10 Golden Rules for Stock Trading Success

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Your stock trading rules are your money. When you follow your rules you make money. However if you break your own stock trading rules the most likely outcome is that you will lose money.

Once you have a reliable set of stock trading rules it is important to keep them in mind. Here is one discipline that can reap rewards.
stock market trading rules
Your stock trading rules are your money. When you follow your rules you make money. However if you break your own stock trading rules the most likely outcome is that you will lose money.

Once you have a reliable set of stock trading rules it is important to keep them in mind. Here is one discipline that can reap rewards. Read these rules before your day starts and also read the rules when your day ends.

Rule 1: I must follow my rules.

Naturally if you develop a set of rules they are to be followed. It is human nature to want to vary or break rules and it takes discipline to continue to act in accordance with the established rules.

Rule 2: I will never risk more than 3% of my total portfolio on any one stock trade.

There are many old traders. There are many bold traders. But there are never any old bold traders. Protecting your capital base is fundamental to successful stock market trading over time.

Rule 3: I will cut my losses at 5% to 15% when I am wrong without question.

Some traders have an even lower tolerance for loss. The key point here is to have set points (stop loss) within the limits of your tolerance for loss. Stay informed about the performance of you stock and stick to your stop loss point.

Rule 4: Never set price targets.

This is a style that will allow me to get the most out of rising stocks. Simply let the profits run. Realistically, I can never pick tops. Never feel a stock has risen too high too quickly. Be willing to give back a good percentage of profits in the hope of much bigger profits.

The big money is made from trading the really BIG moves that I can occasionally catch.

Rule 5: Master one style.

Keep learning and getting better at this one method of trading. Never jump from one trading style to another. Master one style rather than become average at implementing several styles.

Rule 6: Let price and volume be my guides.

Never listen to any opinion about the stock market or individual stocks you are considering trading or are already trading. Everything is reflected in the price and volume.

Rule 7: Take all valid signals that show up.

Don’t make excuses. If an entry signal shows up you have no excuse not to take it.

Rule 8: Never trade from intra-day data. There is always stock price variation within the course of any trading day. Relying on this data for momentum trading can lead to some wrong decisions.

Rule 9: Take time out.

Successful stock trading isn’t solely about trading. It’s also about emotional strength and physical fitness. Reduce the stress every day by taking time off the computer and working on other areas. A stressful trader will not make it in the long term.

Rule 10: Be an above average trader.

In order to succeed in the stock market you don’t need to do anything exceptional. You simply need to not do what the average trader does. The average trader is inconsistent and undisciplined. Ask yourself every day, “Did I follow my method today?” If your answer is no then you are in trouble and it’s time to recommit yourself to your stock trading rules.

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5 Tips for Investing in Penny Stocks

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Investing in penny stocks provides traders with the opportunity to dramatically increase their profits, however, it also provides an equal opportunity to lose your trading capital quickly. These 5 tips will help you lower the risk of one of the riskiest investment vehicles.
penny stocks, stock market, investing
Investing in penny stocks provides traders with the opportunity to dramatically increase their profits, however, it also provides an equal opportunity to lose your trading capital quickly. These 5 tips will help you lower the risk of one of the riskiest investment vehicles.

1. Penny Stocks are a penny for a reason.
While we all dream about investing in the next Microsoft or the next Home Depot, the truth is, the odds of you finding that once in a decade success story are slim. These companies are either starting out and purchased a shell company because it was cheaper than an IPO, or they simply do not have a business plan compelling enough to justify investment banker’s money for an IPO. This doesn’t make them a bad investment, but it should make you be realistic about the kind of company that you are investing in.

2. Trading Volumes
Look for a consistent high volume of shares being traded. Looking at the average volume can be misleading. If ABC trades 1 million shares today, and doesn’t trade for the rest of the week, the daily average will appear to be 200 000 shares. In order to get in and out at an acceptable rate of return, you need consistent volume. Also look at the number of trades per day. Is it 1 insider selling or buying? Liquidity should be the first thing to look at. If there is no volume, you will end up holding “dead money”, where the only way of selling shares is to dump at the bid, which will put more selling pressure, resulting in an even lower sell price.

