If you’re a beginner in trading commodities, currencies, stocks or markets in general, the following information will save you from having to ask the same questions we have already answered from previous inquiries:
They use momentum statistics, such as moving averages and trading volumes (where available), to predict the direction of the market. Historical patterns can provide clues about so-called ‘resistance’ and ‘support’ levels, where rising prices will stall, and falling ones will hit bottom.
To the extent that technical analysis works, it is because human psychology plays a big role in investors’ and traders’ decisions to buy or sell, and that doesn’t change much over the years. Convinced devotees don’t really give a tinker’s darn about a company’s business fortunes or outlook. All they care about is sheer momentum. They believe that everything that is known about the business fundamentals is already reflected in the stock price, and could care less about valuation or business fundamentals.
Momentum traders believe that price will move in the path of least resistance, and that path is defined by the trend in the price.
Use just two or three great trading strategies, and stick with them – only them. As Anthony Robbins stresses, do the same thing over and over again. Focus on making small, but consistent, short-term profits. Do not use ‘rocket science level’ technical analysis. The old joke on Wall Street is “I never met a rich technician.” There is no ‘magic’ technical approach to winning consistently in the markets. Make sure your approach is executable, simple, and highly profitable, with just a smidgeon of technical analysis thrown in to help you with timing trades you intend to hold for a couple days.
Today’s markets are very profitable to trade. There are several great trading opportunities that happen EVERYDAY, and you don’t need complex technical analysis to find them and profit from them. Care about making money by taking profits when they present themselves, while managing your losses. As hard as it is to take a loss, it’s crucial that you do. Your survival as a trader depends on it. Keep your long-term investments separate from your trading account. Don’t let losing trades become long-term holds!!! It’s a deadly mistake. Cut the losses, and move on.
The most important element of any successful trading plan is your own mental attitude. This is something you need total control over. Without the proper mind-set and the necessary mental attitude, even the soundest of all methods will lead to losing money. A winner is more defined by his winning mental attitude than his winning methodology. What exactly causes one trader to play a stock and win, while another absorbs the same information and loses? The difference lies in the mind. Winners consistently win, because they are confident and certain. No method, however sound, will work for the trader who mentally pictures himself losing, even before each trade is placed.
An old saying goes, “Nothing kills a successful trade like emotions.” Check your emotions in your hip pocket.
Last, by not least, believe in yourself. It is the quintessential universal dream: “You can do it!”
– Strong stocks tend to resume their up-trends after three-, five- and eight-day corrections.
– Winning in the stock market is directly correlated with how well we lose. No whining! Blaming yourself or others for bad trades (which we all make from time-to-time) is a sure sign you’re doomed as a trader. Complaining doesn’t make you a better trader.
– It’s OK to stay on the side lines when the stock market is going nuts. The material in my publications and on my Web site shows you how to make money regardless of market conditions, as long as there is some kind of movement; but, just remember, whenever things get uncomfortable for you, you can always elect not to play.
– The criteria you would use to identify a stock you’d want to own for the long term may not be the same set of criteria you’d use in finding stocks to trade, although they both complement each other.
If you are a beginner in trading commodities, currencies, markets, stocks or whatever, and still have questions, please feel free to contact us at TradingSmarts using the Contact link on each page. I would be delighted to make your acquaintance and be of service to you!
We show you how to the detect seismic shifts of the commercial traders early, while they are still tremors. Find out what I am talking about at ‘The Home of the Big Dogs’ – TradingSmarts.
Let’s say corn has a seven cent carry between MAR and MAY. This means the deferred is selling higher than the nearby. This is normal to encourage the carrying/storing of corn into MAY. It means that there is adequate corn available to market now. If, for example, soybeans are not at full carry, this means prices are too low to draw soy out into the market.
Where soybeans ramp down price with increased world production, there’s the process of finding a new supply and demand equilibrium, which causes a conundrum. The supply dictates lower prices. The producers aren’t willing to part with them yet. The deferred contracts stay low to suppress production, and the nearby contract trades just high enough to get the farmer to part with his beans. Strong basis also encourages selling.
Where there are ample supplies, there is a ‘carry’ to it.
