Basics of Options Trading

We've covered a lot on the stock market fundamentals and investing or trading of stocks as well as stock picks in general, so I thought I'll like to touch on a little on some basics on options trading. This can be quite complex for most beginners in the stock market, so I'll try to make it as simple as I can.

An option is a derivative of a stock, future, index or exchange traded fund which means that their value depends on the price of the underlying trading instruments as mentioned earlier. Every option has a strike price that is a certain price of the stock. The value of the options change relative to how close the strike price is to the current price of the underlying trading instrument. Every option has a limited life as well; it depends on it's expiration date. Once it is passed, the option will no longer exist.

There are basically two types of options: the call option and the put option. Options trading is all about these two types of options. When you buy call options, it means that you are bullish about the price of the underlying instrument and if you buy put options, it means that you are bearish about the price of the underlying instrument.

When you buy call options, you reserve the right to buy a stock at the strike price. When you sell call options, you are obliged to sell the stock at the strike price. Let's take a look at an example:

Andy purchases 3 call option contracts (the right to purchase 300 shares, 1 option contract is equivalent to 100 shares) with strike price of $30 for XYZ stock (Note that for every option buyer, there is a seller.  However, they do not deal in options trading with each other directly as their stock trading companies or brokerages do so through an exchange) when the XYZ was trading at $28. If the share price of XYZ soars to $40 by the expiration date, Andy can still purchase 300 shares of XYZ stock at the strike price of $30 (Take note, that's a profit of $10 x 300 = $3000 already!)  if he chooses to exercise his call options.

Now, the profits from the above options trading transaction may not seem very lucrative in absolute terms. The good thing is that he does not need to pay the price of the 300 shares of XYZ stock for the 3 contracts in the first place. For example, if Andy purchased the contracts when the price of XYZ stock was $28, he might only have to pay for the time value for the life of the option, which might have only been $7 for 6 months to expiration date. This means that he only paid $7 x 3 x 100 = $2100 for the 3 call contracts. Further calculations can allow us to conclude that Andy made a percentage profit of 142.3% for 6 months of work as compared to 35.7% if he had purchased the shares and held onto them for 6 months. See the difference between the two rates of returns in options trading and share trading?

Let's discuss about put options in options trading next. When you buy put options, you reserve the right to sell the shares of the underlying instrument for a certain strike price. When you sell options, you are obliged to sell the shares of the underlying instrument for a certain strike price. Let's follow this up with another example:

Andy now believes that the share price of XYZ is going to fall after reviewing it's price performance. Rather than short selling the shares (which carries a high risk as there is technically no ceiling to how high the share price can rise), he decides to engage in options trading of purchasing 3 put contracts with strike price of $38 and a expiration of 6 months at the cost of $6.50 with the current share price of $40.

Shortly after Andy's purchase, the share price of XYZ starts to tank on alleged accounting issues and incorrect reporting of it's previous quarterly results. Eventually, the share price of XYZ falls to $22 after 5 months and Andy decides to sell his option contracts. He makes a profit of $16 x 3 x 100 = $4800 which is a percentage profit of 246.2% as compared to 40% for short selling 300 XYZ shares and buying it back later. Again, we can see the huge difference in the returns from options trading and stock trading.

What happens when the current share price of XYZ is below the strike price of the option? For call options, it will be practically worthless as there is no intrinsic value (calculated by subtracting the strike price from the current share price) and the time value has dropped to zero (since the option as reached the expiration date). For put options, there will be an intrinsic value (calculated by subtracting the current share price from the strike price) and although the time value has dropped to zero, Andy's stock trading company or brokerage firm will exercise his contract and arrange for the sale of his shares at the strike price. If he does not possess the shares, his stock trading company or brokerage firm will buy from the open market and sell at the strike price. This is basically how options trading works.

A word of caution here! While options trading can amplify one's returns from the stock market, it can also amplify one's losses as well if not used properly. Hence, it is strongly advised that one should not start to engage in options trading unless one has mastered stock trading at the intermediate level; this means that you have to at least be making some money consistently by stock trading.

Another form of options trading which is much more dangerous than buying options is selling them. Although it is a strategy used by some good traders to make money consistently in the stock market, it can be very dangerous especially if the seller is selling call options naked, which means that he or she does not own the shares he or she is obliged to sell to the buyer. If the option is exercised, the seller will have to buy the shares from the open market at the current share price and sell it to the buyer of the option at the strike price.

That's all for the introduction to options trading for now. In the future, I will be posting on this topic of options again to explain the uses and how it can be safer than stock trading if used properly.

Tags: stock market, investing, trading, make money, stocks, finance, wealth building, stock market basics, options trading

A stock market tutorial on essential stock market tools

In my previous post on stock market basics 101, I mentioned the need to be prepared before you start to invest or trade. I'll like to elaborate on that and provide a stock market tutorial as a more comprehensive overview on the stock market tools you need before you jump into the world of investing.

As any good craftsman will tell you, it is essential to have a set of relevant and effective stock market tools in your toolbox to complete the job. So, what are some of the stock market tools which should be found in any investor's or trader's toolbox?

Before we go more in depth into the stock market tutorial and the tools required, let us recall the big picture of investing as mentioned in my previous articles. What are the elements in the big picture of investing in the stock market?

