Investing:
Investors only take Long positions. They can only make money if a stock goes up. Most investors should have a 3-5 year plus time horizon. There are several types of investors. Some look for companies that have been growing their market segment in a growing sector then they buy the stock. This is a growth investor. Some look for relative value compared to other companies in the same sector or compared to the companies earnings. This is a value investor. Some take a macro economic look and think of global trends like 'going green' and try and invest in companies that will benefit from this global trend ( ie. alternative energy, solar panels). Others take a micro economic view and look at the fundamentals of the specific business including their sales, balance sheet, income statement and management. Investing is a great way to build long term wealth.
- Steve -
Tuesday, November 30, 2010
Swing Trading
Swing Trading:
Swing traders also go Long or Short the market. They will look to hold their position from 2-60 days. A swing trader normally analyses daily and weekly price charts and is looking for 2 things.
1) A support level (to go Long at) or a resistance level (to go Short at)
2) A trend-line break (used to time the entry)
A support level is a place where the stock price has fallen to then bounced. The bounce is for 2 reasons. One is because at that level people are unwilling to sell their asset and the second is because several buyers step in at that price and buy based on their perceived value of the asset. The more often the stock has fallen to that price level and bounced the stronger the support.
A resistance level is a place where the stock price had risen to then buyers lost interest. The more often buyers lose interest at a particular price level the stronger the resistance. Once the owners of this asset see that there are no more buyers at a certain (high) price point they are then willing to sell their asset for less causing the price to continue to fall.
A swing trader wants to BUY at SUPPORT and SELL at RESISTANCE!
The trend-line is used to time the entry. A trend-line break signals a change in direction.
To see some live examples go to http://www.how2tradestock.com/ and visit the ‘Technical Trading 101′ section of the site.
I like to use Swing Trading with a focus on Support, Resistance & Trends.
- Steve-
Swing traders also go Long or Short the market. They will look to hold their position from 2-60 days. A swing trader normally analyses daily and weekly price charts and is looking for 2 things.
1) A support level (to go Long at) or a resistance level (to go Short at)
2) A trend-line break (used to time the entry)
A support level is a place where the stock price has fallen to then bounced. The bounce is for 2 reasons. One is because at that level people are unwilling to sell their asset and the second is because several buyers step in at that price and buy based on their perceived value of the asset. The more often the stock has fallen to that price level and bounced the stronger the support.
A resistance level is a place where the stock price had risen to then buyers lost interest. The more often buyers lose interest at a particular price level the stronger the resistance. Once the owners of this asset see that there are no more buyers at a certain (high) price point they are then willing to sell their asset for less causing the price to continue to fall.
A swing trader wants to BUY at SUPPORT and SELL at RESISTANCE!
The trend-line is used to time the entry. A trend-line break signals a change in direction.
To see some live examples go to http://www.how2tradestock.com/ and visit the ‘Technical Trading 101′ section of the site.
I like to use Swing Trading with a focus on Support, Resistance & Trends.
- Steve-
Day Trading
Day Trading:
When you Day Trade you can enter a position Long or Short for under 1 second, 5 minutes, 30 minutes, and hour or until 4:00pm that same trading day. A Day Trader will never hold a position overnight. Every day by 4:00pm they will be ‘flat’ meaning they will have no positions in the market and their whole account will be in cash… just waiting for the market to open the next morning at 9:30am. Their goal is to capitalize on intra-day movements and market momentum. Normally a Day Trader will use 1 minute, 5 minute and 15 minute charts as well as other indicators to help them make a trade.
An analogy I heard a Day Trader use once was: I am a little guy…Like a tiny fish I wait for the Shark to start eating then I go in and feast on the scraps. Translation… when you see Goldman Sachs & Morgan Stanley buying AAPL in large volumes Buy AAPL, then sell it for a profit very fast and get out of the way.
You can make fast money and lose your shirt…or both! All in the same day!