3. Does the company know how to make a profit?
While its not unusual to see a start up company run at a loss, its important to look at why they are losing money. Is it manageable? Will they have to seek further financing (resulting in dilution of your shares) or will they have to seek a joint partnership that favors the other company?

If your company knows how to make a profit, the company can use that money to grow their business, which increases shareholder value. You have to do some research to find these companies, but when you do, you lower the risk of a loss of your capital, and increase the odds of a much higher return.

4. Have an entry and exit plan – and stick to it.
Penny stocks are volitile. They will quickly move up, and move down just as quickly. Remember, if you buy a stock at $0.10 and sell it at $0.12, that represents a 20% return on your investment. A 2 cent decline leaves you with a 20% loss. Many stocks trade in this range on a daily basis. If your investment capital is $10 000, a 20% loss is a $2000 loss. Do this 5 times and you’re out of money. Keep your stops close. If you get stopped out, move on to the next opportunity. The market is telling you something, and whether you want to admit it or not, its usually best to listen.

If your plan was to sell at $0.12 and it jumps to $0.13, either take the 30% gain, or better still, place your stop at $0.12. Lock in your profits while not capping the upside potential.

5. How did you find out about the stock?
Most people find out about penny stocks through a mailing list. There are many excellent penny stock newsletters, however, there are just as many who are pumping and dumping. They, along with insiders, will load up on shares, then begin to pump the company to unsuspecting newsletter subscribers. These subscribers buy while insiders are selling. Guess who wins here.

Not all newsletters are bad. Having worked in the industry for the last 8 years, I have seen my share of unscrupulous companies and promoters. Some are paid in shares, sometimes in restricted shares (an agreement whereby the shares cannot be sold for a predetermined period of time), others in cash.

How to spot the good companies from the bad? Simply subscribe, and track the investments. Was there a legitimate opportunity to make money? Do they have a track record of providing subscribers with great opportunities? You’ll start to notice quickly if you have subscribed to a good newsletter or not.

One other tip I would offer to you is not to invest more than 20% of your overall portfolio in penny stocks. You are investing to make money and preserve capital to fight another battle. If you put too much of your capital at risk, you increase the odds of losing your capital. If that 20% grows, you’ll have more than enough money to make a healthy rate of return. Penny stocks are risky to begin with, why put your money more at risk?

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A Cheap Strategy to Play Microsoft

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Articles takes a look at Microsoft and how you can play the stock with options.
stocks,investing,trading,options,technical analysis,george leong,money,finance,small cap stocks
Bill Gates is super rich but his once high-flying software company has been in the doldrums since mid-2002 after falling from the $35 level. The problem with Microsoft (MSFT) has been its failure to grow both its revenues and earnings at the superlative rates the company once enjoyed.

Any company the size of Microsoft, with a market-cap of $242 billion, will find growth an issue because of its size. But this is not to say the stock is dead. Far from it, Microsoft remains a viable long-term software company and is cash rich with $34 billion or $3.28 per share in cash. This gives the stock plenty of financial flexibility to develop or buy growth technologies. Microsoft just announced it would spend $1.1 billion in R&D at its MSN Internet unit in the FY07. And according to the Wall Street Journal, Microsoft is exploring the possibility of taking a stake in Internet media company Yahoo (YHOO) to take on Internet advertising behemoth Google (GOOG).

But with an estimated five-year earnings growth rate of a pitiful 12%, the company has its work cut out for it. Trading at 16.30x its estimated FY07 EPS of $1.44, the stock is not expensive but appears to be priced not as a growth stock.

Its PEG on the surface of 1.51 is not cheap, but if you discount in the cash of $3.28 per share, the estimated PEG falls to around 1,0, a decent valuation. Also, if Microsoft can improve on its estimated 12% growth rate, the PEG would decline further.

The fact is Microsoft at the current price deserves a look. If you want to play the stock but don’t want to shell out the $2,347 for a 100-share block, you may want to take a look at the long-term options, also known as LEAPS. For instance, the in-the-money January 2008 $22.50 Microsoft Call LEAPS not set to expire until January 18, 2008 currently costs $380 a contract (100 shares).