The first key to investing is following the current stock market trend. 75% of stocks tend to follow the trend of the stock market so it makes no sense to go against the strength of the market. It is extremely difficult and hazardous (to your wallet) to buy shares when the stock market is on a downtrend and vice versa. We need to be constantly be aware of the current strength of the stock market, and therefore need a charting tool which shows the Dow Jones Industrial, S&P 500 and the Nasdaq Composite as well as the volume traded and the average daily volume. Now there are plenty of charting software for sale out there, but I advise all beginners to check out the your online brokers' trading platform. They usually (well, mine does anyway :) ) incorporate this as a free tool for their customers. Do refer to one of my previous posts on how to invest in stocks in the current stock market scenario to check out which online broker I use.  Do remember that one of the key rules to follow as a beginner in the stock market is not to overspend on stuff you can usually get free as you will not be able to generate a high ROI (Return on Investment) as you are just starting out. For more detailed insight into how to monitor the strength of the stock market, do refer to my previous post on the stock market timing guide.

After we have determined the strength of the market, the next step will have a stock market tool that is able to screen stocks which meet your buying rules. Before you do that, you should have a set of buying rules ready so that you minimize your risk and maximize your profits with the right stocks.

Every successful and experienced has his or own buying rules in which he/she will not purchase a stock unless the criteria are all met. If you do not have s set of buy rules, do read up more to see which investing or trading style suits you best. There are a wide variety of strategies out there which is beyond the scope of this blog (there are simply too many and more importantly, I have no desire to influence you to use any investing strategy), but I will touch on a few investing or trading styles which I think are more effective in my future posts. Once you find a style that suits you best, read up more to determine what are the recommended buy rules and experiment from there. If you take the time to learn patiently and try things out, you will learn so much more in a shorter period of time. Beginners in the stock market can try out MSN's stockscreener as a free tool to screen for stocks that are potential buys.

After screening and purchasing your stocks, you can then continue to monitor the stock market and your stocks regularly through charting software and drop in periodically on Google Finance and key in your stock's ticker symbol so as to check out the latest news on your stock holdings. You can also do that if there is a sudden and drastic change in the share price of the stocks that you own to find out the reason why. In this way, you will constantly be in touch with the stock market, your stock and the latest events that are going on. Other alternative sources include MSN's moneycentral and Yahoo! Finance.

Selling stocks successfully (which means that you make a lot of money and have captured most of the uptrend in the process) is a high level skill and it is one of the most difficult components to master in investing or trading. You should have clear sell rules and stick closely to them in any scenario. More importantly, you must be able to overcome the twin emotions of fear and greed and take your profits when it's the right time to do so. If the market is starting to sink and your stock looks likewise, it will be good not to hope for a miracle for the stock market to go back up again and you should exit as soon as possible to protect your hard earned profits. You do not really need any stock market tools here except your knowledge, sell rules and a decent stock charting software (preferably free).

This concludes the stock market tutorial for beginners. With these stock market tools at hand, the stock market beginner should not expect to make money like a pro immediately but should spend some time and a little bit of money that he or she is comfortable to lose and invest in the stock market. As time passes, the stock market beginner should ensure that he or she learns from all the mistakes made in the stock market (this is the most important and valuable stock market tool that separates the experts from the beginners... a wealth of knowledge, experience and skills that money can never buy) and in time, once the investor or trader realizes that he or she is able to make money consistently, more money can be invested or traded and with careful leveraging (money borrowed from your online broker to purchase more stocks), the investor or trader will be able to make a lot of money in the stock market.

Tags: stock market, investing, trading, make money, stocks, finance, wealth building, stock market basics, stock market tutorial, stock market tools

How to invest in stocks in the current stock market scenario

The recent turmoil in the stock market has affected every investor who has invest in stocks. The recent ups and downs of the market has made it fairly difficult for mid term to long term investors to invest in stocks, so I'll like to touch on this issue and what to look out for in in order to still be able to make money in this market. The investor pessimism can be seen with the outflow of money from mutual funds out of the stock market into other types of financial instruments such as bonds. Dear beginner investors and traders, all is not lost! There may be a silver lining in the clouds after all.

As discussed in the previous articles, the first thing we have to do before we invest is any stock is to gauge the current stock market situation. Let's take a look at the 3 major stock market indexes, namely the Dow Jones, S&P500 and the Nasdaq Composite. These are the three indexes I use the monitor the strength of the stock markets.

Nasdaq Composite Index Watch

(Image courtesy of OptionsXpress. I invest in stocks with them :))

As you can see, the Nasdaq Composite has been trading within a range for the last six months or so. The resistance level (as seen by the trendline that the index has failed to penetrate from the upside, thus acting as a ceiling) is around 2300 or so while the support level (as seen by the trendline that the index has managed to stay above, thus acting as a floor) is about 2100 or so. I will mention about the circled regions later.

S&P 500 Index Watch

(Image courtesy of OptionsXpress. They provide a free on line trading software for their customers.)

As seen from the graph above, the S&P500 index has also been trading within a range for the last six months or so. The resistance level (as seen by the trendline that the index has failed to penetrate from the upside, thus acting as a ceiling) is around 1120 or so while the support level (as seen by the trendline that the index has managed to stay above, thus acting as a floor) is about 1040 or so. As mentioned previously, I will mention about the circled regions later.