- Steve -
When you Day Trade you can enter a position Long or Short for under 1 second, 5 minutes, 30 minutes, and hour or until 4:00pm that same trading day. A Day Trader will never hold a position overnight. Every day by 4:00pm they will be ‘flat’ meaning they will have no positions in the market and their whole account will be in cash… just waiting for the market to open the next morning at 9:30am. Their goal is to capitalize on intra-day movements and market momentum. Normally a Day Trader will use 1 minute, 5 minute and 15 minute charts as well as other indicators to help them make a trade.
An analogy I heard a Day Trader use once was: I am a little guy…Like a tiny fish I wait for the Shark to start eating then I go in and feast on the scraps. Translation… when you see Goldman Sachs & Morgan Stanley buying AAPL in large volumes Buy AAPL, then sell it for a profit very fast and get out of the way.
You can make fast money and lose your shirt…or both! All in the same day!
- Steve -
How much $Money$ do I need to start?
I often get asked ‘how much money do I need to start trading?’ The answer can very from person to person but here is a general guideline:
If you are a beginner trader and want to start your own trading account I would not do so with less then $3,000. If your account is this size I would recommend focusing on stocks in the $10-$25 dollar range and holding your positions longer. This is to avoid the erosion caused by trading fees. If you just want to take trading for a ‘test drive’ you can open a paper money account to see how you do. Paper money is not real so the experience will not be real either… but it will give you a chance to take some trades without any risk.
If you want to take 15 minute to 5 day positions then I would recommend having over $10,000 of capital.
As you will see most of the time I will commit $5,000 to $15,000 to one position. My goal is to hold a postion from 2-60 days. I also set my Stop loss close enough that if the stock goes against me it will trigger my Stop for a loss of less then $500.
Some platforms offer free trades to get you started. If you use the promotional code kenut8ia you will get $50 in free trades with Questrade. I opened a TFSA with them and the process went quite well.
- Steve -
If you are a beginner trader and want to start your own trading account I would not do so with less then $3,000. If your account is this size I would recommend focusing on stocks in the $10-$25 dollar range and holding your positions longer. This is to avoid the erosion caused by trading fees. If you just want to take trading for a ‘test drive’ you can open a paper money account to see how you do. Paper money is not real so the experience will not be real either… but it will give you a chance to take some trades without any risk.
If you want to take 15 minute to 5 day positions then I would recommend having over $10,000 of capital.
As you will see most of the time I will commit $5,000 to $15,000 to one position. My goal is to hold a postion from 2-60 days. I also set my Stop loss close enough that if the stock goes against me it will trigger my Stop for a loss of less then $500.
Some platforms offer free trades to get you started. If you use the promotional code kenut8ia you will get $50 in free trades with Questrade. I opened a TFSA with them and the process went quite well.
- Steve -
Wednesday, November 24, 2010
LONG 500 Shares of PBR at $32.41 (PETROLEO BRASILEIIRO)
PBR may have support at ~$31.00!!
• On May 25 2010 PBR hit a low of $31.21. After the stock hit that low it rallied to a high of $39.63.
• It then sold off again and hit a low of $31.50 on Oct 21st and rallied (again) to a high of $36.51.
Recently (Nov 23, 2010) PBR just hit a low of $31.87 and bounced. I am LONG 500 shares at $32.41 with my STOP at $31.15 (Just below the low on May 25, 2010). The target is $35.50 but we may look to take some profit if the stock goes to $33.50 or move our STOP to lock in Profits.
For all you VALUE investors this stock also has a P/E of 7.4. For the people searching for YIELD, this stock has a yield of 2.6%. (See the link) http://tmx.quotemedia.com/quote.php?qm_symbol=PBR:US
• On May 25 2010 PBR hit a low of $31.21. After the stock hit that low it rallied to a high of $39.63.
• It then sold off again and hit a low of $31.50 on Oct 21st and rallied (again) to a high of $36.51.
Recently (Nov 23, 2010) PBR just hit a low of $31.87 and bounced. I am LONG 500 shares at $32.41 with my STOP at $31.15 (Just below the low on May 25, 2010). The target is $35.50 but we may look to take some profit if the stock goes to $33.50 or move our STOP to lock in Profits.
For all you VALUE investors this stock also has a P/E of 7.4. For the people searching for YIELD, this stock has a yield of 2.6%. (See the link) http://tmx.quotemedia.com/quote.php?qm_symbol=PBR:US
In the chart below you will clearly see PBR hitting support 3 times at ~$31.