This means you risk a total of $380 for the chance to participate in the potential upside of 100 shares of Microsoft over the next 20 months. The breakeven price is $26.30. If Microsoft breaks $26.30, you would begin to make money on your LEAPS. Conversely, if Microsoft fails to do anything, your maximum risk is $380 on the initial option play.

Warning: The aforementioned example is for illustrative purposes only and not to be construed as an actual option strategy. Due to the higher risk inherent in options, I recommend you speak with an investment professional before deciding to employ any strategy involving options.

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Penny Stocks: Is it a Good Idea to Invest?

There are so many different stock options out there, it’s almost impossible to keep them all straight. When investors want to start out sort of small in the stock market, they may hear that penny stocks are a good investment. But, are they?

It’s true that, for those investors wanting only to put in a little bit of their money, penny stocks are a good way to go. Shares are often bought fairly cheaply, and there is the hope of getting a big return for that small initial investment. This is why some investors are drawn to penny stocks. A small investment, a big return…it sounds perfect, right?

This does not mean that it’s always a good idea to invest in penny stocks. Yes, there is some potential to enjoy a large return. But penny stocks aren’t labeled a “high-risk investment” for nothing. There is also the potential that investors will lose their capital, their whole investment in fact. Why?

Because penny stocks trade very infrequently, and they don’t trade through the large and well-known stock exchange systems. Penny stocks are traded through different markets, making it hard to buy and sell them. When a stock is hard to sell, that often means that investors may get “stuck” with their stock – and that’s a position that many don’t want to be in. This is why penny stocks are risky, and a little dangerous.

While some investors may consider this type of trading exciting, it turns others away from penny stocks completely. How do you know when it’s a good idea to invest in penny stocks? The only person who can decide what to do with your money is you. When you invest in penny stocks, you get very regular “progress reports,” so you know exactly what your stock is doing. This is the law, so if you invest and don’t get your reports then something is very seriously wrong with your investment. You should get regular updates regarding your investment, and when you invest in penny stocks you’ll want to watch them carefully. Because they trade so infrequently, investors in penny stocks have to be ready to make a move at a moment’s notice. Missing the window of opportunity could mean missing out on a big pay off.

If you like the risk and want to take a chance on a big return by putting up only a small initial investment, then penny stocks may be the right choice for you. There are some Internet scams concerning penny stocks, and many people receive spam e-mail on many penny stock investments. These e-mails are going to try and cheat you out of your money, so don’t trust the penny stocks you see advertised here. There are some totally legitimate penny stocks that investors may want to try, however, so don’t let spamming stop you. Take a look at different penny stocks on your own before deciding what to do. If you feel comfortable with your chances and like what you hear about penny stocks, then it’s a good idea for you to invest.

But remember, you’re the only one who can make that decision. If you like the sound of penny stocks, then find out more. But if you don’t want to take the chance, then you may not want to play the penny stock game at all.

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The Advantages Of Trading Stock Options

Just recently, options in stock trading have been getting the attention they deserve from many traders. However, for quite some time now, investing on options has created quite a stigma in the market especially with the financial media and a few popular figures attaching such implications that trading options may be too risky or dangerous.

What you should knowing about trading options however, is that there are a lot of advantages that one can get from it. And as long as you are smart in handling your trades and with the use of the right strategies, you may be able to prevent risks from actually happening.

Cost Efficient

One thing about stock options is that they are well capable of leveraging or borrowing money in order to increase returns. It can be very possible for an investor to obtain option positions that copy stock positions without going overboard with the cost. A strategy known as a stock replacement, allows mimicking stocks possible but in a cost efficient way.

For example, for you to be able to purchase 200 shares of a $50 stock, you must pay $10,000. But if you were going to purchase a couple of $20 stock options, with the options representing 100 shares each, then you would only have to outlay $4,000 instead of $10,000. As an investor, you would be able to gain $6,000 for you to use in your discretion.

Of course, the whole process may not be as instant and as simple as the example provided. But if you are able to choose the right stock option for the process, then you may be successful in your attempts for this strategy.

High Potential Returns

Another fact about stock options is that you can actually spend less money, but still make almost the same profit. Because of this, you can surely expect to gain a much higher percentage of returns as compared to normal stock trading. Of course, this would mean that you can actually earn so much more and your investment can surely pay off.