Dow Jones Industrial Average Index Watch

(Image courtesy of OptionsXpress. I invest in stocks with them :))

As seen from the graph above, the Dow Jones Industrial Average index has also been acting in tandem with it's cousins in moving within a tight range. The resistance level (as seen by the trendline that the index has failed to penetrate from the upside, thus acting as a ceiling) is around 10700 or so while the support level (as seen by the trendline that the index has managed to stay above, thus acting as a floor) is about 9900 or so.

What can we conclude from all the analyses of these graphs if we want to invest in stocks?

The first important fact is that the stock market indexes seem to be trading within a range defined earlier. This is vital to know, especially when the stock market indexes are approaching these levels again as they might not be able to break through the resistance/support levels and will bounce off them once more. When this happens, we will notice a change in the trend again. You can prepare for this scenario in advance to protect your holdings or come up with strategies to take advantage of it.

The second important fact is that the stock market indexes are displaying strong volatility near the resistance and support levels (as seen in the badly drawn circles on the graphs). In fact, it is not surprisingly top have percentage changes of 2-3 percent in the days when the stock market indexes are near the support and resistance levels. As such, your portfolio can be greatly enriched or devastated in a matter of two or three days, depending on the type of stocks you happen to own at this time. Hence, it is important to catch the change in the trends quickly if you want to maximize the profits from the short trends that have been dogging the markets in the last six months. If you move too slowly, you will miss out a significant portion of the profits. That said, it is dangerous for beginners to move too quickly to a change in trends as they are often not experienced enough to tell whether it is genuine or not. Even experts make mistakes often in this type of unpredictable periods.

The third important fact is not shown on the graphs. The leading stocks (refer to my previous post on how to pick the best stocks for definition)that I track and buy or sell short have actually fared much better than the rest of the stock market indexes. The drop in price in terms of percentage was not as much and more importantly, the volume was low, thus signifying that the mutual funds and the financial institutions were not selling their shares but are hanging on to them. That is why I have not sold most of my holdings this time even though I usually advocate a must sell when the hit loss is at 7% or so. Within the last couple of days, my portfolio stock picks have recovered all its losses and are even showing some profits. Judging from the stock market index charts and barring any unfortunate events, the indexes should continue to rise until they are near their respective resistance levels. That is when I will monitor extremely carefully to see what comes up next. I do not make any predictions but will simply act based on the current stock market situation.

To summarize on how to do well in this unpredictable period, an investor who wants to invest in stocks must always have a keen sense of the market and how it is behaving, as well as the behavior of superior stocks that he/she has on his/her watchlist. Always have plans in place when the indexes approach their resistance or support levels and react accordingly to what happens next. If this is done well, there is huge money to be made if one decides to invest in stocks.

Tags:stock market, investing, trading, make money, stocks, finance, wealth building, stock market basics, invest stock

Stock Picks 2:How to pick the best stocks for profits

In my last post, I talked about the importance of choosing the right time to start to pick stocks . The market should be in a trend that is in your favor. If you are thinking of going long in the market (buy low sell high), do ensure that the market is:

1) making higher highs and higher lows (presence of an uptrend) for weekly graphs,
2) the increase in the market indexes is accompanied with good volume as support.

This will ensure the market climate is safe currently, but do take note that the uptrend should not have lasted over a year. Any later and you'll be the last person to the party and worse still, end up being the one everyone unloads their stocks on. In fact, once the uptrend is confirmed (less than 1 month is good) you should start to load up your shares in anticipation of the continuation of the uptrend before the financial institutions and the mutual funds have finished buying. The converse is true if you are thinking of shorting the market. Do remember that fear is a stronger emotion than greed and as such, the market index drops will be much faster in a bear market than market index increases in a bull market.

In short, for going long, do learn to spot institutional buying with the indexes, detect what stocks the financial institutions and mutual funds are buying and buy your stock picks before they are done and all the buying power is exhausted. The converse is true for going short: learn to spot institutional selling with the indexes, detect what stocks they are shorting and short sell them before they are finished with it and all the selling power is exhausted.

For this post, I'm going to discuss about how pick stocks for the greatest profits and minimal risk. In order to do that, let's look into one of the most profitable stock picks ever and do a quick analysis of the company behind it. Let's talk about... Apple.
(Chart of AAPL, courtesy from BigCharts.com)

Over the last 5 years, AAPL has risen from $50 or so to about $250, which makes for a 250% profit had you bought shares in it before. What led to the meteoric rise in AAPL shares? Let us dissect it from different angles:

1) The first thing that should pop into everyone's heads is that Apple should be making a lot of profits. Let's check Apple's EPS (Earnings Per Share) for the last 5 years:

2005: $1.42 (up 246.3% from 2004)
2006: $2.27 (up 59.9%)
2007: $3.93 (up 73.1%)
2008: $6.78 (up 72.5%)
2009: $9.08 (up 33.9%)

Notice anything interesting? The EPS seem to be rising at exponential levels and it actually beat analyst's forecasts every time. This tells us that not only is Apple a highly profitable company, it's profits are growing solidly every year. This is one of the most important reasons why AAPL shares are doing so well. Compare this with some other company whose EPS has been stagnant for the same time period and you will see the difference.

