Iron Condor » Investment

10 Tips To Succeed In Trading Currency Commodity

admin — Fri, 25 Dec 2009 02:45:15 +0000

Whatever the job type, everyones ultimate goal is to succeed and gain surplus. You need to have the right knowledge in order to become successful. Being a business person, you should learn the most reliable and right way to become successful in trading market. Learning the trading commodities concept requires a trader to use different trading tricks, and by using law of charts. This can help in profiting from trading commodities.
In trading commodities, to gain bigger profits and earn large amount of money is to identify the market trends as quickly as you can before anyone else finds it. Currency trading can have many supports or resistance at the same time. If you are quick in determine the market trend then you can earn good profit. Trend is not limited to a specific time. Market trend can change at any time including intra-day, daily, weekly or even monthly.
Some trading commodities tools are available to help you identify these trends. Given below are some trading style for you :
1. Look out for trading up of prices. If you see a trading up in the trend it is advisable to buy at that time. In order to overcome the anticipative resistance, enter into the buy signals which are more than the current prices. On the other hand, if the trading down occurs, you should consider selling. Look for selling opportunities. To break the anticipative support, you must do exactly of that when trading up occurs i.e. to enter those sell signals which are well lower than the current prices.
2. You should look for optional objectives depending on whether it is short or long. You should consider short for anticipative support and long for next level resistance.
3. You should always have a protective stop on your trades till it hits.
Pay attention to some of the factors given below to make sure you know about the opportunities
4. The best time to look for buying opportunity is when the behavior of market changes from normal to bullish.
5. When the behavior is bullish you should hold protective stops for long positions which are below support level.
6. You should let go of the long positions if status changes to neutral.
7. Start finding short positions if the status changes to bearish from bullish. Bearish status is a good opportunity to find selling opportunities.
8. With bearish status you should hold resistance on short positions with protective stops.
9. Let go of short positions when status changes to neutral.
10. Find long positions if status changes from bearish to bullish.
You should have the knowledge about what to expect in future related to market trends. Have knowledge about directional bearish and proprietary bullish market forecast and resistance and support. Listen to different comments about the trends. Always remember that change in market which can be either bullish or bearish is very important in deciding which position to let go and which opportunity to grab.