(Click charts to enlarge)
The profitability ratio is better then 2:1
Trade to trade well, not to make money!
-Steve-
On Nov 18th our SPY SHORT trade hit its STOP. Profit $139
So we called the double top and took a short trade on SPY. We shorted 100 shares at $121.02 with our stop above the high at $122.96. We were correct and the market sold off hard and the SPY hit as low as $117.59. We did not take profits at this time. Instead we moved our STOP to $119.55 to lock in $137 profit on the trade and let the trade run (we wanted the market to go lower). The next day the market bounced and hit our stop. We covered our SHORT position at $119.53 for a profit of $139 on the trade.
Below is the chart set up we saw and the trade details.
Below is the chart set up we saw and the trade details.
Friday, November 19, 2010
Platform Comparison (For Canadians)
So you want to start investing/trading but you don’t know where to set up your account. Your initial instinct is to go to your bank… but then you remember that for years they have been charging you a $4/month banking fee just so they can hold and make money off your money!!!
I thought it would be valuable to do a quick and dirty comparison of some of costs/fees of each of the platforms (that I know of) that are available in Canada at this time.
Questrade, Scotia I-Trade, TD Waterhouse, RBC Direct Investing, CIBC Investors Edge, & BMO Investor Line.
STOCK & OPTION TRADING FEES! (Click chart to enlarge!)
I thought it would be valuable to do a quick and dirty comparison of some of costs/fees of each of the platforms (that I know of) that are available in Canada at this time.
Questrade, Scotia I-Trade, TD Waterhouse, RBC Direct Investing, CIBC Investors Edge, & BMO Investor Line.
STOCK & OPTION TRADING FEES! (Click chart to enlarge!)
OTHER FEES (Click chart to enlarge)
Also check out this article from The Globe And Mail. It looks at The best online brokerages -- and the worst
http://www.theglobeandmail.com/globe-investor/2010-online-broker-rankings/the-best-online-brokerages----and-the-worst/article1792333/
Knowing pays!
- Steve -
Tuesday, November 16, 2010
Clear trend line break (SPY Short trade)
We shorted 100 shares of SPY on Nov 11, 2010. The index has now clearly broken the upward trendline (see chart) and has started to fall. Our target was $118.30 and that was hit today. I did not close the position because of the continued pressure on the market. You can take profits of $262 hear if you wish. I have decided to keep my position short and instead moved my STOP Loss to $119.55 to lock in $136 of profit on the trade. I chose $119.55 as the STOP because it is 6 cents above the highest price of the SPY today(see chart)
(Click charts to enlarge)
Never let a winning trade turn into a loser!!!
- Steve -
Thursday, November 11, 2010
Flat 2000 Sahres of UNG Stopped out at $5.68 (Loss of $380)
Maybe our stop was to tight but either way it was triggered today. We are now flat UNG with no position. We have a $380 realized loss on the trade...
What did we learn: When entering a trade with a higher high and a higher low….wait to enter on the next uptrend or at a past support level.
What did we learn: When entering a trade with a higher high and a higher low….wait to enter on the next uptrend or at a past support level.
DOUBLE TOP!?! (Idea SHORT 100 shares of SPY)
This is a classic possibility of a Double Top. Please note I have taken the trade before the trendline break. If you have not placed the trade yet you can reduce your risk by waiting for a clear trendline break. Waiting for the trendline break IS HIGHLY RECOMMENDED. Why am I short already? Sometimes you click the button to fast and BAM your in a position. (Click on the chart at the bottom of this post.… it is a must see!)
Double Tops are very common in technical analysis. Below you will see a chart of the index that tracks the S&P 500. It’s ticker is SPY. If you want to BUY the index or SHORT the index use the SPY.
The chart shown is a DAILY chart. Meaning each ‘green’ and ‘red’ candle represents the price action for 1 day. There are 365 candles in this chart representing 1 year! Notice how over the past year there were 2 possibilities for a Double Top. The two white circles indicate the first possibility. Note: The trendline did not break so this was not a time to get short. The second time, indicated by the two white squares, did have a trendline break so you could have shorted the SPY or even sold some other LONG positions you had to lock in a profit and mitigate risk!!!