2)Other outstanding metrics about this company include the Return on Equity (31%), Free Cash Flow ($9.97) and outstanding sales (increase in sales from 32% to 61% as compared to the same quarter a year ago) record. It has no debt and has billions of cash on hand. This tells us the company fundamentals are excellent and this has no doubt convinced mutual fund managers and financial institutions to be a shareholder in this excellent prospects.

Do take note that I'm not trying to teach you how to analyse a company's accounts or do value investing. I'm just trying share the general principles of safe and profitable stock picks here, and pointers 1 and 2 tell us that companies with quality fundamentals like Apple are the ones that provide the most profitable stock picks. :)

3) Apple has a visionary CEO in Steve Jobs. He was a co-founder of Apple, got ousted for a while (he went on to start up another highly successful company Pixar which was eventually listed and merged with Disney) and came back to lead Apple to what it is today. In fact, in this case my opinion is that Steve Jobs was the soul of Apple who brought it back to life and even to up to it's iconic status of today. This tells us how important one person can be: the CEO. Another example I can think of will be Warren Buffett, CEO of Berkshire Hathaway. CEOs can make or break a company (think Worldcom and Enron) and some special people can turn around a company and bring it to greater heights. If the CEO with a sterling reputation joins a new company, chances are that he's do very well and be able to turn the company around too.

4) Let's talk about products. Apple produces MAC computers, iPods, iPhones and iPads for consumers and fans. MACs are slowly gaining market share over PCs with Windows, iPods are dominant in the MP3 music industry, iPhones do very well in the mobile industry (although Android by Google is catching up) while iPads have created an industry for themselves and Apple's potential competitors in the tech industry are eager to have market share in it. What does this tell us? Innovative products that can capture a dominant market share or are even able to create an industry for itself helps the company to do very well in terms of fundamentals and this has helped in thr rise in share prices.

All in all, the stock picks with the greatest benefits and minimal risks are those those with excellent fundamentals, a visionary CEO as well as creative and innovative products to offer to the consumers. This results in growing EPSs and sales which further drives up the prices of these shares. If you pick stocks with these qualities, ensure that you monitor them and buy shares along with the financial institutions and mutual funds start doing so and to continue to monitor them. Exit them when the big boys start to do so as well and this will ensure you will make profitable and safe stock picks in the stock market.

Ok, that's about it for today... I will return again when I am free and we'll discuss more about stock picks and more aspects of the stock market.

Tags: stock market, investing, trading, make money, stocks, finance, wealth building, stock market basics, stock picks

Stock Picks 1: How to choose the right time to pick stocks

One of the most important skills for a trader or an investor is to be able to have profitable stock picks. Selecting profitable stock picks is certainly both an art and a science (and certainly not an easy thing to do) and that is why many people are not able to do it well. However, it does not mean one is not able to do well consistently. It takes years of practice and monitoring to be good in it.

Before we can do stock picks profitably, we must remember what we have learnt about the nature of the stock market. This is because no matter what stocks picks we have, it will not be profitable if we go against the current condition of the market.

What drives the stock prices up or down? If you have read to my previous post on Stock Market Basics 101 and the stock market timing guide, you will know that the big boys (aka the financial institutions, mutual funds and exchange traded funds) are responsible for the upside and the downside of the market. Now, the interesting thing to note is what they actually do to bring down the market indexes.

Before that, let's understand how the big boys do their stock picks. What they do is that they make their purchases or sales in several large blocks that can last from days to several weeks. This is to prevent the stock price from getting too expensive to buy or too cheap to sell off as people can easily follow their lead if they do it all at once. They will also stock picks from the same sector or industry at once as they seldom purchase a particular stock only. When this happens, you can notice that stocks in a sector start to rise, thus resulting in the laggards rising in sympathy with the group leaders. However, when they do that we retail investors can follow their tracks easily by checking for the volume that accompanies the stock price change. If the volume is higher than average significantly, say 30% or so we can be sure that the financial institutions are behind this. That is why we should always check the volume together with the change in stock prices too determine the reality of the situation.

What actually happens is that some of the big boys will start selling a number of stocks in large amounts (these stocks are usually related by sectors, say the tech sector and so on). When the selling power overwhelms the buying power, the prices of the stocks start to slide as a result. This will result in the the index being unable to rise, in fact it starts to slide as the selling "gravity" starts to act on the indexes. As the indexes go down, this weighs on all other stocks and their prices start to follow south as a result. If there is serious net selling, the drop in the indexes will be accompanied by a rise in volume, especially if the volume is greater than the previous day and greater than average.

The converse is true for a rise in the indexes. When the big boys start to purchase several stocks in large amounts over several weeks, the stocks' prices start to rise and this will lift the indexes. As the indexes go up the other stocks will tend to follow (a rising tide lifts all boats). If the net buying power is strong, there will be a good rise in the indexes followed by good volume.

The first golden question on stock picks is this: How do we differentiate the stocks that have been bought and those whom are lifted by the tide? Check for the rise in price followed by good volume. If the stock rises strongly in above average volume ( minimum 30%) this is one that the financial institutions and mutual funds are targeting and are buying. Note that one day of accumulation will not be enough to state that the big boys are buying. There should be at least two days within a space of a few weeks. Similarly, if we are looking into shorting we should be looking for stocks that are selling off in big volume. This tells us the big boys are doing as such and we should be doing the same too.

