trade or trade in favor of a disaster. For me, the only way to know a warning sign is if you know something which nobody else knows. You surely can evolve into a true stock predictor by giving enormous amount of screen time. You can know the warning signs merely by looking at those candles. Irrespective of the technique, you must learn to understand such warnings before you can become a successful trader.

Know the Confirming Signs

Volume and open interest is being referred to here. I almost never use them in my trading. With my experience, I can say that if at all markets and market trading can ever be manipulated (I strongly believe it cannot be manipulated. Even if it could, it would be for a very short span of time like seconds), volume and open interest would be used tools. These provide the most misleading signals as per me. Again, if they work for you, stick with them. But, not me. However, I certainly believe in trading in high liquid stocks only since those with too less volume or open interest tend to give you incorrect signals many times.

Importance of Setting Stop Losses: The Key to Being a Successful Trader   Why Does Warren Buffett Like to Buy Stable Companies That He Understands?   How I Go About Picking Stocks   What A Stock Market Course Should Contain   Investing In Penny Stocks - Is It a Good Idea?   

The Three Important Parts of Warren Buffett's Treasured Book, "Security Analysis"

Warren Buffett has said it numerous times. One of his most prized possessions is an investing book that read while studying at Columbia University. The book "Security Analysis" puts forth the basic principles underlying investment decisions and this book has been written by none other than, Benjamin Graham and David Dodd, two most famous financial investing authors of all time. Any investor that is serious about investing in stocks must read the book in order to grasp the workings of security analysis.

The first part of the book essentially deals with providing guideline on how investors should conduct their decisions regarding stocks. The book identifies that investment in stock must be made after conducting a thorough analysis of the future profitability of the corporation. However, this is not enough and an investor must also take into account a certain margin of safety and all decisions must be governed by stated principles of investment. The book also emphasizes the use of price earnings ratio as a measure of determining the worth of an investment. Graham stated that the P/E ratio should be a maximum of 20 and no more, as P/E ratio higher than 20 suggests speculative stocks that are likely to lose value in the foreseeable future. He emphasized that P/E ratio must not be the only measure on which investment decisions are based. Rather the investor must take into account the inner workings and management of the organization before undertaking the investment.

The book also focuses on the ideology that is generally adopted by the investors when investing in stocks. The authors identify that traditional method of security analysis is based on earnings only and this is subject to errors. After criticizing that method adopted by the investors at large, the book aims to highlight methods of security analysis that have been tried and tested by the authors themselves. He states that investment in stocks should not be based on guesses and speculation but rather on sound analysis that takes into account past, present and future conditions of the corporation. The book than suggests that investors must invest in stocks of high growth companies and offers ways of how the investors can identify companies that have high growth prospects. However, it is repeatedly emphasized that an investor must not pay an extremely high price for the stock based on calculations. This is because if the growth projections do not occur as predicted the investor would actually be at a loss by paying more for the stock than it's worth.

Lastly, Graham introduces the concept of "margin of safety" and how this might be practiced by a normal investor. Graham emphasizes that an investor that buys stocks at less than the intrinsic value is practicing the concept of margin of safety. However, he once again highlighted that the calculation of intrinsic value is subject to error and not absolute. Nonetheless, he stated that an investor who is able to buy stocks at a price that is far less than their actual worth is actually able to incorporate sound investment techniques within the investment strategy.

Importance of Setting Stop Losses: The Key to Being a Successful Trader   Why Does Warren Buffett Like to Buy Stable Companies That He Understands?   How I Go About Picking Stocks   Investor Relations 101