More Investment Alternatives Are Offered

Another very good advantage in trading options is the fact that they can offer more strategic alternatives for investment as compared to traditional stocks. Because options are very flexible, there can be a lot of way to use them.

Take in mind that options are actually the rights to trading a particular stock, and so, there may be various ways that an investor can actually use these rights to benefit him or herself.

The use of these options allow an investor to trade not only through stock movements, but through the passage of time and unpredictability in the market as well. And this can be very beneficial because most stocks rarely move significantly. Options strategically offer alternatives for a trader to do business in every type of market.

These are only a few of the major advantages of trading stock options, but as you can see, they are enough reason to tell you that going into this type of market can really be beneficial. With the low costs, direct access to stock options through the Internet, and with such benefits at hand, it is no wonder why stock options trading have become a part of the financial circles these days.

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Active Stock Market Timing

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Active Stock Market Timing discusses the merits and pitfalls of stock market timing.
stock market timing, timing the stock market, market timing
Copyright 2006 Equitrend, Inc.

Much has been written about the virtues and dangers of active stock market trading, or “market timing.?
Most of the pundits and so called “experts” will tell you that stock market timing doesn’t work, that it’s dangerous, and that “buy and hold” is the best and only way to invest.

But this conventional wisdom is patently untrue. Here are the facts based on my research and extensive real time experience.

If you want to be a successful stock market timer, you need three key elements:

1. A system that actually works.

2. Discipline to follow the system.

3. Patience to stick with the system long enough to make it work for you.

And it tough to do all three.

Here why:

Most market timing systems don’t work. Or don’t work consistently enough to be valid. Some will work in trending markets but get slaughtered during flat times. Most systems don’t work in all markets.

Investors lack the discipline to follow a proven system. Once an investor finds a viable program, he or she needs the discipline to follow it. Sadly, some either can’t or won’t do that. When they let their own judgment or intuitions interfere, they don’t get the results they want or could have enjoyed by simply following the buy and sell signals they receive.

Investors lack the patience to stick with their system. Many investors are constantly in search of the Holy Grail, a program that never loses a trade. The fact is, no method will win every trade, and investors without patience will find themselves hopping from advisor to advisor with no rewards to show for their efforts.

However, there are a number of proven systems available that recognize these pitfalls and successfully time the market to massive profits year after year. Anything you hear or read to the contrary is simply not true. Wall Street has a vested interest in opposing stock market timing because it is a threat to their very existence.

Investors have two choices. They can pursue the conventional wisdom of buy and hold and hope for the best, or the modern investor can educate himself and find a timing system with which he is comfortable to protect and grow his wealth. There are a number of proven options available, but the absolute worst thing one can do is listen to the pundits who tell you that “stock market timing” doesn’t work.

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Stock Options – Comparing The Two Types

The trade for stock options is fast on the rise in the market these days. With its many trading benefits and high promises for financial profit, many have become quite interested in buying and selling such contracts. Let us learn about the two types of these options in order to better understand how to trade them.

Knowing how each of these options would work to your benefit as the contract holder can surely come in handy with the volatile trends ongoing in the stock market.

The two major types of option contracts are the call option and the put option. Each of these contracts holds rights and benefits for their owners. Let us discuss each of these and how they can be useful to you.

Call Options

A call option is a type of contract that gives its owner the right to buy the underlying stock at a certain fixed price (also called the strike price) within a specified time frame, which should be on or before the expiry date. The buyer of a call holds the right to purchase shares at the strike price until the date of expiry. The writer or the seller of the call on the other hand, holds the obligation.

If a call buyer chooses to exercise his or her option by deciding to purchase the underlying share, then the call writer is then obliged to sell his or her share at the negotiated strike price.

For example, an investor purchases a call option from a certain company with a strike price of $10, which will expire in two months, then that buyer holds the right to exercise his or her option by paying the value of $10 for each share. The writer, on the other hand, would be obligated to give up the shares in the exchange for $10 for each of them.

Put Options

On the other hand, a put option is the total opposite of the previous. It is a contract that allows one to sell the underlying stock at a certain price on or before the expiry date. A put buyer holds the right to sell shares at the strike price, and following this, a put writer will then be obliged to sell at the negotiated price.