Financial Trading – so many markets, so little time

admin — Fri, 25 Dec 2009 02:45:13 +0000

Would you like to make money from trading but don’t know how to trade?
Have you heard of others making a killing on the markets and wished yourself in their position?
Trading covers a multitude of sins, or at least a multitude of markets. Mention “trading” to a non-trader and they’ll probably think of stock and shares but there are many other markets you can trade in. These include commodities, futures, indices, CFDs and options. They all have their pros and cons and some require specialized knowledge.
The most popular markets used by traders are stocks, commodities, futures, indices and forex. Some traders switch between markets, others stick to just one. Let’s highlight some of the similarities and differences between them.
Shares
In the USA there are over 40,000 shares so you have a lot of markets to choose from. You can’t deal in all of them so you need to home in on those that offer good trading opportunities using whatever trading methods you decide to use.
When buying shares you usually have to put up all the money at the time of sale. That might seem obvious but it’s not so with all markets. Some brokers offer a 50% margin with shares which means you can trade to the value of twice the amount in your account. This seems like a good deal but if your shares start to go down you’ll get a “margin call” and will either have to put more money in your account or sell the shares at a loss.
Shares are normally traded in lots of 100. If you want to trade an expensive share – and some shares are very expensive, particularly in the US markets – you need a considerable amount of money in your account.
It’s not easy to sell shares short. Selling short is a strange concept to many people who think of buying shares at a low price and selling then at a higher price. But it’s often easier to predict that a share will fall rather than rise so what you’d like to do is to sell it at a high price and then buy it back later at a low price. The net result is the same whatever the order of the deals – buy low, sell high.
However, you can’t sell something you don’t own so in order to sell shares short you must “borrow” them from your broker. This is not quite as straightforward as buying and not all shares are available for selling short.
Finally, share dealing takes place during market hours so if you don’t live in the country where they are being traded you must adjust your trading hours to suit.
Futures, commodities and indices
Commodities are goods such as corn, copper, crude oil, orange juice, oats, gold and wheat.
Technically, a futures contract is an agreement to make or accept delivery of a commodity on a certain day at a certain price. In practice this rarely happens unless you’re a manufacturer who actually wants the goods. The vast majority of futures traders are simply speculating on whether the price will go up or down and never take delivery of an item.
Futures contacts include commodities and also stock market indices such as the S&P 500, Dow Jones and the Russell. Indices are simply a composite of securities that provide an overall reading of the market or some section of it.
The S&P 500 (Standard & Poor’s 500) tracks 500 of the largest companies in the US market. The Dow Jones Industrial Average tracks only 30 of the largest and longest-established companies while the Russell 2000 is an index of smaller stocks.
Essentially, commodities and indices are futures and traded in much the same way although traders may use the terms interchangeably.
Unlike shares, futures can be sold short just as easily as they can be bought. Each futures contract has its own fluctuating price and many traders deal in just one lot contracts.
Brokers usually charge a flat fee commission per contract, often expressed as a “round turn” which is one buy and one sell transaction. This may be a few dollars, often less than the value of a point or two on the contract. If you’re trading a long time frame the commission is negligible but if you’re day trading and scalping for a few points here and there it becomes a considerable part of the cost.
Futures brokers usually offer a margin of around 20% of the value of the underlying instrument so you can control $10,000’s worth of a contract for maybe $2,000. However, the same rules apply – if you over-leverage your account you’ll receive a margin call or your positions will be closed at a loss. Margin and leverage are a two-edged sword.
Many brokers offer a demo account so you can get used to the trading platform and test your trading strategies before you put real money on the line.
Forex Currency Trading
Currency trading, foreign exchange or forex as it’s more commonly known, has fast become one of the most popular markets for private traders in recent years.
As its name suggests, it involves buying and selling foreign currency. The most commonly traded currencies are referenced against the US Dollar and are sometimes referred to as a “currency pair” even though you are only trading one instrument. For example, the GBPUSD is the UK Pound/US Dollar pair. A value of 1.7625 would mean that the one Pound is worth 1.7625 Dollars. Other popular pairs include the Euro (EURUSD), the Swiss Franc (USDCHF) and the Japanese Yen (USDJPY) although there are others.
So unlike shares and futures, you don’t have a mass of markets to choose from, but there is variety within forex currency trading to give you a range of markets to trade.
The value of each pair differs slightly but the minimum movement – called a “pip” – is worth approximately $10. The GBPUSD has been averaging 100-150 pips per day which would be $1000-1500. Many brokers let you trade half or even quarter-size lots which are useful when you’re starting out. Also, many brokers offer a demo account so you can practice before risking real money.
The total value of the forex market is worth trillions of dollars per day, far larger than shares or futures. It is also a truly international market with dealing taking place all around the globe 24 hours per day from Monday to Friday. You can, therefore, trade at any time of the day or night at times to suit you. It’s worth noting, however, that the bigger moves generally occur during the US and European trading sessions.
You can sell short forex just as easily as you can buy and brokers offer highly-leveraged accounts too – but the same warning regarding margins apply here as well.
Brokers tend not to charge a commission for trading forex and you will often see adverts for “commission free” trading. However, they make their money on the spread which is the difference between the buying price and the selling price. The spread is usually between 3 and 5 pips although some brokers may offer a 2 pip spread on some pairs, and some less-popular pairs may have a larger spread.
Paying on the spread is particularly useful when trading mini lots. A 3-pip spread on a quarter lot will be about $7.50 whereas on a full-size lot it would be $30. Again, the spread is more important when trading short time frames where you’re only aiming to make a few pips per trade. You need to build the spread into your trading system so you don’t overestimate the amount you might make per trade.
One interesting aspect of forex currency trading is that there is no central clearing house where absolute prices are quoted, unlike shares and futures. So it’s quite possible to see different brokers quoting slightly different prices for the same pair. As the market has become more efficient, this difference has reduced, in most cases, to a few pips but it highlights the importance of checking that the data you are using for analysis is the same – or close to – that used by your broker for placing your orders.
The market you decide to trade will depend on many things, not least of all, your budget, but also how many markets you want to look at and what hours you want to trade. There are trading vehicles to suit all preferences and pockets.