‘Contango,’ on the other hand, refers to the premium of forward-dated contracts over nearby ones. Where it approaches zero, this makes it unprofitable for producers to hedge their forward production. Accordingly, producers will reduce their hedge book, and not establish new hedge positions. When this happens, as say in the case of gold, this represents a commitment to the long term, and may inspire confidence in the institutional investor community more than price spikes alone. Does such confidence prove sufficient to keep gold trading up when it does? It’s anybody’s guess.
The second type is a loosely-associated local, a professional who trades with his own money for his own account.
The third type is known as a market maker. The difference between locals and market makers is that the latter are better capitalized and financed, which enables them to trade larger amounts.
When traders on the Chicago Mercantile Exchange (CME) are able to sell futures at a premium over fair value, they may elect to hedge themselves by buying the actual stocks. When they can buy the futures at a discount to fair value, they may decide to sell back the stocks. This is also done via ‘program trading,’ using various methods employed by trading firms off the trading floor.
Equity traders like to know if the futures are trading at a premium or discount to fair value before entering or exiting a trade. This is a major part of a larger decision-making process that most professional traders use. You can keep a small window next to your S&P tick chart that shows you the premium or discount.
Equity traders use fair value premium or discount to determine pricing for their opening only and other similar strategies. You can go to cme.com to view the education available from the Mercantile Exchange.
The second attribute – multi-tasking – women will appreciate. Even 60-year old grandmothers trade futures successfully. They study harder, paper trade longer to hone their technique, and are used to multi-tasking – looking at a chart, talking on the phone, changing a diaper, and clicking at the same time. Navy pilots also make good day traders. If they can land a rocket-ship at night on something that is bobbing and weaving in the middle of nowhere, day trading is a piece of cake for them. But, anybody can do it, provided you master these two attributes, plus the one to follow.
A third attribute would be the ability to gauge risk and embrace it. You don’t necessarily have to be an expert, but you have to be able to operate in the now.
If, for example, you went short MAR corn the previous summer at 2.50, then that order or trade is in the book before a short that is entered, say, today at 2.07. When FND comes up, and the CBOT is issuing delivery notices, they are coming to you first and to everybody else prior to the one entered today at 2.07. It’s first traded, first delivered.
So, if you are short MAR corn, and you’ve been short for a long time, and you don’t want to deliver it, then you need to close it out, because you could get a notice to deliver. For the longs, FND is the first day in which they can be forced to take delivery of contracts.
The person holding the oldest long will get a notice that delivery is being made, and they match all of these up. If you don’t want to deliver or take delivery, you can re-offer it to the market to close out the position. Spec traders usually get out prior to FND, or roll to the next contract.
Last trading day is for any contracts not assigned, matched or served delivery notices.
The ruse lies in these managers ‘faking it’ – having investors believe they have made ‘wise’ investment decisions all along. Not only do they deceive investors with this practice, they also rack up excessive trading costs that are passed on to the investors. According to the U.S. Securities and Exchange Commission, the practice of window dressing may in fact violate anti-fraud provisions.
This is just smoke ‘n mirrors though for, on the first day of the next period, these same managers ditch those shares, thereby dragging the value of those stocks down.
It’s all about money, as it seems to be with just about everything in life these days. You see, a manager’s bonus and reputation, such as it is, depends on end-of-the-year returns. So, that’s the incentive to pump up the portfolio. Although the gains are given back the first day of the next year, that last little bit of push will drive up the manager’s bonus – not to mention whether he or she cracked the top 10, or beat his/her benchmark.
Just keep in mind the fact that fund managers turn over their investments at a fair clip. On average, each stock in a mutual fund is held for only about 18 months. That’s a lot of quick churn. Too quick, in fact, for any reasonable fund manager to totally understand that many businesses every 18 months, or so. That translates into sheer speculation that you’re paying for
Back then, short-term rates were higher than long-term rates, a rare inversion that almost invariably foreshadows an economic downturn. As at February 5, 2002, long-term rates were much higher than short-term rates – a sure sign that an economic upswing was in the works. The bond market may not be sexy, but paying due attention to it will make you a better investor – and trader.
It’s so important for YOU to learn the skills and strategies professional traders use to excel, even in the toughest of market conditions. Super successful traders know full well that there are unique opportunities to be found in any type of climate – if only YOU can learn to read and interpret the signals properly.