Before we get to the first rule of profitable stock picks, we need to know what exactly is the essence of profitable stock picks. If you have not realized it by now, it is to actually to decipher what stocks the financial institutions/mutual funds/exchanged traded funds are buying or selling and join in the ride. It can be done as remember, the big boys actually do their buying or selling over several weeks and we do not have that restriction. Learn to read the footprints and get in early way before the selling or the buying is done.

Thus the first rule of profitable stock picks is as such:

If you are going long in an uptrend market, purchase stocks that are rising in strong volume over a few days as these are the reasons why the indexes are rising.

If you are shorting in a downtrend market, sell short stocks that are falling in strong volume over a few days as these are the reasons why the indexes are dropping.

When a stock price rises with the rest of the market but in weak volume, it is merely rising with the tide and should not selected as one of your stock picks. Similarly, when a stock price drops in weak volume, it is not the target of the financial institutions/mutual funds/exchange traded funds and should not be considered a short selling candidate.In fact, the stock might have the power to do exactly the opposite and burn a big hole in your pocket.

Ok, this concludes part 1 of the stock picks series. I will be posting the part 2 within the next two weeks (my work is keeping me a little busy right now). Thanks for reading and hope that you have learnt something on stock picks that are valuable! :)

Tags: stock market, investing, trading, make money, stocks, finance, wealth building, stock market basics, stock picks

The Stock Market Timing Guide

In this post, we will be focusing on the stock market timing guide. Many people have debated over this issue since the emergence of the stock market. On one side, we have the value investors (the father of value investing was Benjamin Graham and is championed by Warren Buffett, the most successful of value investors and the CEO of Berkshire Hathaway) who did not believed in the concept of stock market timing guide. On the opposing side, we have the speculators (made famous by traders such as Gerald Loeb and is championed by William J O'Neil, a very successful trader in his own right) who believed that one can predict the market tops and bottoms with a certain measure of accuracy through daily and acute observation of the stock market movement.

So who is right? It is important to note that there have been value investors and traders who have made a lot of money using either ways, hence there is no right or wrong here. I mean, as long as you can make a lot of money, who cares right? Do choose a strategy you are most comfortable with. However, after having observed the stock market for some time already, I feel that concept the stock market timing guide does make sense to me and I have been able to stay out of some hairy situations since (A good example will be the recent bear market in 2010... on the overall I am net positive for the year from shorting the market).

What is the stock market timing guide all about? Essentially, the stock market timing guide is used to monitor any tops and bottoms that have occurred to signify the end of an uptrend as well as the beginning of a downtrend and vice versa. If we are able to do this, we will be able to stay out of buying stocks in a bear market and shorting stocks in a bull market. Thus, by swimming with the tide, we have a much higher chance of making money in the stock market.

Before we can elaborate on the stock market timing guide, let's go thorough some basic terminologies:

1) Accumulation - stock market goes up strongly with volume of stocks traded higher than average

2) Distribution - stock market goes down strongly with volume of stocks traded higher than average

The key to the stock market timing guide is to monitor the number of accumulation or distribution days within a certain time period, say six weeks or so. If the number of distribution days start to add up in an uptrend within this period, it signifies that the institutions are unloading stock and it might be time to sell shares also. This is a sign of a topping market as a number of distribution days can easily kill an uptrend and send the stock market into a correction mode. Conversely, if the number of accumulation days add up in a downtrend, the it signifies that the institutions are buying stock and it will be a wise choice to buy along with them as well so that the institutions can continue to push up the value of the stocks that you own. When the number of accumulation or distribution days add up, the stock market timing guide is providing a somewhat clear signal of what is going to happen.

In the event that the a series of distribution days are noted within a certain time period in a downtrend, it means that the current trend is strong. Similarly, when a series of accumulation days are noted within a certain time period, it usually means that the uptrend is still strong.


A caveat to the stock market timing guide: if the stock market is going insanely higher with strong volume within a very short period of time, it may signify a climax run. This happens when stock market participants become illogical and start buying stocks under the latest fashion they see. (A good example will the recent "dot com" craze that drove the NASDAQ to over 5000 points and back down again). Eventually, the buying power is exhausted and the stock market starts to top. It is at this time you will notice that the volume shrinks as well as all the potential buyers have bought and this should give you another indicator to escape with your winnings before selling starts to take over.

Do take note of the following:

1) Applying the concept of the stock market timing guide does not mean you will make a lot of money every time you invest/trade. However, it does help to reduce risk and hence you will save quite a bit from not losing money in the first place.

2) By using the stock market guide, we are attempting the determine the current health status of the stock market and not to predict what the stock market will do six months to one year from now. Remember that no one can accurately call the exact market tops and bottoms and hindsight is 20/20.

3) The stock market timing guide is not a buying and selling system by itself. Rather, it should be included in a part of your trading system where it is one of the factors to be taken into consideration.

It is always good to see numerous accumulation and distribution days happen as it means that there will be a change in trend and my buying / selling system can take advantage of it. As long as there is a strong trend, it is safer to invest/trade as you will not be swimming against the tide.

Using the stock market timing guide can involve a bit of work every day as you need to monitor the stock markets closely. Once you see the red (or green) flags, do not hesitate and take action accordingly.

I hope the concept of the stock market timing guide has been useful to all you beginners out there. If you truly wish to be a great trader , taking this first step of observing the daily stock market movement is the key to success.