Why Simple Put Options Buying Fail in Volatile Markets

admin — Sun, 13 Dec 2009 15:20:46 +0000

The recent stock market crisis (2008) took the stock market down by more than 30% in less than a year. This has a lot of traders thinking that big money can be made simply by buying put options on stocks that will move down with the market, especially high beta ones. Nothing can be further from the truth. Most amateur options traders who did that either failed to make any money, make very little money or outright lose money even though the stock moved down a lot as predicted. Why is that so?
Volatile market conditions are especially bad for buying stock options due to 2 reasons. Firstly, the extreme volatility resulted in extremely high implied volatility which increases the extrinsic value of options dramatically, depressing its profitability. Secondly, extreme volatility leads to extreme speculation which encourages market makers to open up the bid ask spread to an unreasonably wide level in order to fill their own pockets.
Extrinsic value is the price one pays to the seller of stock options in order to justify the risk undertaken by the seller for giving such a right to the buyer. This price is arrived at in theory by options pricing models such as the Black-Scholes model. Extrinsic value directly affects the profitability of the options as the higher the extrinsic value of an option, the more the underlying stock needs to move in order to breakeven or profit. For example, if two options based on the same underlying stock, the same strike price and expiration month have different extrinsic values (of course this cannot be the case in reality), the option with the higher extrinsic value will make lesser money in profit than the option with the lower extrinsic value when the underlying stock moves by the same amount when held to expiration.
Extrinsic value is affected mainly by the level of implied volatility of the underlying stock. If the underlying stock is expected to make big moves, implied volatility goes up and the extrinsic values of its options go up as well. In times of extreme market volatility, extrinsic values go up dramatically across the board, depressing the profitability of options. In fact, one could end up losing more money than usual if the stock does not move according to expectations due to the higher extrinsic value paid. This is why a lot of amateur options traders who simply bought put options recently failed to make much money or any at all. This situation is made even worse by the wide bid ask spreads provided by the market makers.
Market makers are whom options traders really trade options with. When you buy an option, you are really buying directly from market makers who hold an inventory of those options and when you sell options, you are really selling back to these market makers who want to maintain an inventory of those options. Market makers buy and sell options in the exchange, ensuring the liquidity of all options contracts and profit primarily from the bid ask spread that they provide, buying at the bid and selling at the ask. They function exactly like used car dealers, buying at lower prices and selling at higher prices. Typically, the more actively traded the options are, the closer the bid ask spread tend to be due to competition between market makers, however, in times of extreme volatility where there are a lot more buying and selling on panic and more than enough business to go around for all market makers, they usually open up the bid ask spread in order to make even more profits. That is why we saw unusually wide bid ask spreads in this recent crisis. Wider bid ask spreads result in larger upfront losses which again depress the already depressed profitability of stock options due to the higher extrinsic values.
The higher extrinsic value and wider bid ask spread makes profiting from simple stock options buying extremely difficult and are the main reasons why amateur options traders fail to make money buying put options during the recent stock market crisis. Conversely, writing options are an extremely profitable way to trade options during a volatile market where extrinsic values are high. Naked writes and Credit Spreads are really the way to go in a volatile market condition and are what most beginner options traders do not know about. Selling options instead of buying them turns the table around and creates an extremely profitable position during times of high extrinsic value. Learn more about credit spreads at http://www.optiontradingpedia.com/free_debit_credit_spread.htm now.