And so, if the investors who have purchased the stocks of a company would have growing concerns that business may not fair a current market slump, then they can buy a put option at a certain strike price in order to ensure the safety of their gains.

These investors would then hold the right, until expiry, to be able to sell their stock shares for the same amount they paid for them. Sellers of the put are then obligated to buy back the shares. If in the event that the company really did not do well during the market slump, then this could hurt on the part of the put seller.

Knowing about the differences between these two types of options are the first major step to guide you in making decisions in trading stock options. Be sure that you know what risks are involved in each type, so you would be able to know whether to buy a call or put option with the current behaviors of the stock market.

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An Industry Blueprint To Stocks And Shares

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In this day and age, a lot of things have changed from how they used to be, which can be new and exciting for most.

Because of the large size of the stock market, beginner investors appear to feel overwhelmed as to where to even activate investing their money. To most people, the stock market presents a messy web of options but does not reveal the highway map of clarity to guide their way along way in their investment adventure. The key to investing in the stock market is …
stock market, investment tips, investment advice, stock market tips
In this day and age, a lot of things have changed from how they used to be, which can be new and exciting for most.

Because of the large size of the stock market, beginner investors appear to feel overwhelmed as to where to even activate investing their money. To most people, the stock market presents a messy web of options but does not reveal the highway map of clarity to guide their way along way in their investment adventure. The key to investing in the stock market is to become as educated as it is possible so that you know exactly what is taking place at all times. This helps people to make plausible and sound decisions about their money, thus, dropping the stress involved with investing.

The usual person, when beginning to entertain the idea of investing in the stock market, falls into one of two categories. Class one is the gambler who feels that investing is definitely a form of betting and no question what they do, they are certain that they will drop money slightly than make money. It seems that this opinion of investing in stocks is either formed from friends and family that have been baffled by the stock market or private experience and lost money. If someone has personally made losses in the stock market, it is pretty evident that they were not educated enough at the time of their investment in the stock market. Therefore, they must become educated as to what exactly the stock market is as well as how its system works in order to become a successful investor. Class two, on the other hand, represents the “go-getter?investor, which is an individual who knows that they should invest into the stock market for the safety of their monetary future, but they have absolutely no idea where to begin. The “go-getters?lean towards avoiding their monetary decisions and leave it up to professionals; therefore, they are powerless to justify why they own a certain stock. A usual “go-getter?operates in blind faith, as one stock goes up in value, they more than likely will hold it. The “go-getter?is in poorer shape than the gambler in that they will invest like everyone else and then wonder why they receive an unsatisfactory or devastating outcome. This just proves that the typical person should become thoroughly educated about the stock market as well as stocks before investment takes place.

Essential to every economy is business…businesses that started out as small operations that have grown to become money making giants, raising capital by promoting stock in them to people who want to invest to make their futures financially secure. As small businesses start to grow, one of the supreme obstacles is generating enough money in order to develop into a superior operation. Businesses either scrounge the money in the form of a offer from a bank or venture capitalist, or someone that will invest money into a business in which they feel they will receive a high rate of return, or a reap from their investment into a business, in order to create the currency to expand. The most common choice for a business to gain money for the view of expansion is to take out a loan; however, there is no agreement that a bank will offer money to any given business.

What we have explored up to now is the most important information you need to know. Now, let dig a little deeper.

In this case, business owners roam to the stock market for help in the form of issuing stocks. Firm owners relinquish a tiny fraction of control over their business and in reciprocation; the stock market provides that business money that does not have to be salaried back, in order to guarantee expansion. As an added bonus, the business is permitted to “go public,?a saying that means a brand is selling stocks for itself for the first time, so that business owners no longer are required to borrow money from banks because they can merely use their own stocks for getting monies to use for expansion. Thus, as the business grows and sells their stocks to people, the better chance a sponsor has on gaining a return on their investment as opposed to a loss.

As an investor, it is to your advantage to efficiently study each and every business in which you propose to hold stocks. The more facts you know about any certain business, the easier it is to make a plausible decision as to whether you should hold stocks or want a different business in which to work with.

Try searching for a particular keyword from the title of this article on your search engine and you are sure to find a wealth of knowledge.

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