A POSSIBILITY OF A NEW DOUBLE TOP IS UPON US… have a look at the chart! Using this information you can SHORT the SPY as I have (or wait until a clear trend line break) or use the information to sell LONG positions and limit your downside risk...
Double Tops are very common in technical analysis. Below you will see a chart of the index that tracks the S&P 500. It’s ticker is SPY. If you want to BUY the index or SHORT the index use the SPY.
The chart shown is a DAILY chart. Meaning each ‘green’ and ‘red’ candle represents the price action for 1 day. There are 365 candles in this chart representing 1 year! Notice how over the past year there were 2 possibilities for a Double Top. The two white circles indicate the first possibility. Note: The trendline did not break so this was not a time to get short. The second time, indicated by the two white squares, did have a trendline break so you could have shorted the SPY or even sold some other LONG positions you had to lock in a profit and mitigate risk!!!
A POSSIBILITY OF A NEW DOUBLE TOP IS UPON US… have a look at the chart! Using this information you can SHORT the SPY as I have (or wait until a clear trend line break) or use the information to sell LONG positions and limit your downside risk...
You will notice that the profitability ratio on this trade is ~1:1. I will be watching this trade closely and if it goes in our direction I will be moving the STOP to break even quickly.
Wednesday, November 10, 2010
Long 2000 shares of UNG at $5.84
UNG (United States Natural Gas Fund) Hit an all time low on Oct 25, 2010 at $5.20 cents. Since that point it broke a downward trend line and made a higher low* of $5.39.
*It is good when stocks break a trend line and make higher highs, pull back, and then make higher lows. This shows that buyers are willing to step in at higher prices.
UNG has done just that. I am not willing to risk much on this trade so my stop is tight, only $0.08 (8 cents) off the current price. My target is $6.20 but it could go to ~$6.70.
(Click charts to enlarge)
*It is good when stocks break a trend line and make higher highs, pull back, and then make higher lows. This shows that buyers are willing to step in at higher prices.
UNG has done just that. I am not willing to risk much on this trade so my stop is tight, only $0.08 (8 cents) off the current price. My target is $6.20 but it could go to ~$6.70.
(Click charts to enlarge)
Sold 1000 OCLR at $9.33 (Profit $89.88)
So OCLR hit $10 and found some LARGE resistance to say the least on Nov 9, 2010.
The stock was sold off all day and I was not watching the trade. Luckily I put in a Stop Loss order on November 4th, 2010 at $9.34. My stop was triggered and I sold 1,000 shares at market getting $9.33. You would think my net profit on the trade should be $90. But it is only $89.88 do to some additional fees. OCLR closed at $9.28. We are now flat this position.
(Click charts to enlarge)
The stock was sold off all day and I was not watching the trade. Luckily I put in a Stop Loss order on November 4th, 2010 at $9.34. My stop was triggered and I sold 1,000 shares at market getting $9.33. You would think my net profit on the trade should be $90. But it is only $89.88 do to some additional fees. OCLR closed at $9.28. We are now flat this position.
(Click charts to enlarge)
Thursday, November 4, 2010
Never let a winning trade turn into a loser
Imagine you could get a free spin on a roulette wheel, would you take it?
Our OCLR trade has moved up about a half point (aka 50 cents). My original stop was set at $8.24 but we can now move that stop to $9.24 and even if we get stopped out we break even on the trade!!! On this trade I personally want to lock in some gains so I am moving the stop to $9.34 to lock in $100 gain (after trading commissions).
NEVER LET A WINNING TRADE TURN INTO A LOSING TRADE!
Steve
Our OCLR trade has moved up about a half point (aka 50 cents). My original stop was set at $8.24 but we can now move that stop to $9.24 and even if we get stopped out we break even on the trade!!! On this trade I personally want to lock in some gains so I am moving the stop to $9.34 to lock in $100 gain (after trading commissions).