How to Make Consistent Profits Futures Trading

admin — Tue, 08 Dec 2009 14:43:00 +0000

The issue of direct access is an important one and it becomes more important the more short term your trading is. The market can change from a state of seeming paralysis to one of shocking volatility and activity in a flash. The length of time it takes between you deciding to enter an order and the order actually being in the market is obviously important.
When I first started trading I used a phone broker and was dismayed that my fills would often be so far from the price the market was trading when I first entered the order.
The first time I visited the trading floor, I discovered why. When I called in an order, first my discount broker would check my account equity, then he would call a phone booth on the floor, the phone broker on the floor would then write the order down and pass it on to a booth next to the appropriate pit, at that booth my order would be written down again and then signaled to a broker in the pit to be executed.
As you can imagine this would take quite a long time, even longer of course if the market was very active, as this would mean that the broker in the pit would be too occupied to take new orders. Compare this to my experience of trading as a pit trader. In the pit I was in the heart of the market and could observe every single order as it was executed (there was no delay in my price feed!).
To initiate a trade, whether it was to buy or sell at the market, or join the bid or the offer, all I had to do was open my mouth. You can start to see the huge advantage that trading on the floor gave me over off floor traders; and that doesn’t take into consideration the fact that my round trip costs fell by 96%.
Now the floor no longer exists, not in Europe at least, so why talk about the advantages of pit trading? Well the level playing field is now open to all, but very few take advantage of it. Trading with an electronic trading platform is exactly the same as trading in the pit, except I can sit down, it is much quieter and there are no crude jokes flying around.
I can trade with the click of a mouse; my order shoots to the exchange, enters in the market and appears back on my screen before I have time to blink. I think the advantages of direct access trading are clear and any futures trader still using a phone broker should move to direct access, they will also find their commissions are less (around $8 for private client traders).
The next question that arises is why trade futures? That is an important consideration given that there are a variety of alternatives vying for your trading capital (spread betting, CFDs and options), but in my opinion, futures are the only option (no pun intended) for successful short term trading.
A lot of traders are trading the stock indexes like the FTSE, the DAX, the S&Ps, NASDAQ and the DOW, but rather than use futures they are using spread betting firms. The reasons for using these firms is that they require very small amounts of capital to get started, a trader can trade very small amounts (like $1 a point on FTSE as opposed to $10 for FTSE futures) and these firms make opening an account so easy.
I understand the lure of being able to open an account with very little money and trading small amounts, but I have some serious considerations about using spread betting as a realistic vehicle for professional trading.
The two biggest selling points are no commissions and no capital gains tax. There are many different costs to trading, commissions are one and the spread is another (especially when you have to trade at the market as you do with spread betting, with futures you have the choice of joining the bid or the offer).
Commissions are important for an active trader and as an active trader you can get them very low, but lets assume they are $8 per round turn for futures and lets assume that the spread in FTSE futures is an average of 2 points. If the spread with a spread betting firm for FTSE is 6 points and assume that we are trading $10 a point we can compare the two trading vehicles.
Last week I made an average of 2.42 points per contract traded and I traded 48 times. That is, for each contract I bought and sold I made $24.20 before commissions, assuming my commission rate is $8, I made a profit of $16.20 per contract traded, which is $777.60 net profit if my average size per trade is one contract.
Had I had the same success trading with a spread-betting firm, with a 6-point spread, I would have lost $1718.40! Now I would rather pay tax on a profit that no tax on a loss.
There is one other very important reason for trading the futures market rather than a non-exchange traded market such as those offered by spread betting firms. The futures markets are exchange traded and this means that they are fully transparent, i.e. everything is visible and above the table, I can see every single trade that happens. Imagine the trading pit, as it used to be when traders stood physically in a ring trading with each other.
When a trade is entered, the order goes into the pit and is represented there, free to be taken by any other market participant. We can all see what is happening, we trade with the same information and with the same advantages/disadvantages.
Now assume you are a trader who can only trade with one broker in the pit, you can trade as much as you like, any size you like, but he sets the spread he is willing to offer you and you have to trade at market (i.e. buy at his offer and sell at his bid). This broker doesn’t want to loose money, naturally, so he always makes his spread wider than the real market spread, he also, naturally, puts his interests before yours, so he won’t always be willing to trade when the market is moving fast and he is uncertain.
Remember whenever you make money he loses, so he is very careful to maintain his advantage at all times. Who wouldn’t want to be in this brokers position (he isn’t really a broker, though he claims to be)? When you trade with a real futures broker, all the broker does is facilitate your trade; he gives you the ability to have you orders represented in the pit. A real brokers concern is that they execute your order as efficiently as possible, that is their job, they do not take positions and they do not take the opposite side to you.
They naturally want you to make money because by making money you become a client who will continue to pay them commissions. Trading with a spread betting firm is absurdly costly, spread betting firms are like amusement arcades, they can be fun, but to imagine you are going to make your living from slot machines is illusory.