Tags: stock market, investing, trading, make money, stocks, finance, wealth building, stock market basics, stock market timing guide

Stock Market Trading Software: is it useful?

With the introduction of advanced home computers (thanks to Apple and Microsoft in the 80s) and programming languages, there is a large variety of stock market trading software that is available nowadays. Are they really useful for the retail investor or trader?

As in most things in life (nothing is really perfect), there are advantages and disadvantages in using stock market trading software. Let's list them out here by the way, you will have noticed by now that I like to list things out in point form so that it's simpler to read. It's a habit of mine and I hope that it helps you in your reading):

Advantage of using stock market trading software #1

Stock market trading software helps us to save time. In the past, investing and trading were extremely difficult and time consuming because investors/traders had to get their hands on the company's fundamentals or stock charts with indicators in order to have the data available to analyse the company or the stock so that they can make their decision on whether to buy the stock or not. These days, all you have to do is to let the stock market trading software update itself before it can show you what you want to know. Some of the stock market trading software are web based and the data is constantly updated so that every time you go to the website to log in, you can look for what you need straight away. What needed a few hours in the past can now be easily settled within a matter of minutes. It means that you will have more time for yourself to do other things in life. After all, life is not ALL about the stock market is it? I'm a disciple of the stock market, but I do have other interests in life too, such as family, friends, my job... you get the picture.

Advantage of using stock market trading software #2

A big advantage of using stock market trading software is that it provides almost real time data for the investor or trader. Day traders particularly need real time data to make on the spot decisions and timing is crucial (It is very important to them as buy and sell stock/options on the same day and do not hold anything at the close of the stock market...important point to take note: Never never day trade unless you are highly competent in trading first. You can easily lose your capital of you are not careful, will tell you more about this next time). Investors also need updated data, particularly on news about companies so that in the case of good or bad news, they can react and make their decisions quickly. Do take note that if you need real-time information (such as news reports), the software charges will be very expensive as usually only the Big Boys (see my post on Stock Market Basics 101 #1 )will buy it.

Advantage of using stock market trading software #3

Stock market trading software complements the system we have for buying and selling stocks. As mentioned in my previous post on The Ideal stock market course/ stock market courses / stock market training programs #3, you need a comprehensive system for buying and selling stocks in the stock market (Note that comprehensive does not complicated... in fact a lot of good systems out there have some simple and relevant indicators and guidelines that helps one to make money in the stock market). If the stock market trading software can be configured to meet your system's needs, your life as an investor or trader will be much easier indeed. Hence, make sure that if you really purchase a stock market trading software, make sure it has what you need to complement your tools in your buy/sell system.

It will be almost impossible to list out all the major advantages out there, so I have mentioned the ones that I feel are the most important. Next, I will like to touch on the disadvantages of using stock market trading software.


Disadvantage of using stock market trading software #1

A major disadvantage of using stock market trading software is the cost of purchase. Some software requires a lump sum purchase while some others come with a monthly subscription. Usually, the cost comes up to a minimum of few hundred dollars per year. For example, let's just say that it costs $500 a year. Now, it's not an issue if you are investing or trading a sum of at least $100 000 or more, as it will come up to less than 1% of your capital and will help you to make even more money if used properly. However, if you are investing or trading at a smaller scale, at say $10 000, the cost will come up to a whopping 5% of your capital. Good investors or traders make typically 20% or more compounded a year and this really equates to 1/4 of their potential profits! Unless you are confident of making the amount invested in the software and much more, retail investors or traders should not spend more than, say 2% (this is only my suggested guideline) of his or her capital on stock market trading software.

Disadvantage of using stock market trading software #2

There are some stock market trading software that acts as a black box and tells investors or traders when to buy and when to sell. While some of these stock market trading software really works, I feel that it does not really help us in the long run because we will learn nothing out of it. I will use an analogy here: If we are given fish instead of being taught how to fish, our bellies might be full for the time being but we are in fact helpless as we do not know how to feed ourselves. I am a firm believer of learning the skills that can allow us to make our own buy and sell decisions in the stock market because it will stay with us for life. In fact, I am even planning of passing the skills I have to my children so that they too, can make money in the stock market. However, if you are really pressed for time and do not have feel that it is not necessary to have the skills, you can think of purchasing a stock market trading software or service that can do the job for you. Just make sure that whatever you purchased works. Ultimately, is this an advantage or disadvantage? Only you can answer this question. :)

Disadvantage of using stock market trading software #3

Some stock market trading software are not programmed very well, as such it makes it very complicated for the user. Instead of saving time, this will waste a lot of time instead as the investor or trader will have to learn how to use the software from scratch. There are also some stock market trading software that come with very little support from the vendor in terms of educational material and tech support which wastes a lot of time for the user as well. In order to prevent this, ensure that the stock market trading software that you purchase are easy to use and comes with a lot of support online or through the phone.

Ok, my fingers are a little tired from all this typing already... However, it is all worth it dear reader if it has helped you in any way on whether to purchase stock market trading software or not.

Tags: stock market, investing, trading, make money, stocks, finance, wealth building, stock market basics, stock market trading software

The Ideal Stock Market Course or Courses or training programs to attend

In the midst of discussions with my friends about the stock market, I have often been asked this question by my friends "So what are the good stock market course or courses to attend for me to begin to learn how to invest? What is the stock market training like?" This is the topic I will like to touch on today.