(click chart to enlarge)
Steve
Wednesday, November 3, 2010
The first trade: Long 1,000 shares of Oclaro Inc (Ticker: OCLR)
I bought 1,000 shares of Oclaro Inc (Ticker: OCLR)
Bought at $9.21
Bought at $9.21
Target of $11.68
Stop loss at $8.24
(Area to watch for overhead resistance $10)
Profitability Ratio 2.44 : 1 (Profit target $2,440, Max loss $1,000 including $15 trading fee to buy/sell
Chart analysis:
OCLR sold off after earnings and found support at ~$8 (see oval to left of chart).
The stop is just below the recent low of $8.25 made Oct 29, 2010.
There is overhead resistance at ~$10 (see shaded rectangles) at this point we will watch the trade closely.
Our target is in the bottom range where ORCL went sideways for 4 months.
Upside... it could fill the gap and go as high as $12.95.
(Click chart to enlarge)
(Click chart to enlarge)
Trade to trade well, not to make money!
- Steve -
How I measure risk and reward
If I am buying a stock for a swing trade I have a few rules:
1) Before I send the order to ‘Buy Buy Buy’ I complete a risk reward analysis. I will only enter a trade if there is a profitability ratio of 2:1(or greater) based on my analysis. By doing this I can be right only half the time and still make money.
Example: Ignoring trading fees for a second! If I buy 100 stocks of Royal Bank at $50 ($5,000 total capital committed) with a target of $55 (Profit target of $500, 100 shares x $5) and a stop of $47.50 (Stop loss at -$250, 100 shares x -$2.5). I am risking $250 to make $500!!!
Although I am using $5,000 of capital my stop is $47.50 so I am only ‘risking’ $250. My target is $55 or $500 in profit. This is what I mean by a 2:1 profitability ratio.
Other things to do before you enter a trade:
-Always complete an analysis of support & resistance levels before you enter a trade
-Always enter a long trade at a support level (and a short trade at a resistance level
-Always have a target price and a stop price (the stop price, aka where you get out if your wrong is most important)
My analysis is based on support/resistance, market trends and chart patterns. I will explore these areas in more detail later.
Trade to trade well, not to make money!
- Steve -
1) Before I send the order to ‘Buy Buy Buy’ I complete a risk reward analysis. I will only enter a trade if there is a profitability ratio of 2:1(or greater) based on my analysis. By doing this I can be right only half the time and still make money.
Example: Ignoring trading fees for a second! If I buy 100 stocks of Royal Bank at $50 ($5,000 total capital committed) with a target of $55 (Profit target of $500, 100 shares x $5) and a stop of $47.50 (Stop loss at -$250, 100 shares x -$2.5). I am risking $250 to make $500!!!
Although I am using $5,000 of capital my stop is $47.50 so I am only ‘risking’ $250. My target is $55 or $500 in profit. This is what I mean by a 2:1 profitability ratio.
Other things to do before you enter a trade:
-Always complete an analysis of support & resistance levels before you enter a trade
-Always enter a long trade at a support level (and a short trade at a resistance level
-Always have a target price and a stop price (the stop price, aka where you get out if your wrong is most important)
My analysis is based on support/resistance, market trends and chart patterns. I will explore these areas in more detail later.
- Steve -
Tuesday, November 2, 2010
The Investment Challenge
I am going to start with a portfolio of $30,000 and enter my trades and trade analysis live. I will track our performance to see how we do. The goal is to beat the index (S&P 500; Ticker SPX) and trade to trade well, not to make money. We will start November 1, 2010, so stay tuned for some excellent trade ideas. Join me on one trade, all of the trades or just follow along for fun. Your participation is at your discretion.
All the posts will not be about trades... I will talk about other topics as well so stay tuned!
S&P 500 index value Nov 1, 2010 $1,184.
$30,000 could buy $25.337 units as of today!
As of today I have not taken a position!
(Note: Although this is a margin account I will only use $30,000 plus or minus gains/losses)
Happy Trading,
All the posts will not be about trades... I will talk about other topics as well so stay tuned!
S&P 500 index value Nov 1, 2010 $1,184.
$30,000 could buy $25.337 units as of today!
As of today I have not taken a position!
(Note: Although this is a margin account I will only use $30,000 plus or minus gains/losses)
Happy Trading,
Steve
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