Fundamentals Of Technical Analysis

admin — Tue, 01 Dec 2009 03:45:11 +0000

Technical analysis was truly an arcane art before the internet boom. Chartists perform technical analysis in their secret rooms with data that was carefully collected from professional sources. Those were the times when stock prices and data did not have a medium through which to be readily available to the public and be ran through publicly available software to produce the charts that are available today.
Today, with internet in almost every household, technical analysis became an art anyone could practice. Complex charts, technical indicators and analysis that was once the sole domain of a few highly paid wallstreet analysts are now available to anyone who wants it, often for free.
Technical analysis also became linked to short term aggressive trading instruments such as stock options and futures because of its excellent short term predictive nature.
With technical analysis this popular, I feel obligated to teach you once and for all everything you need to know about how to conduct proper technical analysis before you start looking at your first chart. A lot of amateurs fail at technical analysis simply because they didn’t have the necessary basic knowledge to understand how to interpret technical indications properly in the first place. With the knowledge in this article, you will definite experience more success at technical analysis.
Summary of Technical Analysis Basics
2 Principles of Technical Analysis: Significance, Prudence
2 Key Tools: Charts, Indicators
2 Key Components: Price, Volume
5 Key Concepts: Resistance, Support, Trend, Patterns, Setups
2 Principles of Technical Analysis: Significance, Prudence
The two principles of technical analysis are the most important foundation in understanding technical analysis and interpreting technical analysis properly. Too many amateurs misinterpret technical indications simply because they did not understand these two simple principles. This is also the only part in this tutorial that addresses the mental aspect of technical analysis and should be clearly understood before moving on. The two principles of technical analysis are Significance and Prudence.
Technical Analysis Principle #1: Significance
Significance refers to the degree that a technical indication is true. Take breakout and reversal signals for example. Does a 0.5% close above a resistance level indicate a breakout? Does a 1% reversal in a bearish stock that has fallen more than 40% indicate a reversal? No. The degree of significance for both cases is just too weak. Most technical analysis beginners who do not understand the principle of significance would take a small fake out as a breakout and then act on the wrong stocks. The judgment of significance is, however, a matter of experience. How much of a breakout represents a significant breakout? How much of a reversal represents a significant reversal and how big a candle represents a strong morning star signal? The judgment of significance is something you need to acquire and refine as you put more years behind your ears.
Technical Analysis Principle #2: Prudence
Prudence refers to the ability to say “No” when in doubt. Technical analysis is more of an art than a science. This is because even though technical indications are scientifically generated, the interpretation of technical indications is highly subjective. You are going to experience many marginal or doubtful moments in technical analysis. Technical signals that “almost made it” as well as technical signals that are “neither here nor there”. Those are the times to exercise the technical analysis principle of Prudence and to make the most conservative interpretation. When a signal is marginal, you should always exercise prudence by giving benefit of the doubt to disqualifying the signal. When a significant breakout signal is produced after a huge drawdown, you should exercise prudence by waiting for further confirmation or enter the position gradually over a few days.
2 Key Tools: Charts, Indicators
Technical Analysis Key Tool #1: Charts
Chart reading is the most fundamental tool in technical analysis and is also why technical analysis is frequently referred to as “Chartology”. Before the popularization of the internet, during the age where analysts still read tapes, technical analysts have to obtain stock quotes from “secret sources” and then plot them down on huge chart papers in their secret rooms. What then is a chart? A chart is simply a plot of the stock prices made into a curve. A chart’s basic function is to show the TREND of a stock’s price action. Without a chart, a stock closing at a price of $50 has no meaning at all. With a chart, you can clearly see the price action trend down from $100 to $50, giving investors the first indication of where the future price action of that stock might be. In the beginning, charts are plotted merely as a single line joining the prices together. Recently, with more and more powerful computers and software, more innovative and informative plotting methods like candlesticks, bar charts and point and figure charts are developed and made easily available through the internet. No matter what type of chart you look at, the only aim is to provide an indication of where the future movement of the stock might be. Another important aspect of charts is “Chart Patterns”. Different types of charting method can produce easily recognizable patterns and formations that can be associated with certain future expectations. Popular chart patterns include “morning stars” in candlestick charting, “double top breakout” in point and figure charting and “double bottom” formation.
Technical Analysis Key Tool #2: Indicators
Technical Indicators are the other key tool in technical analysis. Technical indicators are graphical representations of various mathematical formulas based on the stock price and transaction volume. The are literally thousands of technical indicators out there and more are being developed daily as new finance theories are translated into mathematical formulas every day. Technical indicators’ main function is to tell when a stock is considered oversold or overbought and when a stock is considered weak or strong relative to its past action. There are literally endless amount of formulas that can be used to provide those indications, hence the endless number of technical indicators. Because there are so many different technical indicators out there, beginners should start with a few well known and widely used ones as those tends to be used by institutional investors as well. It can be argued that the effectiveness of a technical indicator lies in its popularity. The more investors acting on the same indicator, the stronger the predictive nature of the indicator becomes. A self fulfilling prophecy? Maybe.
2 Key Components: Price, Volume
Surprisingly, so many different charting methods and technical indicators used in technical analysis all stems from the same 2 key components, Price and Volume. The price and volume of a stock are the only two publicly available information pertaining to that stock. Out of its price and volume, stock charts and technical indicators are created. Candlestick and bar charts are constructed out of the opening price, closing price as well as high and low prices. Relative Strength Index is created out of the price as well as volume of a stock compared against its historical data.
5 Key Concepts: Resistance, Support, Trend, Patterns, Setups
The 5 key concepts of technical analysis are the 5 most important analytical methods in technical analysis. Understanding all 5 are critical to the mastery of technical analysis. All 5 key concepts work together to help technical analysts predict future stock movement and know when to buy or sell a stock. Of particular importance is the ability to tell when to buy or sell a stock. This is the kind of information that fundamental analysis will not provide.
Technical Analysis Key Concept #1: Resistance Level
A resistance level is a price level at which most investors sells a particular stock at, resulting in the stock falling every time that price level is hit. It acts almost like a brick ceiling from which the stock falls down every time it hits its head on it. Resistance levels are identified from reading price charts, particularly point and figure charts. It is a level which you might want to at least take some profit off the table. Even though resistance levels make excellent selling points, a breakout of a resistance level does spur a stock strongly to upside, creating an excellent buying opportunity. When anticipating resistance level breakouts, it is important to apply the 2 key principles of technical analysis outlined above.
Technical Analysis Key Concept #2: Support Level
A support level is a price level at which most investors BUYS a particular stock at, resulting in the stock rising every time that price level is hit. Support levels are the reverse of resistance levels and acts almost like a trampoline on which the stock rebounds every time it lands on it. Support levels are also identified from reading price charts and is a level where you might consider buying a stock at, especially when a stock hits a correction. Even though support levels make excellent buying points, a breakdown of a support level does spur a stock down a lot more. This is why the 2 key principles of technical analysis are important when timing an entry using support levels.
Technical Analysis Key Concept #3: Trend
The main objective of looking at the trend of a stock through price charts is the anticipation that the trend is going to continue going in the same direction generally. It is like buying fashion that conforms to the current trend. If no other information is available, an investor looking at a price chart would always have a better feel of where a stock is going than an investor looking merely at a closing price, right? Of course, no trends go on and on forever. This is where technical indicators come in to provide an indication of how strong or weak a trend is.
Technical Analysis Key Concept #4: Patterns
Chart Patterns are shapes formed by price charts. Some popular chart patterns are “Double Bottoms” and “Head and Shoulder Formation”. They are so named based on the shape formed by a price chart. These easily recognizable patterns provide an interpretation on what investors are expecting the stock price to head towards. Double Bottoms typically indicate a reversal and head and shoulder formations typically indicate a switch to a bear trend. There are a ton of chart patterns out there and all needs to be interpreted in conjunction with the right technical indicators while applying the 2 key principles of technical analysis.
Technical Analysis Key Concept #5: Setups
Setups are specific patterns formed by using different charting methods. A morning star setup using candlesticks charting may not show up as a buying signal in a point and figure chart. This is why different charting methods need to be used to cross check buying or selling setups produced by one charting method. A setup is a lot more specific than a chart pattern. A chart patterns tells you where a stock might be heading and a setup tells you when you can buy or sell a stock. Setups need to be interpreted together with the other key concepts while applying the technical analysis principles. A buying setup occurring at support levels or a selling setup occurring at resistance levels makes the setups more convincing.
Fundamentals of Technical Analysis – Conclusion
All the fundamentals of technical analysis needs to be used together like all parts of a car, nothing can be left out if you want to be successful with technical analysis. So far, you might notice that technical analysis has the ability to precisely time entries and exits on high probability stocks. This is also what makes technical analysis so important to options trading. Trading Stock options requires the stock in question to move as expected quickly in order to reduce the effects of time decay and to maximize profits. I hope this article has been useful to you as you start your journey in trading and to your future success.