Please take note that I will not be making any particular recommendations on any stock market course or courses or stock market training programs in this post. There are thousands of courses out there and I believe that some are actually pretty good, although most of them are crap. Instead, I'll touch what are the essential characteristics of a good stock market course, good market courses or stock market training programs that when put together, is comprehensive and touches all bases. In this way, you will be able to analyse what the different stock market courses or stock market training programs have to offer and make the best decision.

The characteristics are as follows:

The Ideal stock market course/ stock market courses / stock market training programs #1

The course should start from basics. There should be some time taken to allow the trainees to be familiarized with the fundamental knowledge that is required for the rest of the course so that they will not be confused or left behind when the important segments are introduced to them.

The Ideal stock market course/ stock market courses / stock market training programs #2

The course should offer educational material that is simple to read and understand and the trainer should seek to explain in the clearest and simplest way he/she can. Most of the people that attend the courses will not have rocket science degrees and are everyday joes and janes. As in any type of educational courses, the key is to make the concepts to be learnt as simple as possible so that everyone can understand what is being taught. What is the point of attending courses that you don't understand as it is too difficult? In that case, it will be a complete waste of money.

The Ideal stock market course/ stock market courses / stock market training programs #3

The course should recommend some type of practical system to allow you to invest or trade. While having knowledge is good, you will still not be able to enter the stock market to invest or to trade without a system (Remember my previous post about Stock Market Basics 101) Having a good system to buy or sell stocks is the key to make money in the stock market. However, having said that it is not easy to determine whether the system is practical or not... the best way is to get the trainer to apply it on previous and the current stock market scenarios and see how it will do. Also, do take note that if the same system is used by too many people it will probably not work as well. You might have to tweak it a little here and there to optimize it's performance.

The Ideal stock market course/ stock market courses / stock market training programs #4

The course should offer some psychological barriers that people often possess which get into their way of making money in the stock market. Emotions like fear and greed often rule the market and this should be introduced to the trainees so that they are consciously aware of it. Another example will be that investors and traders should be emotionless when they are in the stock market. No stocks should be seen as favorite pets or kept out of sentimental value. The only good stocks are stocks that are making money for you.

The Ideal stock market course/ stock market courses / stock market training programs #5

The course should include some practical work where the trainees are expected to apply what they have learnt. A good example will be to source for potential stocks to buy from the current stock market. Investment/Trading games are even better! I remembered that in one of the courses that I attended, I played a investment game where all the trainees pitched in about $200 each as part of the Grand Reward to be divided among the top 10 players with the highest net worth at the end of ten rounds. It was a fantastic as well as enriching experience as it kept me excited throughout and I actually felt the emotions that affect all traders/investors as they pull the trigger. It was made more intense as I could hear, see and feel the rest of the trainees buying, selling and trading stuff and I could feel my hands trembling. Fear and Greed ruled us as a crowd at different times and up till now, I am still appreciative of the things I learnt from the game (By the way, I was the champion and won close to about $4000 ;))

That's it for today, more from me next time. I hope by now you have a much better idea of what to look out for in a stock market course, stock market courses or stock market training programs. :)

Tags: stock market, investing, trading, make money, stocks, finance, wealth building, stock market basics, stock market course

Learning the Stock Market Movement

Everyday, I learn about the stock market movement in order to get a perspective of the current stock market situation. Is it on a uptrend, downtrend or not really moving anywhere? Coupled with the knowledge of how the stock market moved in the previous sessions, this helps me in my buys and sells as I will never go long in a stock during a bear market and will never short a stock during a bull market. The reason is simple: about 75% or 80% of stocks follow the market direction. Why bother to swim against the tide when it is so much easier go with the tide? That is why i have 2 systems in place: one to long when the market is deemed to be bullish and one is to go short (still in the process of fine-tuning the short system though, beware: shorting is not for the faint hearted) when the market is deemed to be bearish. In summary, learning the stock market movement is the key to grow wealth.

Hence, when you purchase a stock it is important for you to learn about the stock market movement first. What are the most important things to look out for daily? Two key factors: points and volume. There are eight possible scenarios:

Learning the stock market movement #1: Strong Trend, high volume
1) Stock Market trends up strongly for the day with high volume. This is the preferred signal for going long in the market as it tells me that the the buying power of the bulls is strong.

2) Stock Market trends down strongly for the day with high volume. This is the preferred signal for going short in the market as it tells me that the the selling power of the bears is strong.

Learning the stock market movement #2: Weak Trend, high volume
3) Stock Market trends up weakly for the day with high volume. This is an indication of churning, which means that the big boys are selling stock to the bulls and means that the market may topple soon.

4)Stock Market trends down weakly for the day with high volume. This tells me that neither the bulls nor the bears won today even though there was a strong buying and selling power. However, they canceled themselves out.

Learning the stock market movement #3: Strong Trend, low volume
5)Stock Market trends up strongly for the day with low volume. This tells me that there was weak selling power as the bears did not make their move. Take note that it does not mean that the buying power is strong. That is why it is important to monitor the volume traded as well.

6) Stock Market trends down strongly for the day with low volume. This signifies that the buying power is weak but it does not mean that the selling power is strong.

Learning the stock market movement #4: Weak Trend, low volume
7 & 8) This tells me little except that most of the bulls and bears were sitting out for the day.