Options Trading and Technical Analysis

admin — Fri, 27 Nov 2009 16:22:11 +0000

Recently, almost no options trading seminar is without some mention or introduction to technical analysis. In fact, almost all of the options trading blogs out there in the internet use technical analysis as their main basis of decision making. Why is that so? Why is options trading so closely related to technical analysis now?
In order to understand the important relationship between technical analysis and options trading, we need to first understand what technical analysis does in the first place.
There are two main methods of analysis; Fundamental Analysis and Technical Analysis.
Fundamental analysis is the reading of fundamental data of a company or economy in order to predict and invest in the future performance of the company or market. Such fundamental data includes profit and loss statements, earnings growth and earnings guidance. The problem with fundamental analysis is that great companies do not always make great stocks. Stocks of great companies also experience periods of downturn, often for extended periods of time. As such fundamental analysis helps an investor mostly in deciding what stocks to buy for the long term (5 to 10 years out), if nothing unpredictable happens to the company in the years down the road. In fact, fundamental analysis is a tool favorable by investors who buy stocks for their dividends and dividend growth.
Technical analysis is the studying of market data of a stock. Yes, while Fundamental Analysis is the study of a company, technical analysis studies its stock exclusively. Such market data includes the price across different time periods and volume transacted. From price and volume, options traders see how the price of a stock is doing no matter what the company data is doing. This helps traders and investors avoid those extended periods of downturn even though a company’s fundamental data looks great. Indeed, while fundamental analysis tells an investor which company is doing well, technical analysis tells an investor when it is time to buy or sell its stocks. Indeed, the strength of technical analysis is in its ability to guide the buying and selling decisions of investors across short time periods through price patterns and price trends.
So, why is technical analysis such a favorite in options trading?
Lets recall that fundamental analysis is favorable for long term investing and technical analysis is favorable for use even in short time periods. Stock traders can hold stocks forever but options expire after a fixed time! Yes, options typically last no more than a year and options traders frequently use options trading strategies that require extremely short outlooks in terms of months or weeks. This is exactly why technical analysis is so closely associated with options trading. Options traders simply do not have the luxury to hold a position for years like stock traders do. On top of that, options traders do not receive dividends like stock investors do. The only way to make money in options trading is for the expected outlook to play out within the expiration period of the options. This makes the fundamental strength of the company it is based on relatively unimportant. On top of that, options traders are able to profit when stocks drop as well. This also makes identifying good companies through fundamental analysis relatively unimportant.
Indeed, reading price trends and price patterns that might show the direction a stock is moving the next week or month has more value to options trading than reading a company profit and loss statement that does not tell you where its stock may be going for the short term at all.
I hope my short article explains why technical analysis and options trading are so closely related and that it will help you better understand the big lack of fundamental analysis whenever the subject of options trading is raised.
Visit http://www.optiontradingpedia.com to learn more about options trading for free.

Looking to Spread your Investments?

admin — Tue, 24 Nov 2009 16:36:03 +0000

Average investors are able to spread their investments among many different companies and industries without a lot of work.

Many beginning investors want to seek out and research the companies they are investing in. Others simply want to start investing. They are looking for a way to buy quality stock without the work. Blue Chip Baskets are a new way to invest in several stocks at once.

Blue Chips have many benefits. Although they are often considered the retiree’s choice, they have proven to be conservative investments that pay.

Morgan Stanley Dean Witter created Blue Chip Baskets in order to allow investors to buy into several blue chip companies at once. Your money basically purchases you tiny portions of different stocks. You could invest $50 and get 1/10 a share of Disney, 1/8 share of Coca-Cola and 1/20 share of Microsoft. You are able to spread out your investments over several different companies without having to pick them. You simply pick the basket and invest.

Diamonds are not just a girl’s best friend. When you purchase a share of a Diamond, you are buying a fraction of each of the 30 stocks on the Dow Jones Industrial Average. You are investing in them all. Some will go up and some will go down. The hope is that they go up more overall. Diamonds are traded on the American Stock Exchange.

Diamonds are often preferable over Blue Chip mutual funds, due to the lower expense ratio and tax efficiency.

A HOLDR will allow you to invest in a certain sector, instead of the individual companies. They are traded on the American Stock Exchange. If you expect bio-tech to go sky-high this year, you may want to invest in the entire sector instead of one or two companies. This spreads the individual stock risk out over the sector.

HOLDRs are more focused than most mutual funds. However, you must purchase them in lots comprised of 100 units. For example, if the current price is $125, you will need to purchase $12,500 worth. You will be eligible for all of the services and benefits of those that purchase the individual stocks — including dividends, annual reports and shareholder perks.

SPDRs, a.k.a. “spiders,” are also traded on the American Stock Exchange. It stands for “Standard and Poor’s Depository Receipt.” They trade at 1/10 of the value of the S&P 500. As the S&P goes up, they go up. As it goes down, they go down. Dividends are paid to SPDR owners every quarter.

There are many ways to diversify your investments. Diversification is a great way to mitigate your risk in the stock market. Many investors do not have time to sit and evaluate the individual companies. Blue Chip Baskets, diamonds, HOLDRs and SPDRs are the result of the demand by average investors for a simplified way to spread their investments through basket investing, instead of through mutual funds. New products are always on the rise in the financial arena. Shop around when looking at both stocks and other options for investment.

Ivybot Automated forex Trading review

admin — Sun, 22 Nov 2009 03:19:51 +0000

IVYBOT REVIEW

IvyBot is a very sophisticated trading system built by some of the most intelligent minds in the world, graduates of Ivy League Universities, thus the name Ivy-Bot.

It uses a strategy built through years of extensive trading research, testing, and development. IvyBot is a fully automated system that provides a true solution for people who want to trade the Forex market with no human intervention.

IvyBot makes you money both in up and down market conditions.The robot was created to be able to predict those price changes on a daily basis. The Forex marketplace has exploded and record profits are being made to those with the right tools IvyBot The advantages of trading Forex are obvious:

Low Startup – Start with as little as $50!Huge Market – $3 TRILLION traded around the world every day.

Find live results using the latest professional forex trading robot, with reviews on the expert advisor the Forex market is actually bigger than ALL the world’s stock, bond, and futures markets combined!They don’t mention that on the 5 o’clock news

24/6 – Non stop action, 24 hours a day 6 days per week (Sunday – Friday)

Low Cost – While with stock trading, futures and options you pay spread plus commission, with Forex your only “cost of trade” is spread (that can add up to ALOT!)

Up & Down – Profit from rising and falling prices…it does not matter what way the market goes. Up, Down, Sideways, there are always opportunities to profit.

No Size Limit – as BIG or as SMALL as you want!