Do take note that even though I learn about stock market movement daily, I do not form a conclusion straight away. It is just one of the tools I have in my toolbox. I will make the judgment call after going through all the tools I have selected for my stock selection system. Dear reader, you should get yourself a set of tools as well if you want to do well in the Stock Market. Before that, I strongly recommend that you take some time to educate yourself and learn about stock market movement. If possible, you might want to start monitoring the daily movement as well as volume traded. Learning the Stock Market Movement will help you to reduce risk in the long run , which leads to increased profits.

Remember that in the Stock Market, what goes up must come down eventually and vice versa. It is important the spot the warning signs and enter cautiously / exit quickly whenever necessary. As of now, I have spotted a bull signal yesterday but I will take some time to guage the strength of the market before making any move. Two other bull signals have failed in June already and the Stock Market seems to be whipsawing around with a risk of another major correction. The bear power seems to be strong indeed. Nevertheless, I will continue to learn the Stock Market Movement daily before making any further decisions.

Ok folks, that's it for today. Hope that you have learned some valuable pointers from here. Cya around!

Tags: stock market, investing, trading, make money, stocks, finance, wealth building, stock market basics, stock market movement

Stock Market Basics 101

In order to be able to make loads and loads of money in the stock market, a beginner has to master the stock market basics 101 (or commonly known as stock market 101) first. It is akin to flying a plane, you certainly don't want to fly a plane without knowing how to operate it in mid-air, otherwise... BOOM! It is not easy money and you do have to sacrifice your time and put in effort into it, but the fruits of your labour are sweet indeed...

So what are the few stock market basics 101 that you, as beginners need to know?

Before we start, do take note that I will not be discussing the standard facts of the market (i'll leave these to the "experts" out there) as you can easily get those information elsewhere. I'm more interested to share with you about the things you don't commonly hear about.

Stock Market Basics 101 #1 : Be Prepared
The Stock Market movement is dominated by mutual funds and large institutions (An example will be the trading divisions of the Banks) as they have billions and billions, and thus with the strongest purchasing power. They are run by Fund Managers (strongly supported by analysts, computer trading systems etc etc) who are able to have move the market up or down, particularly if most of them are skewed towards the long side or the short side. In the recent years, ETFs (Exchange Traded Funds) have made themselves a force to be reckoned with. There is a rumour going around that the recent "Flash Crash" (where there a HUGE drop in the Dow, SNP500 and the Nasdaq Composite) was caused by the re-balancing of ETFs. Retail or individual investors/traders/speculators (Example: Me)can only go along for the ride. Think about this, as individuals what chance do we have against the big boys if we are not well prepared? Thus, it is imperative not jump into the stock market if you are not ready. Will you go to war without a weapon by your side if you see the enemy is armed to the teeth? I'm sure you get the picture. If you have been reading up till now, you have taken the right step to learn about the stock market basics 101... keep up the good work! ;)

Stock Market Basics 101 #2 : Big Brother (aka Stock Market) is always right.
Many clever and intelligent people, including "experts" have attempted to predict how the stock market will behave in the future and are totally convinced by their ideas. (Have you heard of Dow 30000?) They also try to influence everyone else besides them with the force of their convictions. When the stock market turn against them, they argue and still feel that they are right and things will turn around soon as their "thesis" cannot be wrong.

If you are one of them, I've got news for you: the stock market doesn't care what you or I think or believe. It doesn't even care whether we exist. Life goes on for it as per normal. There's only one way in the stock market, and it is the way it is moving now. If you choose to form your own opinion, good luck to you my friend. All the best, you'll need it.... A LOT.

Stock Market Basics 101 #3 : Always keep a close watch and maintain a healthy respect for the Stock Market.
A good analogy to illustrate this will be the use of fire. Fire helps us in a variety of ways (Example: Getting our food cooked, keeping the bed warm) but if we are not careful, it can turn us around and bite our ass... HARD (Example: A strong Forest fire kills everything in it's path, a good fire can burn down your home). Essentially, fire makes a good servant but a bad master. As such, be very careful of the stock market when your money is in it. DO not ever think that you have mastered the stock market already, especially when you have not made mistakes before and have a lack of experience. Why? I'll explain next time.

Ok, I find myself late for work already, so I'll stop here for today. We can discuss more about the Stock Market Basics (or stock market 101)in the future. Bye!

Tags: stock market, investing, trading, make money, stocks, finance, wealth building, stock market basics

A Stock Market blog for beginners... by a disciple

Welcome to the Stock Market Blog for beginners! This is not one of the usual sites that promotes their "never fail" systems and strategies, mainly because I am not an "guru"... I consider myself a Stock Market disciple who has started from the beginning like you are now and have learnt the hard way to have achieved a certain measure of success. I will share what I can in the future posts.

Disclaimer: I do not guarantee that anyone who reads this blog can make a lot of money and become an expert in a short time. Investing is a skill that can be learnt but it takes a lot of hard work and time to become really good and there is no one in the world that can tell you he/she can make money consistently over decades without doing much. Even experts make mistakes sometimes when they get too caught up by their emotions. However, I am sure that beginners in the stock market can learn some useful stuff to help them in their journey to become good or even great investors. :)

Tags: stock market, investing, trading, make money, stocks, finance, wealth building, stock market basics