So For The Best Automated Trading Software Download At www.ivybot.com

Is ivybot a Professional Forex Trading Robot?

admin — Sat, 21 Nov 2009 16:54:27 +0000

IVYBOT REVIEWIvyBot is a very sophisticated trading system built by some of the most intelligent minds in the world, graduates of Ivy League Universities, thus the name Ivy-Bot.It uses a strategy built through years of extensive trading research, testing, and development.IvyBot is a fully automated system that provides a true solution for people who want to trade the Forex market with no human intervention.IvyBot makes you money both in up and down market conditions.The Forex marketplace has exploded and record profits are being made to those with the right toolsThe robot was created to be able to predict those price changes on a daily basis.Find live results using the latest professional forex trading robot, with reviews on the expert advisorIvyBot Features and AdvantagesThe advantages of trading Forex are obvious:Low Startup – Start with as little as $50!Huge Market – $3 TRILLION traded around the world every day (The Forex market is actually bigger than ALL the world’s stock, bond, and futures markets combined! They don’t mention that on the 5 o’clock news)

24/6 – Non stop action, 24 hours a day 6 days per week (Sunday – Friday)

Low Cost – While with stock trading, futures and options you pay spread plus commission, with Forex your only “cost of trade” is spread (that can add up to ALOT!)

Up & Down – Profit from rising and falling prices…it does not matter what way the market goes. Up, Down, Sideways, there are always opportunities to profit.No Size Limit – as BIG or as SMALL as you want!

So For The Best Automated Trading Robot www.ivybot.com

Are Futures Riskier Than Options

admin — Sat, 21 Nov 2009 04:07:29 +0000

Let’s face it, derivative trading is risky. Period.
Derivatives such as futures and options are leverage instruments and by virtue of being leverage instruments, derivatives inherently carry more risk and exposure than pure and simple stock trading. Leverage instruments are risky because leverage allows you to do more with the same amount of money than you would normally be able to. Yes, leverage instruments such as futures and options have the potential to generate over 10 times more profit on the same move on the price of a stock than just buying the stock itself.
What most beginners to derivatives trading do not take into consideration is the fact that leverage is a double edged sword. Just as it could help you generate over 10 times more profits on the same move, it could also incur as much losses should the stock move against your favor. This is also why many beginners to futures or options trading lose their shirts so quickly and go broke.
So, why is futures and options trading still so popular then?
Very simply, most beginners with only a small fund and wants to build up a significant fund quickly could not depend on simple stock trading for a start. They need more leverage and they can afford to take more risk since the amount at stake is usually pretty small. With this in mind, the only question that remains is, which is safer for beginners? Futures or Options?
To determine which is riskier, we need to ascertain certain the qualities that constitutes “Risk”. For derivative instruments, the main qualities that constitute trading risk are: Leverage, Liability, Liquidity and Versatility (fulfillment obligation is usually not a concern in trading as traders rarely hold till expiration).
Liquidity in the stock futures and stock options market is definitely lower than the stocks themselves but is enough for the trading purpose of retail beginners and shall be excluded in this discussion.
Leverage
Leverage of futures and options is the multiplication effect on your money versus buying the underlying stock itself. We shall not go into detailed discussion on how leverage is being calculated for futures and options here. It suffices to know that the higher the leverage, the higher your potential profits and losses becomes. Leverage in futures is a lot higher than the leverage in stock options due to the much higher lot size and low margin requirement. This makes futures trading riskier than options trading in terms of potential losses due to leverage.
Find out how leverage is calculated in options trading at http://www.optiontradingpedia.com/options_leverage.htm .
Liability
Liability here means the maximum amount of loss you bear when things go wrong. Yes, we all make wrong investment decisions all the time and derivative trading is no exception. When you buy stock options, the maximum loss you can sustain is the amount of money you used in purchasing those stock options. When things go wrong, those stock options become worthless and you can lose no more than that. However, in futures trading, you are exposed to unlimited liability and will be made to top up your trading account with the daily loss amount in what is called a “Margin Call”. As long as your position continues to go south, you continue to top up your losses until you go broke or the stock gets to the bottom. Either way, you could have lost all your fortune in one go. That risk along with the fact that you have higher leverage in futures trading makes futures trading a lot riskier than options trading.
Versatility
Versatility here refers to the ability to profit in more than one direction. Logic says that if you can profit in more than one direction, risk is much lower than when you can only profit in one direction, right? Yes, stock options trading is highly versatile as there are options strategies that can be created to profit from 2 or more directions! Futures trading is basically single directional. You are either the short or the long. Never both, unless used in combination with the underlying stock, which increases capital requirement and defeats the purpose of leverage.
Get a full list of Options Strategies at http://www.optiontradingpedia.com/options_strategy_library.htm .
In conclusion, futures trading is riskier than options trading for the retail beginner to derivatives trading because of higher leverage, unlimited liability and lower versatility. This is also why options trading is slowly taking over as the derivative instrument of choice for the beginner derivatives trader. To learn all about options trading, please visit http://www.optiontradingpedia.com .